Management Theories – Nudge Theory

We all make decisions every day –what to buy, eat, cook, choose, and spend our money on. But do we always choose well? What are the factors that influence those choices?

Are all the facts that influence our choices presented to us in an unbiased, neutral way? Or sometimes do we receive a little “nudge “?

In 2008 a book on behavioural economics, was published. It was called Nudge, and was written by US academics Cass Sunstein and Richard Thaler.

The authors demonstrate how to nudge people in a particular direction, without restricting their freedom of choice.

The theory is that by understanding how people think, we can use positive reinforcement to influence how they act, and help them choose wisely, for their good and the benefit of society.

Political theorists and people in policy making positions were interested in the idea that behavioural economics could improve the effectiveness of government using indirect suggestions rather than legislation, or enforcement.

Research indicated that people could be steered towards better decisions by presenting choices differently.

Politicians seized on the theory that they could subtly encourage people to shift their behaviour by influencing their decision making , and many governments around the world quickly set up “nudge units “ designed to help people think more appropriately and improve their lifestyle choices such as health nutrition and exercise . The tricks of behavioural psychology could “nudge” the public into doing the right economic thing.

It is more subtle and less direct than classic enforced change. Politicians prefer to influence us by subtle nudges rather than pass legislation.

Nudge theory was first popularised in America in the early 2000s, as a different approach to influencing the way that people thought about financial products , such as pensions, savings and healthcare. This was intended to improve the quality of their later life, rather than to enrich the financial industry.

It is important to note that Nudge was initially developed by academics as a moral theory. It was intended to improve society, not to be a tool for commercial gain, or to enable governments to control.

Examples
An example of how a nudge might replace an enforcement might be;-

Instead of putting up “no littering” signs, and threatening to fine people, an authority places more litter bins in prominent and accessible places.

Rather than instructing people, governments try to educate and inform them about say, better lifestyle choices.

For the government to improve home energy efficiency, they might show people how much less their neighbours spent on gas and electricity than they did, rather than badgering them about saving energy
Teachers and parents discuss issues with people rather than talking down to them.
Governments try to embarrass tax evaders into paying taxes by telling them what percentage of the population pay them voluntarily, rather than pursuing them for unpaid taxes.

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