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Nudge theory

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What is the Nudge Theory?
A mixure of beavourial economics, psychology, political theory, marketing and sales. Its the theory that considers how people make decisions – and how others impact them.

Published in: Marketing
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Nudge theory

  1. 1. Nudge Theory What is Choice?
  2. 2. What the Nudge?  A mixture of –  Behavioural Economics  Psychology  Political Theory  Marketing/Sales  Growing popularity in public and not-for-profit sectors  Considers how people make decisions – and how others impact them
  3. 3. More Specifically “A nudge, as we will use the term, is any aspect of choice architecture that alters people’s behaviour in a predictable way without removing any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid.”
  4. 4. Why can we be Nudged? Traditional economic theory says that all human act rationally when making purchasing decisions In other words, we consider all things, researching all alternatives, and choose that which provides the most economic benefit to ourselves as individuals But if this was true we couldn’t be nudged… Smoking wouldn’t exist if we were truly rational
  5. 5. So how are we Nudged? Need to start looking at how humans actually think
  6. 6. Two Systems of Thinking Automatic System Fast Unconscious Parallel Associative Low Energy ‘Doer’ Reflective System Slow Conscious Serial Analytic Consumes a LOT of energy ‘Planner’
  7. 7. Reflective System Works by creating hypotheses and testing these with prior knowledge. Meanwhile sorts between relevant and irrelevant bits and pieces of information. You can activate this system by will, and it resembles what we typically associate with thinking in many ways.
  8. 8. Automatic System Controls day to day thoughts – how much butter to spread, how long to brush teeth for, smiling when you see a cute puppy, etc. Although the reflective system might seem superior to the automatic system, it really isn’t. The reflective system is simply too slow and too single minded to handle even a fraction of the alternatives we are faced with every day. The automatic system can handle thousands of problems and alternatives for us without even bothering us with the outcomes.
  9. 9. Two Systems of Thinking The two systems generally work well together, allowing us to act quickly and instinctively when required, or allowing deep, powerful thought However they don’t always work well…and can ‘fail’ in many different ways The automatic system is especially prone to bias, in fact it uses bias to speed up decision making While the reflective system can often back up or reinforce decisions made by the automatic system, even if obviously wrong
  10. 10. Targeting Your Automatic System Three questions. Three seconds only to answer each. No answers after Three seconds. 1. A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost? 2. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets? 3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?
  11. 11. Answers 1. A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost? 2. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets? 3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake? 1. 5 cents 10 cents 2. 5 minutes 10 minutes 3. 47 days 24 days
  12. 12. Biases  In order to speed up decision making, the automatic system uses biases  Anchoring  Availability  Representativeness  Optimism and Overconfidence  Gains and Losses  Status Quo  Framing  Social Norms
  13. 13. So What? Nudges are what ‘Marketers’ do every day – What will make an individual ‘buy’? Target nudges, usually lots of different ones, at perceived biases • Which ‘Nudge’ will work best? • Promotion? • Price? • Place? • However some of the best nudges are changes in design, tone, copy – or data! • Especially prevalent in – • Retail • Digital • Direct Sales • Direct Marketing
  14. 14. Behavioural Insights UK Tests with social norms Tax debt payment DM i.e. ‘9 out of 10 people pay their taxes on time’ Real numbers, as in taken from the data, work best 67.5% 72.5% 79.0% 83.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% Control Social Norm National Social Norm Postcode Social Norm Town RR %
  15. 15. Choice Architecture Let the pictures tell the story
  16. 16. Simple Changes From ‘Waste’ to ‘Landfill’ Make slightly more difficult to use less preferred Use of colour
  17. 17. Barely Noticeable… Small fly Provides a target Reduced spillage by 80%
  18. 18. Can Be Obvious Especially when monotonous Targets Automatic system
  19. 19. Heavily Science Based  Scientific discipline, literature focuses on randomised control trials  Fully or fractional factorial designs allow large volume of tests to run concurrently  Test variation of series of elements, even if they seem ‘minor’  Can easily be identified in Direct Marketing
  20. 20. Data Driven Works Best
  21. 21. Relevant Data
  22. 22. Government Example

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