Minor Understanding and influencing decisions in business and society
Nudge: Influencing Behavior
Nudge = ‘duwen’, een duwtje in de juiste richting
Lecture 1: Introduction | October 26, 2020 | Femke van Horen
What will the course be about?
Part A, Nudge: Ways in which we can influence behavior through cognitive heuristics.
Anticipate on biases and irrational behavior. It builds on information processing. How can we
use this knowledge to guide people’s behavior?
• Choice architecture
• Pitfalls of intuition/overconfidence
• Intertemporal choice
• Ethics of nudging
• Goal setting and plan making
• Nudges in health and in government and business policy
Part B, Social influence: Looking at interpersonal ways on which people communicate which
each other. Will have a focus on the social heuristics. This helps to make quick, efficient
choices and decisions in relation to people around us
• Persuasion tactics (Cialdini): liking, commitment and consistency, authority,
scarcity, social proof, reciprocity
• Norms and normative behavior
• Social conformity
• Pro-social behavior and sustainability
Types of applications we’ll discuss; increase saving rates, increasing organ donation rates,
improving road safety, increasing volunteering, getting out to vote, increasing exercise rates,
complying to the new Covid-19 rules and increasing charitable giving.
Introduction to nudge
Richard Thaler, Nobel prize in economics in 2017: Importance of behavioral economics
“To push against gently, especially in order to gain attention or give a signal” (Thaler &
Sunstein, 2008)
Book cover: Mama elephant pushing the baby elephant to the right direction in the world →
example of nudging
,Definition nudge: Any aspect of the “choice architecture” that alters people’s behavior in a
predictable way without forbidding options or dramatically changing economic incentives.
• They are not mandating. Must be cheap and easy to avoid
o So, not tell people “You cannot do this anymore”
• It must be transparent → they are not subconscious. You can see it happening!
Examples
• Place fruit on an obvious position, without forbidding to take a donut which is a little
more far away.
• Holle Bolle Gijs at Efteling; motivate people to clean up
• Making the Wi-Fi password “haveyoutoughtaboutthecarrotcake”, later on you might
think about the cake and maybe buy it. You don’t force people
• Smiley when driving the right speed
Why do we need nudges?
We have a hard time to save, hard time not to smoke, hard time to now in the Corona crisis
to hug another person.
Example of people taking the escalator their way to the fitness: How to get people to use
the stairs more?
• Policy makers usually just give information like “using the stairs is a good idea” or
“you will burn calories by using the stairs”, but this is actually not the optimal, people
don’t really care about just information
Nudging solution: Piano stairs (also has downsides; getting used to it → back to old pattern)
Traditional economics: People are not responding in the way traditional economics would
predict. Other factors are also at play.
Assumptions of the standard economic model of consumer behavior:
1. People are rational
2. People act with full information (know all the options of every decision that is made;
full external knowledge)
3. People have known preferences (know exactly what we want, stable among
contexts, clear distinctions: full internal knowledge)
4. People choose the best option available (maximize utility, think about the dictator
game and the role of fairness in which utility is not maximized)
Assumption that humans are “optimal” decision making machines:
• Reasoning capacity is infinite
• Incentives can solve all problems
• Markets are perfectly efficient
, • Every act is entirely selfish
Two systems of thinking
Kahneman: System 1 (fast, unconscious, parallel, associative, low energy, ‘do’-er) and
system 2 thinking (slow, conscious, serial, analytic, consumes a LOT of energy, ‘plan’-er) →
Automatic system versus effortful system!
• Interaction between both systems: both are active when we are awake
• System 1 continuously and involuntarily generates suggestions for systems 2
• If endorsed by system 2, impressions and intuitions turn into beliefs, and impulses
into voluntary action
• Can work well, but can also fail:
o The automatic system is especially prone to bias, in fact it uses bias to speed
up decision making
o The reflective system might seem superior, but it is simply too slow to handle
even a fraction of the alternatives we are faced with every day
Which system is used?
• If people only decided based on their reflective, rational System 2, we wouldn’t need
nudging because people would simply consider what is best (utility, preferences) in a
given moment
• However, humans often decide with their intuitive fast System 1
• Especially when we are: Rushed, tired and not paying attention
o Whole day at working thinking going to the gym after work, but when home
after work not going
If it is difficult to change behavior in a rational way, how can we then guide people’s
behavior? → nudging
Nudging principles → Libertarian paternalism
Liberalism: The state should have respect for all citizens as free and equal human beings.
The state should enable all citizens to develop and pursue their own conception of the good
life. Harm to others is only basis for legitimate government intervention. Example of
liberalist: Donald Trump
Paternalism: Paternalism goes further than the minimalist ‘no harm’ principle of liberalism
and argues that people should also be protected against harming themselves (example not
letting people smoke them to death by putting excise duty (accijns) on cigarettes to
demotivate people to smoke). The state should promote the interests of all citizen in living
secure, healthy, wealthy and happy lives. The state should interfere with people’s liberties if
this generates desirables outcomes.
→ Libertarian paternalism: Libertarian paternalism or ‘nudging’ aims to improve people’s
choices by being both:
, • Libertarian: it does not block people’s choices and thus respect people’s (‘negative’
or ‘formal’) liberty
• Paternalism: it makes people better off and thus improves their well-being (health,
wealth and happiness)
Fundamentally different than the standard governmental instruments (De wortel
(incentives), de preek (informing) or de stok (prohibition) → new: nudging)
Getting people to behave differently;
• It does not mean we should not use incentive, prohibition and informing people
• But: we should also use subconscious nudges, peer-to-peer persuasion, and social
marketing among other things
Principles of nudge:
• Psychological ways of changing behavior (role of emotions, social context et cetera)
• Focus on “guiding” behavior (change environment so that people change their
behavior themselves)
• Instead of using incentives and information, use cues, frames and defaults
• No force or prohibition! Preserve freedom of choice
• Minimal costs
• All about the change of the choice architecture
Choice architecture:
• A choice architect designs the choice environment so as to encourage the chooser to
select a preferred choice.
• Thereby, maintain the chooser’s freedom to select other choices.
• Make desirable choice available, and EASIER.
• Make undesirable choice available and HARDER.
Everyone is a choice architect!
• How would you design for voter to choose candidates → put minorities on top.
• Doctors describing alternative treatment
• What kind of form should employees have to enroll in health plan; use a default
• Parent to give options to child for different education
• Salespersons are all the time choice architects → play with scarcity (only 3 rooms
available), play with social norms (many people choose this)
This is a very important thing: There is no such thing as a nudge-less choice.
When are nudges effective?
Behavioral economics; It assumes humans predictably deviate from “optimality”. An
example of this is…
