Thaler, Nudge Theory and Behavioral Change

This article first appeared in DNA India on October 12th, 2017.

This year’s Nobel prize in economics has been awarded to behavioral economist Richard Thaler for his work on “nudge theory”. Behavioral sciences gained much prominence initially from the works of Daniel Kahnemann and Amos Tversky, resulting in a Nobel prize for Kahnemann. Tversky had unfortunately died by then and Nobel prizes aren’t awarded posthumously.

Kahnemann and Tversky had identified how human beings make decisions while suffering unconsciously from numerous biases. Kahnemann’s classic book on this called “Thinking fast and slow” is a must read in understanding how biases work. While Kahnemann and Tversky were psychologists, Thaler, who spent a lot of time working with them, was an economist and tried to apply behavioural psychology to economics. He is most well known for his nudge theory, which shows that behaviours can be changed by “nudging” them in the right direction.

One of the earliest examples of the nudge theory was at Schipol Airport in Amsterdam. The airport urinals required a lot of cleaning, especially in the men’s room since a lot of spillage was observed outside the urinals. In order to nudge men to “aim” right, a figure of a small fly was painted inside the urinals. A dramatic 80% decrease in spillage was observed, leading to significant reduction in cleaning costs. Another example of this theory is in the opt-out clause that the UK has introduced for organ donations. This supposes that citizens would want to donate organs by default and that those who don’t wish to do so would have to explicitly opt out. This has resulted in a huge increase in the number of organ donors leading to many lives being saved.

Organisations use a few ways to bring about behavioural changes in employees. The simplest way is through the imposition of rules where employees are forced to adhere to certain behavioural norms. Yet another way is to enable employees to make the right choice by effectively communicating the desired values for the organisation. However, organisations are also using the “nudge theory” to enable the desired behaviour. Some organisations place healthier snacks like cut carrots or tomatoes in more easily accessible locations than say a chocolate bar, thereby nudging their employees to make a healthier choice. Another example is to make staircases slightly more accessible than lifts, thereby nudging employees to use the stairs to go up or down a couple of floors and get some exercise during the course of the day.

The concept of visual nudging can be used to influence employee behaviour. If an organisation is keen on enhancing customer satisfaction, then having a large dashboard that shows the number of satisfied customers on that day can help subtly drive the employees to be more customer-centric in their work.

So how would you “nudge” your employees today?

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