Nudge because it’s the right thing to do
How Thaler and Sunstein brought awareness to corporate and public responsibility
Amidst the COVID19 widespread and the stressful situation that the world is going through, we found time to provide you with yet another entry of popular wisdom acquired from the books.
Today we’ll be taking a closer look at “Nudge: Improving decisions about health, wealth and happiness” by Richard Thaler and Cass Sunstein.
With that being said, grab your masks, hand disinfectant and let’s get to it!
To start discussing this, I’d like to spend some characters describing a couple of critical definitions so that we can then discuss more polemic matters in terms of those definitions.
What is a Choice Architect?
Those who have the responsibility for organizing the context in which people make decisions. Understanding that there is extensive research that proves that people’s decisions are heavily influenced by the way those decisions are presented to them.
Choice architecture is important because Humans and Econs respond differently to them.
umm… Econs you say?
Humans and… Econs
Thaler and Sunstein talk throughout the entire book about a fascinating clash between the way of thinking of what they call “Econs and Humans”.
Econs
Econs are simply put, super-intelligent, all aware, never forgetting decision-makers that evaluate every single outcome to make the most “rational” decision when presented with one. Econs are the main characters of most economic theories that argue that “people” behave in a certain way responding to economic incentives.
Humans
The Econs’ counterparts are ordinary people like you and me who, despite the vast amount of economic theory explaining why we should save more money, decide to sign up for the entire 1-year Gym membership upfront, when we all know in the bottom of our hearts we’ll stop going after two weeks.
The Law of Inertia
You may recall it from physics class in school: objects in a certain state will tend to remain as they are unless an external force introduces a change to the state.
Thaler and Sunstein present the Nudge as that external force.
We all tend to do the same things we always do unless something happens. That’s why Humans’ behavioral inertia results in predictability that can be targeted by conscious choice architecture.
So… What the hell is a Nudge?
A Nudge is a factor that significantly alters the behavior of Humans, even though it would be ignored by Econs.
And there is an immense amount of beauty in the way that definition is built because an Econ has no problem in walking past the shelves next to the cashier in the supermarket and not pick up an extra pair of sugary sweet, deliciously harmful peanut butter tarts (remember, an Econ is a being that invariably acts upon incentives given his understanding about the harms of eating too much sugar and fat), but me… well… my Human hand almost automatically picks up the candy bar every single time.
Now that we have a basic understanding of the Nudge, and the Econs and the Humans, let’s look at a couple of critical questions to foster discussion.
Stories From the Data
I think it is fair that we comment on the responsibility that choice architects have in contexts such as e-commerce companies or retailers. Allow me to elaborate.
A company that collects data on your consumption habits gathers intelligence on the way you behave beyond simple tastes. It can predict whether you’re facing issues that jeopardize your health or even your life.
Still too vague?
Alright, imagine that over the past couple of months you have started to drink more and more alcohol. Now, if you happen to make those purchases in the same store (say, the nearest from home which offers a point card that you gladly swipe every time you pay so you can get those sweet points), or if you use the same electronic payment method, chances are that in some database somewhere a company has a clear trail of your purchases.
So, since you have been ramping up the alcohol, a report on your consumption habits clearly displays that fact. And even though this could be just a temporary surge in consumption due to some personal matter that will eventually go away, chances are you are simply becoming an alcoholic, which means that if properly nudged at this stage, you could be helped before the fact, as opposed to after it.
So the question is: what should the retailer do?
- Should it try to persuade you to drink less, based on your latest purchasing history, to prevent you from further worsening your problem with alcohol?
- Should it simply ignore the trend in your data?
- Or worse… should it profit from your weakness and offer you complimentary items to bundle up with those beers?
This is a matter of incentive alignment. And sadly, in this case, the third option is the one that benefits the bottom line the most. You see, in their book the authors gracefully articulate a checklist to analyze incentive alignment, which can be done by answering the following 4 questions about a particular choice architecture:
1. Who uses?
The shopper uses the alcohol that is available at the store.
2. Who chooses?
The shopper chooses whether to buy alcohol or not.
3. Who pays?
The user pays for the alcohol, if he were to buy it (and to a larger extent, also pays with health deterioration through excessive and recurrent alcohol consumption).
4. Who profits?
The store’s owner profits from the alcohol sale (and potentially profits less if the shopper decreases his alcohol consumption).
In that sense, if we think about the possibility of nudging the shopper who seems to be becoming an alcoholic into drinking less through some strategy such as messages about the dangers of alcohol consumption it is clear that incentives misalign.
Shareholders will not perceive greeter profits if the retailer decides to go after option 1, because there is no guarantee that the money you won’t be spending in alcohol after they nudge you away from it is still gonna be spent in other items that they can sell to you. So Option 1 is simply not an option from the perspective of the retailer.
Now, let’s make a more subversive question…
What about the employees who work for that retailer?
What about the people who are in charge of digging in the data and find these patterns within it? How would you feel if you worked in their Data Analytics Department and you see that your marketing department, focused mainly on local incentives, uses the data on sinful goods consumption to further profit from shoppers at the expense of their life quality?
I know I’d be disgusted… yet I know this happens every day in countless Business Intelligence departments around the world.
What could we do?
Thaler and Sunstein round up their book with a clear message: nudge when possible for the sake of improving people’s lives, as long as the costs of the nudge are compensated by its benefits.
Under this approach, retailers could try to nudge shoppers away from sinful goods into other product categories that are less harmful to their lives while holding similar levels of profit.
Wouldn't that be the most ideal kind of corporate social responsibility?
What do you think?
Book references by that seem pretty worthwhile
- The Design Of Everyday Things, Donald A. Norman
Thank you for reading and if you found this interesting, don’t hesitate to comment or reach out. I’ve found that a healthy discussion about a topic of our interest is the best way to digest the content.
I’m a Product Manager in Rakuten EXPRESS with a proclivity for web design and programming. I’m a proud contributor in the Product Management podcast “Afterwork en Español”. Happy to connect on LinkedIn or Instagram. And while you’re at it, here’s my website.
