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June 11,2020 Change Management

Nudge Theory

Nudge Theory

Organ Donations

Nudge theory revolutionized the medical industry. Organ transplant surgery has saved thousands of lives since 1954 when Dr. Joseph E. Murray transplanted the first kidney. The science grew as well as the practice leading to a greater demand for organs for donations. However, on an economic scale, there was a significantly greater demand for transplantable organs than there was an available supply. The demand was so high that in the early 2000’s that the list grows by 12% annually and that it was projected that 60% of the people need a new organ would die on the waiting list.

A common method of identifying oneself as a donor or not was having it annotated on a person’s driver’s license. To be identified as a donor, a person would have to check a box when they renewed their license to indicate that they would be willing to donate their organs. The main issue became that only 43% of the people checked the box to be a donor on their license. The hypothesis was that more people than 43% were willing to be donors. In fact, survey data found of the people that said they wanted to be donors, only 64% marked their driver’s license to become one.

The act of checking the box during the renewal process inadvertently introduced friction into the system. The experiment was to change the process to presumed consent. This made the presumption that people wanted to be donors and that a person would have to uncheck the box if they did not want to donate their organs. Amazingly, this simple nudge resulted in 82% of the people deciding to be organ donors.

Richard Thaler

 The father of Nudge Theory, New Jersey native Richard Thaler, had a teacher for a mother and an actuary for a father. He was bred to be an academic later attending Case Western Reserve University and then achieving his Ph.D. from the University of Rochester. Later he taught at the University of Rochester, Stanford, Cornell, and the University of Chicago

Thaler influenced early in his career by Daniel Kahneman and Amos Tversky his shift his focus on behavioral economics. Confused as to why economic models result in horrible predictors, Thaler began to explore the cognitive bias for making illogical decisions. This led to his work on how to bridge or nudge the logical decisions of economics and the illogical decisions real humans make.

Cass Sunstein

Thaler’s theoretical partner, Cass Sunstein, traveled a different route to academia. Growing up in Massachusetts to a Teacher and Builder he later graduated Harvard and achieved his JD from Harvard Law. Eventually, he ended up as a celebrated Law professor at the University of Chicago.

At the Booth School of Business, Sunstein, partnered with Thaler through his ethical curiosity on nudging people. They coined the term libertarian paternalism in which the libertarian for encouraging freedom of choice. Paternalism represented the desire to help guide to better decision making.

Behavioral Economic Theory

Defined by Thaler, Economists or Econs are people trained to think rationally and hold a belief that all people act rationally. What has baffled economists for years is how their modeling and future predictions failed and how the characters went against inherent logic. This is where economics began to blend with behaviors. This provided insight into how the mind is made of cognitive biases which sometimes leads people to go against logic. The nudge is an artificial stimulus to guide you into making a better logical decision.

The foundation of the nudge theory is that the model emphasizes people having the freedom to choose. This is also the freedom to make perceived mistakes. The nudge’s intention focuses on subtle advice or guidance to help people make a better decision. Thaler and Sunstein then coined the term libertarian paternalism to codify the freedom to choose with guidance and the avoidance of manipulation.

At the heart of nudge theory calls attention to choose architecture. Every decision is designed one way or another, choice architecture focuses on how to design choices. These choices then influence the decisions made. The overall goal to make it easy to make the best decision.

Thaler and Sunstein captured this theory in their widely-read book Nudge Improving Decisions About Health, Wealth, and Happiness. Thaler would go on to win the Nobel Prize for his work on Behavioral Economics in 2017. The key accomplishment that he built the bridge between economic and psychological analysis pertaining to decision making.

 

Nudge with Plating

The power of suggestion has encouraged the growth of our waistlines. A trained practice of servers to suggest add-ons or upgrades while ordering. McDonald’s mostly famously capitalized on this with the phrase, “would you like to supersize it?” This was a reverse nudge, that was good for profits but bad for the customer’s health.

The 1970s and 1980s saw an increase in the volume of plate sizes in the United States. The natural inclination is to fill the plate with food. This small increase led to weight Gain across the country.

However, research points out that this works in reverse as well. Smaller plates lead to smaller serving sizes. Which inevitably led to weight loss. It is a simple nudge using the size of a plate to achieve better health.

References

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