CLEAR 2019 presentation

1. Implementing
Nudges –
The New Tool
for Lighter Touch
Regulatory Reform
Cynthia Parshall, PhD | Touchstone Consulting
David Cox | Professional Testing
Ellen Julian, PhD | Julian Consulting

2. If you wanted to drink more water…
At Google kitchen, they moved the
water bottles to eye level.
• Would having the water right in
front you make you more likely
to drink water?
A. Yes
B. No

3. If you were a hotel executive & wanted
to encourage guests to reuse towels…
A research study compared 2 messages.
• Which message would make you more
likely to reuse your towel?
A. “It’s good for the environment.”
B. “A majority of other guests reuse
their towels.”

4. What is
behavioral design?

5. It starts with understanding how people think
➢ identify friction points that make bad decisions
more likely
➢ apply nudges to make good decisions more
likely
Nudges are small changes to an environment
that can have a powerful effect in
influencing the choices someone makes.
Behavioral design

6. “The idea of nudging is based on research that shows it is
possible to steer people towards better decisions by
presenting choices in different ways.”
The Economist, 2017. http://www.economist.com/node/21551032
“The goal is to help people do things that they have
struggled with in the past.”
Steve Wendel, 2014. Designing for Behavior Change.
“By knowing how people think, we can make it easier for
them to choose what is best for them, their families, and
society.” Thaler & Sunstein, 2008. Nudge: Improving Decisions about Health, Wealth,
and Happiness.
Why should we care?

7. Neither – it’s a set of neutral tools
• If we use them to help people,
that’s a nudge
• If we use them to exploit people,
that’s a shove
Is behavioral design good or bad?

8. • Nudges:
– Are transparent
– In the user’s best interest
– Leave the user with freedom of choice
– Shoves:
– Discourage choices in the user’s best interest
• e.g., make it hard to claim a rebate
– Encourage behaviors that are bad for the user
• e.g., making binge-watching more automatic
How can we tell the difference?

9. There have been
research findings from
psychology, usability,
behavioral economics,
gaming, and
other fields.
Where do these ideas come from?

10. • Personalization
• Framing effect
• Social proof
• Choice overload (reduce)
• Friction (reduce)
• Benefits (increase)
• and many more…
The techniques are based on research related to:
• Cognitive biases, decision making, principles of influence,
and more.
What are some behavioral tools?

11. A further value of nudging…
• When we go through the process of
learning about our test-takers (e.g., the
behavioral audit), and we work to
improve the overall process –
– We improve our relationship with them
– (lots of side benefits result)

12. Examples

13. Framing a better message
Problem:
• Only 11% of eligible students were
applying to an ASU work-study program.
Research:
• Emails and subject lines were
behaviorally redesigned (12 each).
Results:
• 28% more students applied
• Open rate increased from 37 to 64%
“You have something other freshmen don’t.”

14. Reducing friction in the process
Problem:
• Many eligible students do not apply for the
FAFSA, and so cannot afford college
Research:
• When parents had their taxes done at H&R Block,
they were offered help to complete the FAFSA as well
(~10 minutes)
Results:
• College enrollment rates increased from 34% to 42%
• Enrollment increased 16% for adults out of HS, without prior college

15. Sending Personalized reminders
Problem:
• “Summer melt” – college-intending
HS graduates fail to enroll the following year (~20%)
Research:
• A series of automated/personalized text reminders
about college application deadlines
Results:
• 70% of the reminded students enrolled in college,
compared to 63% of the control group

16. Classic
Regulatory Strategy

17. CLASSICAL REGULATORY STRATEGY
▪ Based on Command and Control
▪ Influencing behavior through laws, threats fixed
standards, criminal sanctions, prohibitions
▪ Benefits
▪ Politically effective
▪ Force of law reduces uncertainty

18. CLASSICAL REGULATORY STRATEGY
▪ Criticisms/limitations
▪ Inflexible
▪ Slow to adapt to change
▪ No incentive to go beyond requirements to comply
▪ Costly – higher administrative costs, compliance costs
▪ Tends to grow rather than scale back over time
▪ Promotes lack of judgement in enforcement (legalism)

19. ALTERNATIVE REGULATORY STRATEGIES
THE MOVE TOWARD “LIGHTER TOUCH”
▪ Emergence of light-touch regulation – counter the shortcomings of
classical regulation and desire to achieve policy goals by the least
restrictive means possible. Strategies include:
▪ Responsive Regulation
▪ Better Regulation
▪ Meta Regulation
▪ Self-Regulation
▪ Approach – To creatively consider all alternatives to command and
control that preserve discretion for regulatory targets, are no more
intrusive than necessary to achieve intended benefits against the
cost of any given strategy

20. CHALLENGING THE ASSUMPTIONS
▪ In perfect markets – competition will bring optimal price, quantity,
and quality
▪ Except - when there exists a market failure due to:
▪ Information asymmetry
▪ Externalities
▪ Principal Agent
▪ Monopoly power
▪ Problem: Economic theory based on assumption that people are
presumed to be rational and act in a way as to best advance their
own preferences.
▪ What good are regulatory interventions the market system if
people make the wrong decisions based on them?

21. BEHAVIORAL MARKET FAILURE
▪ 2002 - Daniel Kahneman and Amos Tversky awarded
Nobel Prize in Economics explaining how cognitive
biases interfere with human rational decision making
▪ Dual system thinking - Thinking Fast and Slow
▪ Outlined the behavioral biases that became foundation
for the field of Behavioral Economics
▪ Behavioral Economics posits that our irrational
behaviors are systematic and predictable.

22. IMPROVING REGULATORY OUTCOMES WITH
BEHAVIORALY INFORMED REGULATION
▪ Government regulatory agencies are increasingly adopting Behaviorally
Informed Regulation based on principles of Behavioral Economic Theory.
▪ 2010 - United Kingdom Behavioral Insights Team (BIT) became first
governmental “Nudge Unit”
▪ 2013 - White House established the Social and Behavioral Sciences Team
▪ More than 200 authorities have since followed including:
▪ Internal Revenue
▪ GSA Office of Evaluation Sciences
▪ District of Columbia
▪ European Commission
▪ United Nations
▪ OECD

23. IMPROVING REGULATORY OUTCOMES WITH
BEHAVIORALY INFORMED REGULATION
▪ Hundreds of trials have been initiated
▪ Many Nudge Units have published their findings and/or
produced resources such as Toolkits to assist others
▪ 2017 -IRS published a Toolkit
▪ 2017 - OECD published a global collection of more than 100
behavioral case studies
▪ 2012- Economic Order 13563 gave consideration of behaviorally
based methods of regulation to “reduce burdens, maintain
flexibility and freedom of choice for the public”

24. Ethical Concerns

25. ETHICAL CONCERNS
▪ Good Nudges
▪ Minimally burdensome
▪ Low cost
▪ Transparent
▪ Choice preserving
▪ Concerns
▪ Negatively impact individual autonomy to an unethical degree
▪ May reduces citizen participation in democratic decision making
▪ Lack of adequate Administrative Law protections
▪ Interference with citizen rights to freedom of expression
▪ Not every decision is irrational
▪ Bad design that produces negative outcomes

26. Organizing
a Nudge Unit

27. ORGANIZING A NUDGE UNIT
▪ Creating your own nudge unit:
▪ Organize the team -with a mix of skills and experience
▪ Study available literature and available resources
▪ Use good experimental design practices
▪ Determine:
▪ What is the goal or outcome?
▪ What are the biases influencing behavior?
▪ What nudges might be appropriate?
▪ What choice architecture can be designed?
▪ How to measure the impact through testing

28. ORGANIZING A NUDGE UNIT
▪ Other Recommendations:
▪ Use or build on what is already known or has been
tested
▪ Use multiple interventions with a control
▪ Start with small low cost projects
▪ Focus on areas in which agency has existing data
▪ Accept failure

29. How can we make sure
the nudge works?

30. 3-step nudge research process
1.Diagnose
2.Experiment
3.Learn
See Parshall & Johnson, 2018, at http://www.proftesting.com/blog
/2018/09/19/developing-nudges-exam-program/

31. Step 1 – Diagnose
Diagnose
▪Select the key behavior you want to change
▪Think “chronic frustration” here
▪Conduct a behavioral audit
▪Find all the friction points
▪Craft your nudge

32. Experiment:
▪Could be a qualitative usability study
▪Or a quantitative A/B study
▪(Or other)
Step 2 – Experiment

33. Learn:
▪Need to iterate?
▪Or ready to implement?
Step 3 – Learn

34. Your
Pain Points

35. In your setting…
Which group most needs “nudges” to
accomplish what they want to do?
A. Applicants
B. Registrants/Licensees
C. Consumers
D. Examinees

36. In your setting…
What do Applicants struggle to do?
A. Follow application process
B. Read materials
C. Pay
D. Provide information

37. In your setting…
What do Examinees struggle to do?
A. Don’t cheat
B. Show up for exam
C. Follow procedures
D. Read
E. Prepare
F. Retake

38. In your setting…
What do Registrants/Licensees struggle to do?
A. Renew
B. Update contact information
C. Use designation/license identifier properly
D. Comply with rules

39. In your setting…
What do Consumers struggle to do?
A. Use your website
B. Understand risks
C. Understand rules
D. Understand what they need to do
E. Do what they need to do
F. Understand informational communications

40. In
Conclusion…

41. Thank you!
Cynthia G. Parshall, PhD
CParshall@Touchstone.Consulting
www.Touchstone.Consulting
David Cox
Dcox@ProfTesting.com
ProfTesting.com
Ellen Julian, PhD
Ellen@JulianConsulting.com
JulianConsulting.com

42. Thank You!