Nudge, nudge, hint, hint: how nudge theory can influence employees’ decisions

If policies and tellings off are failing to change your workers’ behaviour, then turning to a more subtle and scientific approach – nudge theory – might just do the trick

You’re in the supermarket, thinking about what to eat tonight. You want something that’s quick to cook but not too unhealthy, so you pick up a couple of the options available to compare numbers – and you check the ‘traffic light’ labels. You end up buying the one with more green lights on it because it’s slightly better (or less bad?) than the other meal you’d considered.

This is an example of nudge theory: a way of persuading someone to select a better option for them by presenting different insights on the situation. It encourages good behaviour – without checking out the traffic lights labels, you might have gone with the unhealthy option.

Nudge theory is the work of Richard Thaler (a Nobel prize-winning behavioral economist) and Cass Sunstein (a legal scholar). The pair first worked together on the 2003 paper Libertarian paternalism is not an oxymoron, saying “it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice.” It means you may make a choice based on personal preference, even if it is ill-informed, but libertarian paternalists may encourage you to pick one option over another because it’s better for you – while giving you the opportunity to make that decision.

Thaler and Sunstein expanded on this theory in 2008’s Nudge: Improving Decisions about Health, Wealth, and Happiness. One of the items the book explores is choice architecture. A choice architect –  say, an HR professional working on the employee experience – is responsible for organising the context in which people make decisions. One example used is how food is presented in school cafeterias: consumption of some items has been found to increase or decrease depending on where they are placed.

So how can nudge theory help you, your employees and your business?

The golden rule of libertarian paternalism, say Thaler and Sunstein, is to offer nudges most likely to help and least likely to harm. But choice architects also need to think about what default HR options should be, because those are the options people are likely to take. Remember, say Thaler and Sunstein, “never underestimate the power of inertia” because many people will go with the default choice.

The concept of nudging, applied in an ethical, sustainable and scalable way, represents one of the largest untapped opportunities in HR management

Think back to when employees had to sign up to the company pension scheme. It’s unlikely uptake was anywhere near 100% – employees may have said either it was too much effort to complete the paperwork, they didn’t want to join, or they simply forgot. But it left these employees with only the state pension waiting in retirement.

When automatic enrolment came into effect in the UK from October 2012, all eligible employees started saving more for retirement without having to worry about it. Leaving a scheme is possible but, if an employee didn’t opt in before, they’re unlikely to go through the process to opt out.

This pensions policy is one of the most successful implementations of nudge theory: Paul Johnson of the Institute of Fiscal Studies said the vast majority of eligible employees are now part of company pension schemes (he estimates the number to be at “something like 90%”), with official figures stating those with a private pension went from 2.7 million in 2012 to 7.7 million by 2016.

But Johnson also highlights how inertia needs to be considered when deciding a policy’s default option: with pension auto-enrolment through pension payroll software, there are younger employees who have less take-home pay – which could go towards a house purchase – to have more money in retirement. So it may not be the correct option for everyone, despite its intentions.

Now let’s go back to food – specifically, the food on offer in the workplace. As Thaler and Sunstein point out, we respond to incentives but are influenced by nudges. So placing healthier food options such as salad and fruit early on in the café line up means people are more likely to pick them for lunch, rather than the pizza farther down the line or the chocolate placed below eye-level. Although someone has chosen to influence employees into choosing a more healthy lunch, the nudge conforms with Thaler’s principle to make it as easy as possible to opt out because employees can pick something else if they wish.

Sekoul Krastev of behavioural science think tank The Decision Lab, commenting in HR magazine, says the “lowest-hanging fruit” (ie the easiest, simplest way) for HR teams wanting to apply nudge theory are in the areas of savings and health. But there are other ways that HR teams could seek to make a positive difference, particularly in organisational culture, says popular HR writer Jan Hills. She suggests that nudge theory can be applied to the following workplace behaviours:

• Give and take: this is about relationships and team-building. Think about how you can you reward employees’ collaboration when they haven’t previously
• Commitment and consistency: get people to declare their goals with colleagues, which will make them more likely to keep them
• Show how others agree: demonstrate what other organisations have done to prove something can work when implemented the same way (this is called a ‘social nudge’)
• Using a desire to be liked and like others: have role models and reward good behaviour to prompt employees to adopt the same etiquette (especially when deviant behaviour is penalised)

Hills also says that, while such changes are easy to put in place, they “require careful implementation and monitoring, and a willingness to tweak them if you are not getting the desired outcomes”.

But Krastev perfectly sums up the potential positives of using nudge theory in HR: “At its base nudging is a highly empathetic process… nudgers try to understand what pushes people to feel and perform at their best, and then tries to correct the existing environment in order to unlock this potential. Given how disengaged employees are on average, I would say that the concept of nudging, applied in an ethical, sustainable and scalable way, represents one of the largest untapped opportunities in HR management.”

Want to learn even more about nudge theory? Watch this talk from Richard Thaler on YouTube