Inside the “Nudge Unit”: how small changes make a big difference
I was one of hundreds of pissed off punters turned away from a recent talk at the LSE by David Halpern, head of the the UK Government's Nudge Unit, as the event was full. This shows how much interest there is in "behavioural economics", the study of how human decisions are strongly influenced by context, including how choices are presented. David was plugging his new book, "Inside the Nudge Unit", the latest in a whole series of books on this subject, including "Nudge", "Thinking Fast and Slow", and "Predictably Irrational".
Here are a few learnings from David's book, about the work his team have done using the principles of behavioural economics to help make positive change happen in the UK.
F: remove Friction
We are all busy and also by nature lazy and forgetful a lot of the time. This is why many people don't sign up for a pension at work where the employer matches the personal contribution, even if they know they ought to.
The Nudge Unit changed this behaviour by reducing "friction", the hassle in a process that takes time and energy. They did this by changing the "default" setting for company pension contributions:
Before = "Opt in": you had to sign up to participate
After = "Opt out": you are automatically enrolled, unless you say no
This small change increased the proportion of employees in large firms saving for a pension from 60% to 80%, meaning a whopping 5 million extra workers saving for their pensions.
A: Attract attention
Being distinctive helps grab the attention of people in today's busy world. For example, in a trial to collect unpaid tax on extra earnings of doctors, three versions of the letter chasing up payment were used.Some simple changes, at no extra cost, boosted response rates by up to 31 % pts
Version 1: Generic letter (4% response)
Version 2: referring to Doctors, and stating that they "often had extra earnings" (21% response)
Version 3: As per version 2, plus took lack of previous response as "an oversight", but that ignoring this letter would be an active choice (35 % response)
The reference to doctors and medics attracted attention by making the letter more personal. And the statement about ignoring this reminder being an active choice connected with them emotionally.
S: harness Social proof
We like to think we are all individuals. In reality we often use what other people do, or "social proof", as a shorthand for making decisions. Changes to a letter chasing up £600million of unpaid tax tapped into social proof. A first version said, "9 out of 10 people pay on time", and this boosted tax payment by 1.5% pts (35.1% vs. 33.6%). A second version tapped into an insight that social proof is especially effective when we think the "other people" are like us, referring to "Most people in your area pay on time" (local norm). This increased tax payment a little more, as did saying "Most people with your debt level pay on time" (debt norm). Combining both the local norm and debt norm boosted tax payment by more than 5 % pts.
T: Timely interventions
The final principles is about choosing the right time to interact with someone to influence their behaviour. For example, the Home Office used to write to people with a visa only after it had expired. Changing this to write to people before the visa expired led to 20% more people leaving the country on time. Again, a significant improvement from a small change.
In conclusion, applying the FAST principles will allow you to make small changes to your business that could make a big difference.