Nudge theory is a way of offering small clues that support decision-making. Using it lightly can help your business succeed faster – just make sure you understand how your customers really behave first, argues Rory Sutherland
Human beings are programmed – not so much for the glories of high achievement as for the avoidance of disaster.
Anyone who has considered changing their bank account will know that even the faintest chance of catastrophe is enough to put us off completely, which is why banks invest so much effort in getting us to open an account while we’re young.
Economists say we are motivated in a very linear fashion; finding the best price when we’re looking for a second-hand car, for example. In fact, a large number of obscure and subtle motivations have a bearing on our decision. Can we trust the person who is selling the car? Why is he selling it? Is it because he knows it’s a terrible car and is therefore looking to unload it on some unsuspecting mug, or is there a genuine motivation? Once you understand that this is not a simple process of mathematical optimisation, you’ll look at marketing differently.
Intent vs outcome
Intent matters – not just the outcome. Consider a scenario in which you buy a car for £3,000 and a month later it develops a fault. If you bought it from a friend you might think yourself unlucky, but if you bought it from a car dealership you might feel ripped off.
Apparently trivial and tangential factors can cause us to feel very differently about our choices. If you understand the role of these many small, tangential – and often slightly counter-intuitive – things you can avoid the pitfall where, despite having something worthwhile to sell, no one wants to buy it.
Simple contextual cues have a bearing on whether people act or not. Whether a workplace pension is something you ‘opt in to’ or a default you ‘opt out of’ will have a major bearing on how many people join the scheme or not.
The Scottish referendum on independence was more of a nail-biter than it needed to be because the unionists had to work with the word ‘no’, while the nationalists could toy with all the positive possibilities that came with being the ‘yes’ group.
Notice that the EU referendum learned these lessons. It was fought between Leave and Remain camps, not yes versus no. The result is all the fairer for this minor change. Our brains are optimised to take clues about the world and crunch them to make pretty good, non-catastrophic decisions. It is not a world of perfect mathematical models but one of strategies to avoid going wrong.
You buy branded goods even though they are more expensive than generic ones because on the balance of probabilities, they are less likely to prove disappointing. By understanding how people are unconsciously nudged in this way, organisations can help them make better choices. Sometimes it is about clearing the grit that lies in the way of a good decision so more people are prepared to make it.
‘NUDGES ARE SMALL CLUES THAT SUPPORT DECISION-MAKING’
The way you describe something has a bearing on whether it is desirable or not. Consider the Philips Air Fryer, a neat invention that cooks food with a fraction of the fat usually needed. But because they called it a ‘fryer’ it doesn’t sell as well as it should because of the negative health connotations in some people’s minds.
Public sector potential
The public sector offers great potential for the adoption of good nudges. A GP’s surgery has to give out appointments on a first-come, first-served basis, even if a retiree wants an 8am slot that could go to someone wanting to pop in on their way to work. It would be easy to nudge the pensioner towards a lunchtime appointment, just by changing the phrasing of a question on the phone.
There is a particular need for better nudging in the pensions industry. People don’t save for a pension because you’re asking someone in their 20s to part with money they won’t see again for another 40 years.
Worse, there is almost no tangible engagement with a pension. If you had a spare £500 would you know how to spontaneously top up your pension? I bet not. You would probably need to write a cheque (I don’t even know where my chequebook is).
Even if you could, the thought of sending a cheque for £500 off into the ether is sufficiently scary to convince most people not to do it. We are in an age of package tracking and Uber, where we expect instant confirmation of our actions and become nervous when we do not receive it. But what if you could use your smartphone to top up your pension on a whim, got an instant message saying the money was safely parked and could keep live tabs on how your pension was doing? Savings could quadruple overnight.
Getting nudge theory right
Organisations such as Kiva and Lendwithcare have got it right. They provide instant feedback to encourage people to donate microloans to small businesses abroad. By showing people where their money went and the good it’s doing, they encourage people to lend a lot more.
Nudges are essentially small clues that support decision-making. Sprinkle them lightly in your advertising and watch your product take off. Fail to understand how people really behave and you can get everything in your business logically right – and still fail.
Rory Sutherland is the vice chairman of Ogilvy & Mather Group UK
Illustration: Harry Haysom