The Power of the Nudge


This week, we have been gripped by the Nobel laurate Thaler’s ‘Nudge Theory’ and assimilated this 375 word piece

For people who are gripped by inertia, indiscipline, lack of awareness, a preference of current over future, procastination etc, smartly designed nudges can work wonders.

Since decision making often boils down to making choice, imagine the magic you can achieve by designing choices in such a way that most people choose the appropriate choice i.e. you can nudge them optimally.

“Choice Architecture” is a constrained set of choices that helps us, as imperfect humans, make better decisions. As a people manager, its incumbent on your part to leverage the same

Thus, placing salads ahead of desserts on menus or at a buffet, promoting prepayments for gym membership etc could help people cut down on calories and exercise more.

As a people manager, you interventene with nudges that help people act in ways better than they would without them.

If you give people many choices and let them decide how much to invest, what funds to select, and how to allocate their investments, they get confused by the options and often do nothing. On the other hand, if you give them three simple, pre-selected options, they pick one. (Usually the first one!)

Say if you want to encourage people to save for retirement, change the retirement savings form like this

From “We have a savings program for retirement. Would you like to be enrolled in it?” 


“We have enrolled you in the saving program. Would you like to exit from the same?”

This smart move in the USA increased the participation rate in a 401(k) savings plan in the US from 49% to 86% (Madrian and Shea, 2001).

Same for automatically increasing savings contribution as salary increases.

Given that people prefer avoiding losses compared with making gains—or loss aversion, communication should focused on the risks rather than the gains. Say focussing on the losses from being outdated rather than the knowledge gained through completing the e-learning modules.

You can use the same tricks to influence behaviour and motivate people to recycle paper, pay taxes, take care of the environment, and comply with regulations.

Summing up, let not the Titanic of strategic policy crash into the icebergs of behavioural quirks. Nudges minimize resistance and confrontation ; work much better than direct instruction, enforcement and punishment. Use them wisely.