Nudge theory suggests consumer behaviour can be influenced by small suggestions and positive reinforcements.
Proponents of nudge theory suggest that well-placed ‘nudges’ can reduce market failure, save the government money, encourage desirable actions and help increase the efficiency of resource use. Critics argue nudges can be misused and become a form of social engineering or way to encourage consumers to buy goods they don’t really need.
With Richard Thaler being awarded the Nobel Prize in economics for his work on behavioural economics, nudges are likely to become increasingly common in everyday life.
In the UK, the Behavioural Insights Unit was set up to use behavioural economics in order to improve choices. Their remit includes:
making public services more cost-effective and easier for citizens to use;
improving outcomes by introducing a more realistic model of human behaviour to policy, and wherever possible,
enabling people to make ‘better choices for themselves
Up-sell. When you visit a fast-food restaurant, the staff are trained to 'up-sell,' which means they will give you more options to complement your meal. Drinks, extras, and desserts are frequently the most profitable parts of the dinner.
If you order a coffee and the barista suggests a pastry, we are more likely to choose the pasty if it is presented as an option.
Product placement . This involves the positioning of Healthy options could be made more freely available to encourage healthy eating, such as school lunches being properly monitored to reduce the quantity of unhealthy options. This is connected to the theory of 'choice architecture,' which proposes that presenting items in a different way can help 'nudge' people's consumption toward the preferred alternative.
Default options. Setting the desired outcome as the default option is a great approach to encourage take-up rates of 'desirable options.' To be an organ donor, for example, people must currently 'opt-in.' People do not want to carry a card, hence organ donation rates are low. The other option is to modify the rules such that you must 'opt-out' of organ donation. Donation rates would decline as a result of this.
Save more tomorrow™ Richard Thaler and Shlomo Benartzi, two economists, created the Save More TomorrowTM programme. The goal is to use behavioural economics to nudge people to join private pension plans.
Calorie and sugar counts. To discourage unhealthy eating, the amount of sugar in a product can be prominently displayed on the packaging, causing consumers to reconsider their purchase. Would you be less likely to buy a cupcake with 450 calories on the label?