Contrary to popular belief, nudging does not necessarily improve decisions, a recent study suggests.
Nudging is a well-known and popular concept in behavioural economics. It refers to non-coercive interventions that influence the choices people make by changing the way a situation is presented. For example, placing the salad bar near the cafeteria entrance is considered a nudge that can promote a healthy diet.
Focusing on this concept, the recent study by found out whether a nudge really does improve decisions depends on a person's underlying decision-making process. The study was published in the Journal of Political Economy.
"We can't determine whether a nudge improves the choices a person makes until we understand how they reach their decisions," said Nick Netzer, lead author of the study.
Traditional economics assumes that a person's preferences can be inferred from their decisions and behaviour. According to the rational behaviour model, a person's decision to have a salad or a steak for lunch is based on which meal meets their needs.
When it comes to assessing nudges, however, this model is problematic, since nudging manipulates precisely the behaviour that is supposed to shed light on a person's preferences.
The researchers, therefore, looked to alternative behavioral models to determine the assumptions under which a nudge can be assessed in a meaningful way.
According to the "satisficing" model, a person will consider their alternatives subsequently and choose the first one that meets their needs in a satisfactory way. The person will order the salad because it is the first option that adequately fulfills their requirements. Although they might have enjoyed the steak more, they will not consider that option, since they have already made up their mind. In this model, hardly any conclusions can be drawn about the true preferences of a person, and their decisions cannot be improved through nudging either.
However, if we assume decisions are made according to the limited attention model, the situation changes: This model is based on the idea that a person will only ever consider a certain number of possibilities - for example, only the first three meals on a menu that features five options. The person will then ponder these options and choose the best meal out of this selection. Unlike with the satisficing model, conclusions can be drawn about a person's preferences, as the UZH researchers have now shown.
Decisions that are based on such a decision-making process can be improved by nudging. Therefore, if you know that a salad is indeed an ideal meal, then placing it among the first three items on the menu will ensure that a person will at least consider this meal and maybe also choose it.
According to the researchers, it is necessary to know what a person's true needs and preferences are in order to assess the success of nudges when it comes to improving decisions. If this information is not available, any nudging that takes place is done without knowing what is in a person's best interests.
"Our findings show that the success of nudging greatly depends on how we view the human decision-making process. We can't conclusively determine whether nudging makes sense as long as current scientific knowledge in economics, psychology and neuroscience don't allow nudging to be assessed in a consistent manner," said Nick Netzer.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)