You have a decision to make: to read this piece about nudge theory or not. It’s quite long and there are plenty of demands on your time, so maybe you’re tempted to turn away in favour of something else.
What if I were to tell you that reading on would be valuable, or suggest you would lose out by not continuing? After all, the father of nudge theory has become the most recent recipient of the Nobel Prize for economics. Would that little nugget of information, that carefully framed nudge in a certain direction, change your mind? Thought it might…
The Nobel judges’ decision in October 2017 to bestow their award on professor Richard Thaler underlines how prominent and influential nudge theory has become. The term came to the fore in 2008 with the publication of Nudge: Improving Decisions About Health, Wealth and Happiness, the bestselling book on behavioural economics Thaler co-wrote with high-profile legal scholar Cass Sunstein.
Behavioural economics is essentially the study of how individuals make economic decisions, looking at the psychological, emotional, social and cognitive factors at play. There is enormous potential for it to be used to significant effect in HR. Yet uptake in the field has been limited – knowingly at least; some HR professionals will have used nudge techniques instinctively.
So what is nudge? In their book Thaler and Sunstein outlined two systems of human thinking – the Reflective and Automatic systems. They argued that conflicts between these two frequently lead people to select the wrong option. But this raises the vexed question of who is to say what is right or wrong for an individual. So long as they are acting within the bounds of the law, shouldn’t they be free to make their own choices? Even if others might perceive those decisions as flawed or damaging? Should there really be a role for the Nanny State or some manner of paternalistic organisation to intervene by seeking to influence individuals’ decisions?
In Nudge Thaler and Sunstein make the case for ‘libertarian paternalism’, which on the face of it is an oxymoron; bringing together two oppositional political philosophies (the laissez-faire minimal state interventionism of libertarianism and the more restrictive and controlling approach of paternalism). People should still be free to make their own choices, ran the argument, but they could be given an invisible helping hand – a nudge! – to steer them towards making the right ones.
The trick in delivering the nudge lies in what the authors call ‘choice architecture’. Put simply: how choices are presented. An easy to understand example is how foods are displayed. If healthy options are placed at eye level while junk food is less prominent you are still giving people freedom of choice (if they really want a burger they’ll make sure they have it) while subtly steering them towards picking what’s better for them.
Advertisers, politicians, preachers, researchers, self-help gurus, business leaders and many others have plundered psychology for generations to make use of the means and cues to push the right buttons. But Thaler and Sunstein’s ruminations on choice architecture struck a chord and spawned a wave of nudge activity across governments, who have blazed the trail, and the public and private sectors.
The most notable of these was the creation of the Behavioural Insights Team (BIT) in 2010 shortly after David Cameron came to power. Often referred to informally as the ‘Nudge Unit’, it was the first government institution dedicated to the application of behavioural sciences. The scope of its activities soon became very wide-reaching; from pensions uptake to organ donation, tax payment to reducing missed hospital appointments.
The BIT used nudge techniques to speed up the payment of £30 million a year in income tax by rewriting reminder letters to inform recipients that most of their neighbours had already paid. Another success came in boosting police diversity. When recruiting new officers, Avon & Somerset Constabulary found that while 60% of white applicants were passing the situational judgment capability stage, the pass rate among black and minority ethnic (BME) candidates stood at 40%.
The BIT reworded the email sent to all candidates congratulating them on passing an earlier stage in the recruitment process, adding the request that they “take some time to think about why you want to be a police constable” before moving on to the next test.
While this change had no discernible impact on the performance of white applicants, the pass rate among BME candidates leapt by 50%. It’s believed that previously a significant number of BME applicants went wrong by trying to give the answers they thought a white candidate would provide. The nudge in the email made a higher proportion trust their gut instincts, leading to the more honest responses recruiters wanted to hear and a much-improved success rate among these applicants.
On the back of some notable achievements, in February 2014 the BIT became a social enterprise company (although still partly-owned by the Cabinet Office). Then it was a team of just 14 people; four years on the company is 100-strong with offices in London, Manchester, New York, Singapore and Sydney. Behavioural economics has taken off, other specialist businesses have entered the field, and a range of organisations have begun applying nudge techniques to solving problems in-house.
An old trick
Though very few are consistently deploying the technique, the opportunities for applying nudge in HR are extensive, says CIPD senior advisor on organisational behaviour Jonny Gifford. He adds that in an important respect the techniques of nudging are nothing new.
“It is a fundamental of advertising, and in many of our daily interactions we are careful to frame what we say so that it is more likely to get a positive response from people we are trying to influence,” he says. “What’s new is that we have an increasing body of research that gives insights into how we can make interventions – be they new policies, training workshops, advocacy work or whatever – more effective at actually shifting behaviour. Some of this may be covert, much of it is not. The covert applications need a particular ethical check on them – we need to ‘nudge for good’ as Richard Thaler is quoted as saying. But that doesn’t invalidate the method per se.”
One example of a nudge in the workplace already being widely used is getting people to attend training. Research by the BIT has found that rather than paying people with vouchers it was more effective to give them money to spend on colleagues. The rationale in this case is that the transactional approach (you get a form of small payment yourself) is less powerful than the feel-good effect of a social action (giving something to your colleagues).
HR practitioners may also unwittingly have used nudge thinking in developing health and wellbeing or savings programmes, for example by incorporating certain psychological triggers to boost participation or commitment. Sekoul Krastev, co-founder of behavioural science thinktank The Decision Lab, suggests the “lowest-hanging fruit” for applying nudge in an HR context are to be found in savings and health. The simple reason for this, he explains, is that most work on nudges is being done in the context of international development, where health and finances are critical needs. Therefore the theory behind these kinds of nudges is far more evolved, has trickled deeper from the public into the private space, and has yielded more success stories.
That said, the opportunity to apply behavioural science and nudging in the realm of higher order needs, such as employee engagement, is “enormous and is clearly something that organisations are beginning to tackle,” says Krastev. Recruitment, training and leadership development are other areas offering tremendous potential for the use of nudge.
A little push
Behavioural science gives us insights into how our minds work effectively. We know for example that people are very bad at multitasking – so emailing or texting in meetings could be discouraged. We know that energy levels affect our thinking, so we are better making important decisions after lunch than at the end of a long morning. These can be considered ‘brain-friendly’ approaches to work, says Gifford, and they can be put into practice either by nudges and/or by explaining the principles and letting people manage their work themselves.
According to Gifford behavioural science is also about making behaviour change that people desire easier. For example, we know that repetition and recall help us learn. Some training programmes now make explicit use of this by incorporating learner recall at 10 minutes, the end of the session, a day or a week later (for example with a follow-up email), and a month or a few months later (for example sending a postcard written to oneself during the programme). These are a form of nudging.
“Behavioural science can also be used as a predictive tool,” adds Gifford. “BuroHappold Engineering used personality profiling of employees, for example whether they tended towards a positive or negative outlook on life, to predict what sorts of challenges they would find in organisational change. They identified which groups of employees were most likely to resist change on an intellectual level – and for whom explaining the changes was the best approach – and who were likely to have more personal resistance linked to beliefs about their capability – for whom coaching support was more appropriate. This profiling exercise is comparable to those used in marketing and internet cookies: if you’re interested in A and B we’ll show you C, if you’re interested in X and Y we’ll show you Z.”
Mark Whitehead, a professor at Aberystwyth University, has conducted research on the use of nudge techniques and is co-author of Changing Behaviours: On the Rise of the Psychological State, which explores the impact of behavioural science on public policy. He believes there is significant scope for nudge to be used in HR. If HR management is primarily concerned with maximising people’s capabilities and welfare, then the radical insights that nudge philosophies and techniques provide regarding human thinking and motivation could play a significant part, he asserts. “Nudge is based on the premise that humans are not as rational as we think, and need support to fulfil our potential,” says Whitehead. “These insights obviously have significance for HR. Ultimately nudges are based on the assertion that providing information, training and incentives will often not produce the desired forms of behaviour change. This seems like a vital insight for all HR departments.”
Richard Chataway, founder of behaviour change business Communication Science Group, has worked on a range of nudge projects in the UK and Australia, including the successful My QuitBuddy app designed to help people give up smoking. It allows users to personalise nudges, for example with photos and messages from loved ones, to add to their persuasiveness. While fields such as public health have led the way with nudge, Chataway notes the business world is catching up. There has been growth in the use of nudge theory in environments such as customer service centres; tweaking scripts to deliver improved outcomes like higher levels of business retention.
Given that a fundamental insight from behavioural economics is that people are not always rational beings, it should consequently be borne in mind, Chataway says, that others are not as motivated by traditional economic methods (e.g. money, status) as we assume. This means that issues such as conflicts of interest and competing incentives can be massively influential, as we are often not conscious of them. That has huge implications for HR in terms of how we recruit and incentivise/assess performance.
Make it easy
Some of the applications of nudge in public policy have had a huge impact on organisations. Auto-enrolment pensions came about largely as a result of nudge theory, transforming the industry as well as providing better retirement outcomes for the working population. This type of default/opt-out intervention, Chataway elaborates, could be used to encourage a range of desirable employee behaviours such as using private healthcare or taking public transport.
Richard Thaler once summarised his work in three words: “Make it easy”. This philosophy has a lot of merit, says Chataway. “Often the biggest barrier to employee engagement is that things are too hard, and people are not willing to expend the mental effort to change. Auto-enrolment is one example of how to address this, form redesign and simplification is another. Both can be used in a wide range of contexts. In a previous project my team was able to increase compliance with hand washing in a food processing plant by 63% through a simple hand stamp intervention. The food dye hand stamp acted as a nudge for employees to remember to wash their hands.”
A good example of the ‘make it easy’ principle in practice comes from work Thaler did in partnership with Shlomo Benartzi, a professor at the UCLA Anderson School of Management. The pair developed the Save More Tomorrow model for boosting pension contributions, which has been used at several US corporations with excellent results. The programme encourages workers to allocate a proportion of future salary rises to their pensions savings and leverages the idea that humans tend to be myopic about distant losses, therefore committing to saving in three years isn’t nearly as painful as committing to save now.
At one business after four annual raises the researchers found that 80% of those enrolled were still in the programme. Moreover, on average they had increased the portion of salary they were putting aside from 3.5% to 13.6%.
Krastev believes initiatives like Save More Tomorrow indicate there is a big opportunity for using nudge techniques in HR. In most cases, he feels, the core goal of nudging in the context of HR management is to use behavioural science theory to understand the levers that affect employee behaviour and then use them to create win-wins between the organisation and the employees.
“At its base nudging is a highly empathetic process,” says Krastev. “As opposed to marketing, where one of the goals is to create new desires, nudgers try to understand what pushes people to feel and perform at their best, and then tries to correct the existing environment in order to unlock this potential. Given how disengaged employees are on average, I would say that the concept of nudging, applied in an ethical, sustainable and scalable way, represents one of the largest untapped opportunities in HR management.”
Get it right
Unquestionably, people dislike being told what to do. Jeremy Beament, co-founder and director at Nudge Global, which specialises in employee reward, says that in this area the evidence is clear. Where employees are baldly told “you must put more into your pension” they rebel and do less. However, paying attention to choice architecture will reap far more favourable outcomes.
Beament focuses on a strand of nudge theory called ‘confidence bias’. The classic study into this puts 100 people in a room and asks them in a secret ballot ‘are you above or below average intelligence in this room?’ Typically, 85 of the 100 will put ‘above average’ because of an innate, programmed need to have confidence in ourselves.
“So rather than telling employees ‘you must save more’, if we present them a benchmark of what ‘people like you’ save each month, people will want to beat that benchmark and save more than the average,” says Beament. “If we present the employee with a ‘people like you’ benchmark on something negative like debt they will want to be below the benchmark. We have seen evidence in our clients of increased pension saving and reduced debt using this.”
Yet simple motivational messages delivered in an appropriate way can also have a significant positive impact. A trial the BIT conducted with students aged 19 or above in further education on basic maths or English courses found those sent motivational text messages were less likely than average to drop out (16% dropout rate, compared to 25% among those not involved in the test). In fact, their attendance at lessons rose by 7% and their likelihood of passing the exam climbed 8%.
At the moment much of the uptake of nudge within HR circles is being driven by vendors rather than HR directors. As a result forward-thinking HR teams who begin applying nudge techniques across a number of areas may be giving themselves a strong advantage over rival businesses.
Adopting the concepts behind nudges is part of a larger trend towards HR being more scientific in designing solutions and in making decisions. David Mallon, head of research at Bersin, Deloitte Consulting says its recent ‘High-Impact HR’ and ‘High-Impact People Analytics’ studies show most HR functions are still “immature” in capabilities related to design thinking, choice architectures, and general fluency with data and analytics. That said, building such capabilities are some of the hallmarks of a high-impact HR function and predictive of generating positive and measurable change in the business.
Mainstream adoption of behavioural economics within HR is probably not far away. The conditions are set fair. Perhaps all that’s needed is a little nudge in the right direction.