BEHAVIOURAL ECONOMICS AND

DECISION MAKING
MODULE III

DR. AWANTIKA RAJAURIA

ANIL SURENDRA MODI SCHOOL OF COMMERCE
NMIMS UNIVERSITY
BANGALORE
 TRADITIONAL ECONOMICS

Traditional economic theory relies on the fundamental assumptions:

1. People are rational.

2. People make decisions based on self-interest.

According to traditional economics, in an ideal world, people would always make the best decisions based on a careful analysis of the costs
and benefits of each option available to them

Eg : Law of demand says if price falls, buy more. If price of ice-cream falls, consumers may not buy more - they may think of it as spoilt
or poor quality

Wine : People were given same bottles of wine and they scanned their brain to test levels of enjoyment. Higher price - liked wine more.
TRADITIONAL VS BEHAVIORAL ECONOMICS

Feature Traditional Economics Behavioral Economics

View of
human Homo economicus: rational, Bounded rationality, influenced by
behavior perfect information emotions, social norms, biases

Tools Mathematical models, logic Psychology, sociology, neuroscience

You compare all the brands You might grab your usual brand without
and sizes, meticulously much thought, even if it's not the
calculating the price per cheapest. Maybe you're influenced by a
ounce to find the absolute promotion with a free recipe booklet, or
cheapest option. You make a you simply trust the familiar brand
purely rational decision name. These emotional and time-saving
based on maximizing your factors, not just pure logic, can influence
Example money's worth. your choice.
 BEHAVIORAL ECONOMICS

• Behavioral Economics (BE) is a scientific discipline that combines

microeconomics and psychology to gain a deep and realistic
understanding of consumer behavior.
• The discipline was born with researchers such as Daniel
Kahneman and Richard Thaler. They studied the cognitive processes
behind decision-making rigorously and methodologically so that it can
be applied to improve the process.
• BE argues that people are irrational in most of their decisions and
are strongly influenced by their environment.
Behavioral economics
Behavioral economics – Branch of economics that incorporates insights
examines the differences between from human psychology into models of economic behavior. Used to help
what people “should” do and us understand why our models may not make the predictions we think
what they actually do and the they should in some cases.
consequences of those actions.
 BEHAVIORAL ECONOMICS

Behavioral economics is concerned with systematic departures from rational choice

• Behavioral economists attempt to identify systematic “biases”
• Departures from rational choice can inform the development of more general,
descriptive models of economic behavior
• Models can be used to develop testable hypotheses and predict economic behavior
 ASK YOURSELF

• Do you exercise?
• Do you invest in stocks/ cryptocurrency?
• Do you buy lottery tickets?
• Do you shop on vouchers?
• Do you know how to dispose of plastic bottles?
• Do you know what to do with your paper cups/plates after
use?
• Do you maintain your car limit between 80-90 every time?

By asking questions like these and identifying answers through experiments, the field of behavioral economics considers people as human beings
who are subject to emotion and impulsivity, and who are influenced by their environments and circumstances.
WHEN HUMAN BEINGS FAIL TO ACT THE WAY
ECONOMIC MODELS PREDICT

Some systematic departures from rational choice are:

• Bias 1: Generosity and Selflessness

• Bias 2: Paying Attention to Sunk Costs

• Bias 3: Overconfidence

• Bias 4: Self-Control Problems and Hyperbolic Discounting

• Bias 5: Falling Prey to Framing – introduction example

 BIAS 1: GENEROSITY AND
SELFLESSNESS

Economic model of rational choice assumes “rational self- interest,” but many people
often engage in acts of generosity and exhibit altruism
• Acts motivated primarily by a concern for the welfare of others
• Donations to charity are the most obvious example
• Economists have tried to include this in the model for example by addition someone
else’s consumption into your utility function.
• Parent’s utility depends on child’s consumption
 BIAS 1: GENEROSITY AND
SELFLESSNESS - EXAMPLE
• Imagine you have two glasses of lemonade: one for you and one for your child. In a traditional economic model, you'd
choose how much to drink from each glass based on maximizing your own satisfaction. So, you might drink all your
lemonade first if you love it more.
• But here's where things get interesting: parents often care about their child's happiness too. This is called altruism.
So, in this example, you might share your lemonade with your child, even if it means having less for yourself. Why?
Because seeing your child happy also brings you joy!
• Economists try to capture this behavior by adding a twist to the model. They say your happiness, or utility, doesn't just
depend on how much lemonade you drink, but also on how much your child drinks. It's like combining both glasses into
one big "family happiness" glass.
• Now, you wouldn't just maximize your own enjoyment, but the combined happiness of you and your child. This might
mean sharing the lemonade, even if you prefer it all to yourself. This is similar to real-life situations where parents make
choices that benefit their children, even if it comes at a personal cost.
It's important to remember that this is just a simplified model, and real-life decisions are often more complex.
But it helps us understand why rational, self-interested people can be generous and act in ways that benefit others.
1. Volunteering: Imagine you have free time you could spend relaxing or earning money. Traditionally, the model would predict you'd choose the
option that maximizes your personal gain. However, people often volunteer, which takes time and effort, without direct financial reward. Here,
economists might say your utility function includes the satisfaction you get from helping others, making volunteering a rational choice based on
maximizing combined "self + help" satisfaction.

2. Charitable donations: You have disposable income you could spend on yourself or donate to charity. Traditionally, the model would predict
maximizing personal spending. However, many people donate, sacrificing personal gain for the benefit of others. Here, economists might say your
utility function includes the positive feelings associated with supporting a cause you care about, making donation a rational choice based on
combined "self + cause" satisfaction.

3. Reciprocity: You receive a small gift from a friend. Traditionally, the model might not predict any response since there's no direct personal
gain. However, people often feel inclined to reciprocate, even if the value of the return gift doesn't perfectly match the original. Here, economists
might say your utility function includes the negative feeling of being unfair or indebted, making reciprocation a way to restore balance and
maximize combined "self + fairness" satisfaction.

4. Social norms: Imagine witnessing someone struggling in public. Traditionally, the model might predict avoiding involvement to minimize
personal cost. However, social norms often encourage helping others.
BIAS 2: THE SUNK COST FALLACY
BIAS 2: THE SUNK COST
FALLACY
 [Link]

Examples ( Refer Video)

-Travel to Ooty and Coorg
-Movie ticket
-Not treating gains and losses equally
 BIAS 3: OVERCONFIDENCE

• Individuals believe their skill level and judgment are better than they truly are, or they
expect that outcomes are better for them are more likely to happen then they truly are.
• Numerous studies have shown that humans tend to overestimate positive attributes about
themselves
• In one survey, 93% of college students said they were “better than average” drivers
• On a popular dating website, 73% of individuals describe themselves as having “very good” or “better
than average” physical attractiveness
 BIAS 3: OVERCONFIDENCE

How Economic Markets Take Advantage of Overconfident People

• Firms take advantage of overconfidence

✔ Consider gym memberships: Why do gyms charge monthly memberships
instead of per-visit fees?
• Individuals who sign up for a health club tend to be far too optimistic about the prospects of
sticking to their exercise goals
• Health clubs tailor their offerings to exploit such over optimism
• Charging monthly fees allows health clubs to extract surplus from over-optimistic clients
 BIAS 4: SELF-CONTROL PROBLEMS AND
HYPERBOLIC DISCOUNTING

• People have a strong preference for NOW

• A 10% discount rate implies that $1.00 today is equivalent to $0.90 next year
• There is evidence that many people have a much higher discount rate when
making decisions about immediate consumption

Hyperbolic discounting – Tendency of people to place much greater

importance on the immediate present than even the near future when making
economic decisions
 BIAS 4: SELF-CONTROL PROBLEMS AND
HYPERBOLIC DISCOUNTING

Problem: Decisions stop being time-consistent

• Consistencies in a consumer’s economic preferences in a given economic transaction,
whether the economic transaction is far off or imminent
• When consumers are not time-consistent, they will, for instance, specify their
preferred exercise and diet routine for next week now, but then when they get to
next week, they won’t want to stick with the plan they set up

Video : [Link]
 BIAS 4: SELF-CONTROL
PROBLEMS & HYPERBOLIC
DISCOUNTING
 BEHAVIOURAL ECONOMICS AND DECISION MAKING

• Behavioural economics concerns the patterns with which decision making is conducted by agents such as
workers or employers.
Libertarians argue for the right to complete freedom of choice of each agent without much (if any)
interferences from outside factors (such as the government or firms).
Paternalism concerns the belief that agents are bound to act irrationally and lose out by making certain
decisions, and so these choices should be made on their behalf.

Libertarianism and the Moral Lean Towards Freedom - Libertarian economists envision a
self-regulating free market where rational agents seek opportunities to maximise their welfare at
the cost of potential risks to health.
LIBERTARIAN PATERNALISM

• Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism, because choices
are not blocked, fenced off, or significantly burdened.
• If people want to smoke cigarettes, eat a lot of candy, choose an unsuitable health care plan, or fail to save
for retirement, libertarian paternalists will not force them to do otherwise—or even make things hard for
them.
• Still, the approach we recommend does count as paternalistic, because in important contexts, private and
public choice architects should not merely track or implement people’s anticipated choices. Rather, they
should attempt to move people in directions that will make their lives better. They should NUDGE.
CHOICE ARCHITECTURE

Choice architecture refers to the design of how choices are presented to individuals, and how
this presentation influences the decisions they make.
Choice architecture is the presentation of full set of choices to the target audience in a way
which can help the nudge architect predict the ways in which the audience would respond
to the nudge without excluding the set of choices.
It goes beyond just offering options and delves into influencing the way people perceive and
evaluate those options.
 CHOICE ARCHITECTURE - EXAMPLES

Eg : Imagine a grocery store. The choice architect (in this case, the store manager) decides how products are
arranged.
● Healthy snacks are placed at eye level, near the checkout counters, where people are likely to be more
impulsive and grab a quick snack. Unhealthy snacks might be placed on lower shelves, requiring more effort to
reach, potentially discouraging impulsive purchases.
● User interfaces of websites and apps, where the layout and prominence of buttons and options can influence
user behavior.
● Public policy, where policymakers design programs with specific "defaults" or incentives to encourage desired
actions, such as automatic enrollment in retirement savings plans.
WHAT IS NUDGE

Nudge : The term, is any aspect of the choice architecture that alters people's behaviour in a
predictable way without forbidding any options or significantly changing their economic
incentives.

Nudging for Good : "Nudging for good" is the practice of using subtle interventions to steer
individuals toward positive behaviors and choices that benefit themselves, society, or the
environment.
• To count as a mere nudge, the intervention must be easy and cheap to avoid.
• Nudges are not taxes, fines, subsidies, bans, or mandates.
Putting the fruit at eye level counts as a nudge.
Banning junk food does not.
Nudge is credited mainly to American academics Richard H Thaler and Cass R Sunstein
WHAT IS NUDGE

Nudge theory is a flexible and modern concept for:

• Understanding how people think, make decisions, and behave,

• Help people improve their thinking and decisions,

• Managing change of all sorts, and

• Identifying and modifying existing unhelpful influences on people.

• Nudge theory seeks to minimize resistance and confrontation

[Link]
ENFORCED CHANGE vs NUDGE

25
SOME SIMPLER EXAMPLES OF NUDGE(S)

ENFORCEMENT & NUDGING

• Instructing a small child to tidy his/her room
• Playing a 'room-tidying' game with the child
• Erecting signs saying 'no littering' and warning of fines
• Improving the availability and visibility of litter bins
• Joining a gym Using the stairs
• Counting calories Smaller plate.
• Weekly food shop budgeting Use a basket instead of a trolley
SOME SIMPLER EXAMPLES OF NUDGE(S)

ENFORCEMENT & NUDGING

• Instructing a small child to tidy his/her room.(E)
• Playing a 'room-tidying' game with the child. (N)
• Erecting signs saying 'no littering' and warning of fines.(E)
• Improving the availability and visibility of litter bins.(N)
• Joining a gym.(E) Using the stairs. (N)
• Counting calories. (E) Smaller plate. (N)
• Weekly food shop budgeting.(E) Use a basket instead of a trolley.(N)
 ▪ A nudge maintains Freedom of choice
▪ Transparent & Effective
▪ It is easy & simple

Features of Nudge ▪ Needs to be evidence-based

▪ Has to be tested
▪ Creative and lively

▪ Ten Important Nudges:

1. Default Rules
2. Simplification
3. Use of Social Norm
4. Increase in ease & convenience
5. Disclosure

A Short Guide 6. Warning but creative, graphic

to Nudge 7. Pre-commitment strategies
8. Reminders
9. Eliciting Implementation intention
10. Informing people about nature & consequence
 CHARACTERISTICS AND PRINCIPLES OF NUDGE

• Nudges avoid invoking an economistic decision frame. They do not affect people's economic
incentives.
• Nudges are human-centered. They attempt to move people in directions that will make their
lives better.
• Nudges are voluntary. They preserve freedom of choice.

According to Thaler 3 principles should guide the use of nudges:

[Link] nudges should be transparent and never misleading

[Link] should be as easy as possible to opt out of the nudge
[Link] should be good reason to believe that the behaviour being encouraged will improve the
welfare of those being nudged.

29
DURING A BUFFET LUNCH, WHAT DO YOU PICK TO EAT?
DO YOU OPT FOR HEALTHY OPTIONS?
Imagine if the college had slides instead of the staircase?
Would you like
to take the
stairs to class
instead of the
lift?
 ▪ Furthermore, additional examples of nudges and their benefits appear in various
other areas of life. For instance:

▪ Nudges can prompt people to take better care of their health. For example,
sending people a reminder to schedule a dental check-up doubled the rate of
people who signed up.

▪ Nudges can prompt people to make better financial decisions. For example,
Nudge: How sending students a few personalized text messages helped many of them
Small Changes remember to refile their application for student aid.

Can ▪ Nudges can prompt people to pay better attention to their privacy. For
example, giving social-media users a reminder about who will be the audience for
Significantly content that they intend to post helped those users make better decisions

Influence regarding what to post and where to post it.

▪ Nudges can prompt people to make choices that benefit other members of
People’s society. For example, using an opt-out system for organ donations, where people

Choices are automatically registered as organ donors unless they choose otherwise, instead
of an opt-in system, where people have to actively register to become donors,
significantly increased the number of people that are registered as organ donors.
[Link] ▪ Nudges can get people to make choices that are better for the environment.
For example, providing feedback to households about their and their neighbors’
[Link]
electricity usage led people to reduce their energy consumption.
e-theory/
 ▪ The Ballot Bin is the world’s first customisable voting ashtray
that is proven to cut cigarette litter by up to 73%

▪ The Ballot Bin started as an experiment in Villiers Street in

2015 to nudge smokers to vote rather than throw their butts on
the floor. The first Ballot Bin asked the question, ‘Who’s the best
Ballot Bins in London footballer in the world? Ronaldo or Messi’.

▪ It took social media by storm and went viral, reaching people

over 6 million times.

Now you can find Ballot Bins in 43 countries around the world,
collecting an estimated 15 million cigarette butts a year.
 NUDGES ADVANTAGES AND DISADVANTAGES
Advantages: Disadvantages:
● Improved outcomes: Nudges can help individuals make ● Effectiveness: Nudges may not be effective for everyone,
better choices that benefit their health, finances, and especially those with strong pre-existing preferences or
well-being. For example, highlighting healthier food options limited access to information.
in a cafeteria can nudge people towards making healthy ● Unintended consequences: Nudges can sometimes lead
choices. to unintended consequences. For example, a nudge
● Societal benefits: By influencing individual choices, nudges encouraging organ donation might lead people to donate
can have positive impacts on society as a whole. For without fully understanding the implications.
instance, encouraging energy conservation through nudges ● Ethical concerns: The use of nudges raises ethical
can lead to reduced energy consumption. concerns around potential manipulation. It's crucial to
● Informed and empowered choices: In some cases, nudges ensure nudges are transparent, ethical, and respect
can provide valuable information to individuals, enabling individual choice.
them to make more informed and empowered decisions. For
example, displaying calorie information on menus can nudge
people to consider the calorie content of their food choices.
 SOME SITUATIONS WHERE NUDGES MAY NOT WORK
1. Complex or high-stakes decisions: Nudges are often designed for situations with relatively simple
choices and low stakes. If individuals are facing complex decisions with significant potential
consequences, a nudge might be easily overlooked or disregarded. Eg : If it’s a very expensive
purchase
2. Strong pre-existing preferences or beliefs: Nudges rely on the idea of subtly influencing people's
decision-making processes. However, if individuals already have strong pre-existing preferences or
deeply held beliefs, a nudge is unlikely to significantly alter their behavior. Eg : A nudge promoting
the benefits of vaccination is unlikely to sway someone who firmly opposes vaccination for
ideological reasons.

“Nudge” interventions are most appropriate in what marketing researchers call “low-involvement”
decisions, i.e., ones that involve little conscious deliberation, and also in high involvement decisions that are
complex or unfamiliar.
IMPORTANT FACTORS CONSIDERED WHILE
CREATING NUDGE
• Choice Architecture : Choice architecture refers to the design of how choices are presented to
individuals, and how this presentation influences the decisions they make.
• Libertarian Paternalism : It refers to approaches that preserve freedom of choice while steering
individuals to behave in a certain way. Given that choices are not restricted, it can be considered a soft and
nonintrusive type of paternalism.
• Physical Environment : The physical environment plays a crucial role in shaping behavior by influencing
individuals' perceptions, emotions, and actions. Factors such as lighting, layout, colors, and signage can
impact decision-making and behavior.
• Surroundings : The immediate surroundings or context in which individuals make decisions can
significantly influence their behavior. This includes social cues, norms, and the presence of others, as well
as environmental factors like noise levels and cleanliness.
HOW ARE WE NUDGED ?

Reflexive Thinking Rationale Thinking

 SYSTEM 1 AND SYSTEM 2 OF NUDGING

System 1 : Automatic System (Reflexive) : Control day to day thoughts – how much butter to
spread, smiling when you see cute puppy.
• The automatic system is especially prone to bias, in fact it uses bias to speed up decision making.

System 2 : Reflective System : work by creating hypothesis and testing these with prior knowledge.
• Sort between relevant and irrelevant piece of information

Nudging uses both system 1 and system 2 depending on the situation

 TYPES OF NUDGE

[Link] Option : A powerful way to encourage [Link] Norming and Misperceptions : Inform
take-up rates of ‘desirable options’ is to set the people that most others are engaged in certain
desired outcome as the default option. behaviour.
Eg : A powerful influence for decision-making is social
• Double Sided Printing : If the default print norms (aka “peer pressure”). This is most
option is say, double-sided printing) it can powerful when it is as local and specific as
promote environmental protection. possible
• Default Organ Donation : By making organ Eg :
donation the default option at birth with the • Sharing a notice that majority of people in your
option to opt-out, countries like Austria have community pay their taxes on time
significantly increased organ donation rates. This • Home Energy: Homes using more energy than
nudge taps into the human tendency to stick their neighbors reduced consumption after
with the default and reduces the burden of receiving reports comparing their usage to the
actively making a decision. average of those in their building
 TYPES OF NUDGE
[Link] : In both rich and poor countries, [Link] Reminders : People tend to have a great deal on
complexity is a serious problem. their minds, and when they do not engage in certain conduct
the reason might be some combination of inertia,
• Programs should be easily navigable, even intuitive.
procrastination, competing obligations, and simple
Eg : forgetfulness.
• Simplification of welfare forms : In many nations, the
benefits of signing up for govt schemes involving education, • A reminder can have a significant impact.
health etc are greatly reduced because of complexity in Eg :
understanding. • Push Notifications : BluSmart could send occasional
Reducing the overall amount of text, highlighting important push notifications reminding users about the
information, and ensuring that key messages are placed environmental benefits of choosing EV taxis, but this
where the eye naturally tracks can help improve decision should be done sparingly to avoid becoming annoying.
making • Reminder by email or SMS for overdue bills and
• Translating CO2 saved into "planting 1,000 trees" simplifies upcoming appointments, taking medicines etc.
the impact and makes it relatable.
 TYPES OF NUDGE

5. Subtle Suggestions :
• Subtle suggestions nudges involve indirectly influencing
behavior by subtly prompting desired actions or choices.

• Displaying "CO2 saved" and "fuel avoided" subtly suggests

the environmental benefit of choosing EV taxi companies
like Blu Smart.
 BEHAVIOURAL SCIENCE

Behavioural Nudge : It’s a way of using psychological insights to influence people’s

behaviour. It’s actually just making use of using the natural quirks and biases in our brains to
improve decision-making and to re-frame how we perceive questions and tasks.
The Nudge Unit has helped boost organ donor numbers by tens of thousands, reduce
errors in doctors’ prescriptions, and even boost charitable giving in wills.
Eg : People liked the idea of leaving a gift to charity, but far fewer remembered to do so
when they wrote their wills.
In the lawyers office if there is a message on the will form : "Did you know that many
people like yourself find leaving a legacy gift to be a meaningful way to support causes they
care about?"
Contribute to causes you care about even after your lifetime. Leave a legacy behind. They
can be prompted
How to use nudges
• The nudge should fit the target audience.
• The effectiveness of specific nudges depends on the circumstances.
• Small nudges can sometimes be more effective than bigger ones.

few additional guidelines that you should keep in mind

when deciding whether and how to present your nudges to
others:

1. Nudges shouldn’t necessarily be

hidden.
2. People should perceive the nudge as
beneficial.
3. People should feel that the nudge
respects their ability to choose.
4. People generally prefer nudges that
target their conscious reasoning.
 GREEN NUDGES AND TYPES AND PRO-ENVIRONMENTAL
BEHAVIOUR
Green nudges aim at encouraging pro-environmental
behavior.

In other words, they aim at encouraging people to

voluntarily contribute to a public good, namely,
environmental protection.

Read through green nudges pdf

[Link]
[Link]
[Link]
4 types of green nudges (Pro-Environmental Behaviour) :
[Link] of information : Providing credible and
accessible information that reduces the choice
complexity is a promising tool to increase
pro-environmental choices.
Eg: [Link] highlights eco-friendly accommodation
options with sustainability certifications, allowing travelers to
make informed choices based on environmental impact.

2. Changes in the physical environment : Nudging

through changes in the physical environment seems to be
especially suitable to influence behaviour in relation to
waste sorting, waste recycling and decrease in food
waste.
Eg :
• Reduce plate size : Hotels can reduce food waste by almost
20% if they give smaller sized plates to people to take food in
the buffet.
• Placement of Recycling Bins: Placing recycling bins in
prominent and easily accessible locations throughout a campus
3. Changes in the default options : Changing the
default to a green option can.
Eg :
Nest Labs' smart thermostats come with
pre-programmed energy-saving settings as the default,
nudging users towards efficient energy use unless they
specifically change it.
4. Use of social norms and regular feedback : Social nudges in
terms of using social norms through peer comparisons are
interesting because this type of nudge is applied across both
energy and water consumption as well as waste sorting.

Eg :
• Blu Smart EV taxi app showcases a growing community of
eco-conscious riders. They allow users to share their taxi rides
and CO2 saved on social media thus encouraging others also to
switch to electric mobility.

• The Body Shop's refill program displays the amount of

plastic saved with each refill purchase, providing customers
with immediate feedback on their environmental impact.
NUDGE THEORY IN SOLVING SOCIAL AND
ENVIRONMENTAL ISSUES
[Link] Responsible Consumption : Refers to
changing one’s consumption habits based on how they
directly affect the environment (i.e., energy conservation,
recycling habits, and pollution levels).
Nudges have been shown to effectively reduce
environmental impacts
Eg :
• Hotel Towels: Guests were more likely to reuse towels
when informed 75% of the previous occupants in their
room did so.
• Online Shopping: People spent more on eco-friendly
products when told 70% of prior customers did the same.
 NUDGE THEORY IN SOLVING SOCIAL AND
ENVIRONMENTAL ISSUES
2. Socially Responsible Consumption :
Increasing awareness of how poor labor conditions in the developing
world support the low cost of products for Western consumers. This
has led to concern about social issues that directly affect individuals
and humanitarian concerns.
Eg :
Campaign example: Fashion Revolution uses the slogan "Who
made my clothes?" to raise awareness about ethical production
through social media and storytelling.
Increase product availability: Make ethically produced clothing
more readily available and also placement in front of the store to
increase consumer choice and support responsible businesses.
 TO NUDGE : GO EAST
[Link] : People often take the path of least resistance. You can therefore encourage desirable behaviours by removing small frictions or
hassles, by defaulting people into the desirable choice, or by redesigning the way choices are presented to make the desirable
behaviours easier
Eg : Placing recycling bins right next to a vending machine so people don’t litter
[Link] : Humans are more likely to adopt a behaviour when it captures our attention or is in line with our motivation and beliefs.
You can draw attention with visual cues.
Eg :A colorful and 3D poster illustrating turning off lights when leaving a room; An attractive looking dustbin in the shape of a
coca cola bottle to throw coca cola cans
3. Social : This is hugely influenced by what others around us are doing. You can promote desirable actions by highlighting the fact that
other people are adopting them
Eg : Create a community challenge to reduce water usage, publicly displaying progress charts or leaderboards to show how
everyone's efforts contribute to the overall goal.
4. Timely : People are creatures of habit, so nudges are most effective at moments of change in people’s lives.
Eg : Launch a campaign promoting the installation of water-saving fixtures (such as low-flow showerheads and faucets) during
drought seasons or water scarcity alerts.
Provide recycling education materials and resources to new residents during move-in day at college campuses or apartment complexes,
helping them establish recycling habits early on.
 Use defaults
• Set the norm that diners will use their own cup and cutlery
• Make the most sustainable meal the default choice
• Default to eco settings on appliances and Electronics.
• Make remote dial-in and sustainable travel the default options
Remove or add frictions
MAKE IT EASY
• Make it easier to cycle around campus
• Introduce applications for parking cars on Campus
• Make it harder to let taps and showers run
• In university cafeterias, offer smaller plates and no trays
Change the choice environment
• Make sustainable options more prominent
• Offer sustainable substitutes for common foods
• Make sustainable options more prevalent
 Draw attention
• Make recycling bins eye-catching
• Install smart meters with feedback Displays
• Indicate food “use by” dates clearly
• Personalize messages
Frame messages positively and highlight co-benefits
• Promote plant-based food as aspirational, delicious and
MAKE IT ATTRACTIVE filling
• Harness positivity and pride
• Create social opportunities for sharing and reuse
Use smart incentives
• Charge for not using your own coffee mug
• Promote sustainable “meal deal” incentives
• Publicly display sustainability ratings
• Introduce lottery-based deposit return schemes
 Highlight others’ sustainable behaviour
• Share information about positive trends
• Provide social comparisons of energy and water use
MAKE IT SOCIAL • Publicize university rankings that measure Sustainability
Harness identity and the right messengers
• Broaden messages to appeal to a wide audience
• Choose messengers who will be received positively
• Highlight desirable Identities
Use social connections and peer pressure
• Create opportunities to make public pledges
• Provide incentives to encourage peer referral
• Distribute and share Leftovers
 Encourage pre-commitments and emphasize present
benefits
• Encourage pre-ordering of catered meals
• Ask people to pre-commit to gradual changes
• Offer interest-free loans for public transport passes
Harness or create timely moments
• Help newcomers form sustainable habits
MAKE IT TIMELY • Reduce waste at the end of the term
• Hold campus-wide moments of action
Help people plan and follow through
• Provide checklists
• Support people before they need it
• Help people follow through on saving energy
PROCESS OF NUDGING : 6D’s of Nudging
 EG : PROCESS TO CREATE A NUDGE FOR REDUCING ELECTRICITY
CONSUMPTION ON CAMPUS
[Link] ( Problem identification per user) - Experimental Psychology
● Experimental Psychology is primarily concerned with controlled experiments to understand individual behavior and biases/heuristics
● Pinpoint user-specific problems through methods like surveys and interviews, emphasizing individual needs over broad community issues."

Eg :
● Conduct surveys, interviews, and analyze energy consumption data from different dorms, departments, and buildings.
● Identify specific areas where electricity consumption is high and understand the underlying reasons.
● Consider factors like:
○ Student behavior (leaving lights/electronics on)
○ Inefficient appliances
○ Lack of awareness about energy usage
○ Dorm culture - Lack of motivation
[Link] ( Problem around community) - social psychology
● This stage should involve framing the problem in a way that considers both individual needs and the broader community context.
Eg :
● Defining Community problem: High campus-wide electricity consumption leading to increased costs and environmental impact.
[Link] ( Solutions for user in community) - Social + Cognitive Psychology
• Social psychology helps understand how social norms, group pressure, and social influences can be leveraged in the nudge design.
• Cognitive psychology helps understand how individuals process information, make decisions, and respond to different stimuli.
• Use EAST and different types of nudges here.

Eg : Nudges :
● Social Norming : Displaying real time anonymous comparisons of energy usage among dorm residents to highlight positive
behaviors and encourage conformity to energy-saving norms.
● Changes in physical environment : Deploy smart power strips in dorms to to automatically cut power to electronics left on standby
● Default : Implement opt-out energy programs for students choose to automatically receive energy efficient bulbs for their dorm
unless they explicitly choose not to
● Providing energy-saving tips through targeted messaging to address individual behaviors.
[Link] ( Identify relationship between community problem)- Business + Strategy

Eg :
• Analyze the financial and logistical aspects of implementing energy-saving solutions on campus.
• Analyze the potential savings and how it solves the overall community problem
• Develop a strategic plan outlining the most effective and feasible interventions and how to measure them
• Consider how reducing electricity consumption contributes to the university's sustainability objectives,
reputation, and compliance with regulatory requirements.
[Link] ( Record users behavior) - Experimental Psychology
● Controlled experiments are necessary to measure the effectiveness of the implemented nudge.
● This involves collecting data on how users behave with and without the nudge
Eg :
● Implement the chosen nudges in select buildings or dorms as a pilot program.
● Use smart meters or other methods to measure changes in electricity consumption with and without the
nudges.
● Conduct surveys or interviews to understand student response to the nudges.
[Link] - Change in community and individual behaviour
● The ultimate goal is to see positive changes in both individual behavior and the broader community.
● This may involve scaling up successful nudges or refining unsuccessful ones based on the data collected in
step 5.
● Nudges should nudge, not manipulate and their impact freedom of choice should always be kept in mind
Eg :
● Scale up successful nudges across campus.
● Refine or replace unsuccessful nudges based on user feedback and data analysis.
● Continuously monitor and adapt the program to ensure long-term effectiveness and ethical considerations.
 FIVE STEPS TO CREATE A SUCCESSFUL NUDGE
1. Choose your target behaviour 3. Design your nudge
• What is the specific target behaviour you • What is your nudge?
want e.g. change descriptions of food on menus
to change? • What resources will you need?
e.g. reducing red meat consumption on campus e.g. time and creativity to brainstorm new
• Who is your specific target audience? menu descriptions (no cost for printing menus
e.g. first-year students compared to business as usual)
• Whose buy-in do you need in order to implement your nudge?
2. Understand your context e.g. campus catering manager
• What individual influences on behaviour
might be barriers or drivers?
4. Test the effectiveness of your nudge
e.g. students lack cooking skills and • What behavioural outcome will you measure?
e.g. number of meat dishes sold per day in
experience planning grocery shopping
cafeteria for the whole term
• What social influences on behaviour might
• What is your comparison to know if your nudge worked?
be barriers or drivers? e.g. record sales of meat dishes for a term
e.g. social norms of eating meat before the nudge, or record in another
• What material influences on behaviour cafeteria without the nudge
might be barriers or drivers?
e.g. contract with catering company
5. Reflect and redesign
• What are the touchpoints where you could • How could you improve your nudge?
intervene to change behaviour? e.g. next time redesign the menu to feature
e.g. campus cafeterias plant-based dishes more prominently
 STEPS TO CREATE A NUDGE Some more detail on creation
of nudge

1. CHOOSE YOUR TARGET BEHAVIOR

a) Be specific: Nudges are more effective when they target a specific behaviour and a specific audience
b) Look for quick wins: Some behaviours are difficult to change because they are dictated mostly by cost or
structural barriers
c) Aim for impact: Some behaviours have more of an impact on the environment than others. Eg : preventing
unsustainable consumption (e.g. reducing single-use plastics) is generally better than trying to mitigate its
effects (e.g. encouraging recycling).

Example:

Target behavior: Encouraging office workers to bring reusable coffee mugs instead of using disposable cups.
Specific audience: Employees in an office building.
2. UNDERSTAND YOUR CONTEXT
a) Factors affecting behavior:Eg : Convenience of using disposable cups provided in the office kitchen, lack of awareness about
environmental impact, busy work schedules.
b) Barriers to behavior change: Eg : Lack of personal ownership of reusable mugs, perception of inconvenience in carrying
mugs to work.
c) Drivers of behavior change: Eg : Sustainability initiatives by the company, and washing facilities, social pressure from
colleagues.
d) Touchpoints for intervention: Office kitchen, coffee stations, company-wide communications.
e) Reassess and finalize target: Confirm that encouraging reusable mug usage aligns with the company's sustainability goals and
is feasible within the office

3. DESIGN YOUR NUDGE - Share your nudges here

a) Effective approach: Implement a "Mug Monday" campaign, where employees are encouraged to bring their reusable mugs
every Monday and receive a discount on coffee purchases. You can also create a competition out of it.
b) Realistic action: Provide branded reusable mugs to all employees and promote their use through email newsletters, posters
c) Involving the right people: Collaborate with the office facilities team to ensure sufficient mug storage and washing facilities
are available
d) Building support: Organize a launch event with free coffee for employees who bring their reusable mugs, and offer incentives
plus a dashboard display for departments with the highest participation rates.
e) Recognizing potential negative effects: Provide disposable cups as an alternative for employees who forget their reusable
mugs and ensure they are made from recyclable materials.
4 TEST THE EFFECTIVENESS OF THE NUDGE
● Trial before rollout: Pilot "Mug Monday" campaign in select floor to assess response and behavior change.
● Measure outcomes: Track the number of reusable mugs used on Mondays and monitor the reduction in
disposable cup usage over time.
● Compare outcomes: Compare participation rates and cup usage data between the pilot area and control
areas without intervention to evaluate the impact of the nudge.
● Watch for knock-on effects: Monitor any unintended consequences, such as changes in coffee
consumption habits or employee morale.

5. REFLECT AND REDESIGN

● Based on the trial results, reflect on the effectiveness of the campaign and consider adjustments or
enhancements to maximize participation and sustainability impact.
● Redesign elements of the campaign as needed, such as refining communication strategies or introducing
additional incentives, before expanding the initiative across the entire office building.
 BOOK REVIEW :THE NUDGE BY RICHARD [Link]
AND CASS R SUNSTEIN
• The book 'Nudge' is effectively in two quite different halves :
• The first half offers a very clear and entertaining explanation, supported by research and survey statistics, etc., of
human decision-making, which the authors contend to be generally illogical, weak, harmful, and often self-destructive.
Most of this explanation is underpinned by previous studies and scientific theory concerning 'heuristics', which in the
authors' context of human decision-making refers to the tendency for humans to think instinctively, emotionally, and
subjectively, rather than logically, rationally and objectively. The authors list several types of heuristic tendencies in people,
which equate to 'Nudges', on the basis that 'heuristics' are fundamental drivers of decisions.
• The second half of the book analyses various theorized and potential effects of heuristics in the US sectors of:
- consumer/societal finance (pensions, savings/investing, credit/borrowing, and social security);
-healthcare (prescription drugs, organ donations);
- the environment (carbon tax); ( Nudging can help curb energy-wasting behaviors, for example, but Thaler also advocates for a
carbon tax that reflects the true cost of carbon emissions.)
-marriage (the notion that it should be separated from the state)
As such basically the book's first part offers the Nudge principles (rather like a toolkit), whereas the second part describes
and offers 'Nudge' solutions to challenges in the US economy/society.
EXAMPLES OF NUDGES IN THE BOOK
1. Automatic default Enrollment in Retirement Savings: In 4. Loss Aversion in Investment Decisions: People
an office, People are more likely to save more for retirement if are more sensitive to losses than gains, a concept
they are automatically enrolled in a savings plan with an option known as loss aversion. Framing investment options
to opt-out, rather than having to actively opt-in. in terms of potential losses instead of potential
2. Organ Donation Opt-Out Programs: By making organ gains, prompts individuals to be more cautious and
donation the default option with the option to opt-out, countries potentially make more risk-averse investment
like Austria have significantly increased organ donation rates. choices.
This nudge taps into the human tendency to stick with the 5. Social Norms to Encourage Energy
default and reduces the burden of actively making a decision. Conservation: Displaying information about a
3. Labeling Calories on Restaurant Menus: Displaying calorie household's energy usage compared to their
information on menus can nudge individuals towards making neighbors can nudge them to conserve energy. This
healthier food choices. This provides transparency and factual uses social comparison and the desire to avoid being
information. seen as wasteful in society.
GENERAL EXAMPLES OF NUDGE

• Desk Arrangement: Open office plans or designated collaboration areas can nudge employees towards more team
interaction and collaboration.
• Healthy Snacks: By placing healthier snacks in more accessible locations in the office pantry or replacing coke with
water in vending machines, companies can nudge employees towards healthier eating habits.
• Sustainability: Placing recycling bins next to printers can nudge employees to think twice before printing
unnecessarily and promote recycling of paper.
• Attendance and Punctuality: Visual charts displaying team attendance or software notifications reminding about
upcoming meetings can nudge punctuality.
• Learning and Development: Offering "lunch and learn" sessions or highlighting available online courses can nudge
employees to engage in continuous learning.
• Feedback Culture: Establishing regular check-ins or providing platforms for peer feedback can nudge a culture of
continuous feedback and improvement.
EXAMPLES OF COMPANIES NUDGE APPROACH IN
PRO-ENVIRONMENTAL BEHAVIOR
Water Reduction:

• Green Default: Seventh Generation laundry detergent comes in a concentrated formula, requiring less water per wash. This
sets the eco-friendly option as the default, nudging consumers towards a sustainable choice.
• Direct Reminder: Many showerheads have a built-in timer that beeps or changes color after a certain time, reminding users to
shorten their showers.
Water Recycling
• Provision of Information: Levi Strauss & Co. communicate their use of water recycling systems in their manufacturing
facilities through informative labels on products or their website. This transparency educates consumers about their sustainable
practices.
Sustainable Consumption
• Social Norming: Patagonia showcases customer stories and photos of repaired or reused Patagonia gear on their website,
highlighting the social norm of responsible consumption.
• Provision of Feedback: The Body Shop's refill program displays the amount of plastic saved with each refill purchase,
providing customers with immediate feedback on their environmental impact.
SOME MORE EXAMPLES
Energy Consumption
• Green Default: Nest Labs' smart thermostats come with pre-programmed energy-saving settings as the default, nudging users
towards efficient energy use unless they specifically change it.
• Direct Reminder: Some utility companies send personalized reports comparing a household's energy usage to similar homes,
prompting awareness and encouraging potential adjustments towards lower consumption.
Water Conservation
Hotels may display signs in bathrooms with water-saving tips or facts about the environmental impact of long showers, gently
nudging guests towards water conservation.
Sustainable Travel
• Provision of Information: [Link] highlights eco-friendly accommodation options with sustainability certifications,
allowing travelers to make informed choices based on environmental impact.
• Social Norming: Travel blogs or social media campaigns may showcase responsible travel practices like using public
transportation or choosing eco-lodges, influencing traveler behavior through social norms.
• Carbon Offsetting Programs: Airlines like Air France offer carbon offsetting options during booking, allowing travelers to
mitigate their environmental impact by contributing to projects like tree planting.