What are behavioural nudges?
Behavioural nudges are alternatives to using standard government interventions in markets e.g. through taxes and subsidies to influence the choices that people make in their everyday lives.
Here are some examples of behavioural nudges applied to different markets
Eliminating or restricting choices
- Banning smoking in public places and in cars where children are passengers
- Banning takeaways close to schools
- Laws on using tanning salons - e.g. a ban on under 18s using them
Financial disincentives to take a particular course of action (standard intervention in the price mechanism)
- Higher taxes on cigarettes / fuel / congestion charge
- Vouchers for healthy behaviour choices
- Mobile phone apps that penalise people for not taking a course of action (based on the idea of loss aversion)
- Positive gameification - using games with rewards that respond to good behaviour
- People more likely to change their behaviour if they get immediate and relevant feedback on the benefits of doing so
Nudging behaviour by provision of information
Changes to environment / changes to the default choice
- This is known as choice architecture - choice architecture" is the way choices are presented - e.g. the layout of supermarkets
- Designing buildings with fewer lifts
- Chunking - supplying prescription drugs in different colours to encourage people to complete their course of treatment
- Making salad the default side option instead of chips
- Changing the default options on a web site or a mobile phone
Using social norms
- Social norms are implicit or explicit behavioral expectations or rules
within a society or group of people
- Providing information about what others are doing e.g. timely, personalised messages about other people paying their taxes, donating their organs
- Use the power of social norms to demonstrate that most other people are behaving differently i.e in a more socially acceptable way for example, better behaviour on public transport (see this example from Singapore)
- Humans are social beings whose behaviour is often strongly influenced and shaped by the behaviour of others especially in close-knit social networks / smaller communities.
Behavioural economics does
not assume that humans make choices in isolation, or to serve their own interest
Giving something up is often more painful to us than a equal gain
Which of the following two choices would you prefer?
A) A certain win of $250, versus
B) A 25% chance to win $1000 and a 75% chance to win nothing?
How about this choice?
C) A certain loss of $750, versus
D) A 75% chance to lose $1000 and a 25% chance to lose nothing?
The choices that people make are found to be different if these choices are framed as a
gain or a loss. When faced with the first type of decision, a greater proportion of people will opt for the riskless alternative A), while for the second problem people are more likely to choose the riskier D).