Economics
Opinion Article
December 14, 2020

From flies in urinals to higher savings rates: How nudging influences our decisions

“A choice architect has the responsibility for organizing the context in which people make decisions.”

                                                                                                                                         —Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness

Nudging has been the start point of many economic studies, particularly in behavioral economics, as it explores how people´s decisions could significantly change predictably by modifying the context of such decisions in a very subtle form. The concept was first introduced by the Nobel Prizewinner Richard Thaler and Professor Cass Sunstein. However, Thaler stressed the point that nudging should be used for good, intending to improve society’s welfare, but has his wish become a reality?

It all started at Amsterdam's Schiphol Airport. Thaler´s discoveries were first explored by a simple experience aiming to solve a very real problem: the cleaning manager intended to reduce the “spillage” around urinals to reduce the airports´bathrooms' cleaning expenses.

Where does Thaler´s nudging theory come into play? To the surprise of many, the solution suggested was to “paint” a small fly near the urinals' drains. Many may (and did) find it ridiculous and childish, but actually, it was a very credible and simple solution following the reasoning of human (particularly,men’s) behavior. The goal was to “guide” men into reducing spillage (without even noticing), and the results were an impressive 80% reduction in spillage and a consequent 8% reduction in cleaning costs. The raw truth is that men can’t help themselves and start aiming at the fly. 

This is one of the most famous examples of the nudge theory, as it respects the most important principles that guide its use. Firstly, all nudging should be transparent and never intended to mislead (a common prevented practice -just like with publicity & advertisements since it can in fact, be used to manipulate human behavior). Secondly, it should be really easy to opt-out of the nudge (it is not mandatory for anyone). Third, the behaviour encouraged should aim to improve the welfare of those being nudged (once more, no harm is intended).

Not only relevant to small problems but also in various other areas, this theory has been adopted by governments worldwide. Over the last decade, many countries have seen and tested the effects of nudging - aiming at lower costs and better exploitation of long-lasting benefits - and the results have been astonishing.Whether the goal is to promote a healthier lifestyle by displaying healthy food at eye level in supermarkets - the impact of ordering and context framing - or increasing the population's savings rate by automatically enrolling people in a savings plan, the results have been mostly positive.

Another example that illustrates the impact of a nudge lies in organ donations: In countries where enrollment is necessary for those who want to donate organs after death, the percentage of people who go through the process is very low. On the other hand, in countries where organ donation is an opt-out option (that is, people are automatically enrolled), the acceptance rates are extremely high.

Effective consent rates, by country. Explicit consent (opt-in, gold) and presumed consent (opt-out, blue)

This enormous difference can be explained by what is called the default effect.Socially speaking, people tend to be change-averse and avoid anything that poses extra effort and accept the proposed default option even though they can reject it at any time.

This being said, one can probably anticipate that Thaler´s wish to use nudge for good isn’t entirely respected as private entities are also trying to explore human psychology and use the nudge effect for-profit purposes, appealing consumers to either buy or to use their products more often.

Think about these two cases, in particular, Spotify and Netflix. If you don’t have a premium subscription in Spotify, you may be tired of listening to something like “Don’t have premium? Try now a 1-month free trial!”. As you may know, this very tempting offer requires the allured clients to give their credit card information to be saved for the period after the free trial.Surely, after the free month, the consumer is given a choice to give up the premium account and not pay anything, but the statistics prove that many stay immersed in the inertia of the default effect and simply don’t have the energy to quit, leading them to a monthly payment that they wouldn’t otherwise have if Spotify hadn’t given the nudge. In the Netflix case,their nudge is even more camouflaged. By simply having an automatic count down to the next episode, they encourage people to go for the path of least resistance and keep watching.

Netflix automatic queue

It is important to highlight that in both cases, consumers weren’t forced to do anything. They were simply guided towards an option.Notwithstanding, this suggested (consumerist) human behavior falls a bit short on doing good and has been a matter of concern to the authors of the theory.

“Whenever I’m asked to autograph a copy of Nudge, the book I wrote with Cass Sunstein, the Harvard law professor, I sign it, Nudge for good.Unfortunately, that is meant as a plea, not an expectation.”

                                                                                                                                                                                                             —Thaler to confess to the New York Times

 

Whether we notice it or not, nudging is present in many of our daily lives, and its influence can lead us to make choices that we wouldn’t otherwise. One could consider nudging anything like a simple buzz from a phone, a “ding” from a microwave, or even a jingle played by the washing machine, warning and leading us to its use. The effects, however, go way beyond mere sounds, and as people start realizing that they could be being manipulated without even noticing, they start to distrust even the things that lead them to better choices, harming, this way, the true purpose of the theory. Regardless, it will continue to be part of our lives, and it is our role as citizens to be aware of its potential and its limitations so that we can make the most of such a powerful tool.

 

Scientific Revision: Ana Clara Malta, Behavioral Economics Team Leader

This content was originally published in The Awareness News

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