By Ben Walker Accountancy resources How nudge theory can change the way you behave 8 Jul 2013 Nudge theory is a concept which argues that positive reinforcement and indirect suggestions can achieve non-forced compliance. Never heard of it? That’s why it’s so effective, argues Ben Walker Have you ever been in the high street newsagent whose shop assistants are trained to offer you a giant bar of cheap chocolate with your newspaper? That retailer is nudging you – albeit in the wrong way. Nudge theory: a ‘dismal science’ Nudge theory is born from behavioural economics – a branch of the ‘dismal science’ that suggests that it’s not so dismal after all. Conventional economics holds that human beings are rational, Darwinian, self-interested beings and will therefore always act in the most advantageous way for ourselves. The trouble is, all the evidence is that we don’t. Were we such cold, calculating beings, we’d change our energy provider when a competitor offered a better deal. But most of us never get around to it. Inertia, apathy, even loyalty all nudge us into behaving in a way that is bad for us. Were we in a market for a dress, you’d think we’d buy it from the retailer that offers it the cheapest. But research shows that many shoppers don’t – indeed many end up buying the frock from a shop they like, but which is more expensive, without ever checking whether it’s cheaper elsewhere. Incredibly perhaps, many shoppers will buy the dress even if they are told it’s cheaper elsewhere. A preference for the buying environment and/or a psychological commitment to the immediate purchase, nudges them into wasting money. Eating chocolate gives us pleasure. But, discount or no discount, no rational person would buy the product tirelessly flogged by the newsagent in those quantities, unless they happened to need it to make a birthday cake, in which case they would probably shop for it at a grocer, not a newsagent. Chocolate makes you fat, ruins your skin, and, in such volume, may very well make you ill. Yet the newsagent’s customers do regularly buy it, nudged into doing so by the newsagent normalising what is certainly an odd and almost certainly an unwise buying decision. How the Coalition government is using nudge theory But twisting your arm to buy junk food is just a negative example of what many believe can be a force for good. If the Coalition government had any big ideas at all it is this. The Government is interested in so-called liberal paternalism: the idea that you can ‘nudge’ people into socially and financially advantageous behaviours without going so far as forcing them into them. You could call it Nanny State Lite. Accountants will be primarily concerned with workplace pensions – specifically the automatic enrolment that is rolling out over the next few years. This is nudging – despite the massive tax advantages of sacrificing ones salary into a pension scheme, many workers fail to do it. Although some will have made a conscious, possibly rational decision not to (e.g. ‘I can’t afford the payments’) the evidence shows the very human flaws of inertia and procrastination are responsible for much of the low uptake. Nudge theory holds that if you make taking up a pension the status quo position (i.e. you have to actively opt out of the scheme), many more workers would enroll. How to use nudge theory positively There is a lot of potential to use nudge in other areas of policy. Next time you order a glass of wine in a pub, listen to what the barman says. He’ll probably ask you if you want a large glass, and you may well say ‘yes’ – after all, why make an unnecessary additional trip to the bar? Yet health campaigners have cited this relatively recent trend as a driver of increased, and dangerous, alcohol consumption among women. They point out that a ‘large glass’ of wine is 250ml – two traditionally sized servings or – put more starkly – a third of a bottle, the entire recommended daily alcohol limit for a women in a single glass. Now imagine that the law changed so customers who ordered a glass of wine got a traditional 125ml glass, unless they specifically mentioned – without prompting – that they wanted a large glass. That would very probably reduce women’s (and men’s) alcohol consumption, improving the nation’s health, reducing costs on the NHS. Lite or not, such a move would be too Nanny State for some tastes, even though nobody is preventing punters ordering double wines. Where you fall in the debate is your call. Nobody is going to nudge you. For more information on payroll, pensions and more click the image below Ben Walker is the former editor of Accounting Technician.