If you’ve ever said to a child, “Everyone else is going” then you’ve used behavioural economics. Lots of it is common sense, and you’ll see ways in which we do it all the time, but it’s useful to separate out and name the various concepts and levers. The basic model from Downing Street’s Nudge unit uses the acronym MINDSPACE:

Messenger – think who should deliver the message. For example, people whom the target will see as peers, or their own family, rather than authority figures – this has been demonstrated with health messages. The time-honoured tradition of celebrity endorsement is another example.

Incentives – strongly avoiding losses is a big incentive, because loss aversion is stronger than positive gain. Some BE people say loss aversion is the reason why free trials (where you sign up with payment details, and have to cancel after the free trial period) work well – they say it’s because you don’t want to give it up after you’ve had it. Personally I think forgetfulness is the main reason – Default, in BE terms, explained see below. But loss aversion probably plays a part.

Norms – positive norms can be created, eg most people pay their tax on time; but negative norms can apply too, eg signs warning of the damage caused by people pilfering from a petrified forest (a story told in Thaler & Sunstein’s book, Nudge, to which people’s response was “Everyone else is doing it, so I can too!”. This principle would suggest it’s a mistake for GPs and hospital clinics to post notices saying, “last month 75 people missed their appointments”. A great example of this is given in Freakonomics, where a day care centre imposed “fines” for late pick-ups, which parents took as being the price for the late service, causing an increase in late pick-ups, albeit paid-for.

Defaults – we tend to go with the flow of pre-set options, hence setting things up so that people will have to opt out of a workplace pension rather than deciding to go in. Also why you have remember to tick the box to avoid being on mailing lists. This one was used and abused long before we called it behavioural economics.

Salience – our attention is drawn to novel and/or relevant information. The and/or is key here: novel is often totally irrelevant, being atypical by definition, but it can be disproportionately influential in our thinking. Salience also depends on who you’re talking to and when – a core principle of good communications that now has a cool name.

Priming – our acts are often influenced by subconscious cues, eg smaller containers for pop corn make people eat less. Seeing flowers not dollars on a screen saver makes people less aggressive, apparently, in doing a screen-based simulation task in which they have to decide how to behave towards others.

Affect – They do mean affect, not effect – our emotional associations can affect our actions. In a “hot” state you are less rational than in a “cold” state (and hence caution is advised re market research asking someone in a cold state to explain or predict “hot” state actions). This is why good intentions are not always acted upon. What a person says they’ll do when calm/ rational/not hungry/sober isn’t always what they do once they get to the pub/ to work/ walking past McDonalds.

Commitment – get the person to say or write it, eg filling in your own appointment card makes you less likely to miss the appointment.

Ego – we act in ways that make us feel better about ourselves – eg get people to sign the tax form just after the declaration instead of right at the end, to ensure honesty.

Social norms can be more powerful than positive financial incentives, but introducing financial incentives can drive out social norms. Therefore the two can work well together – small financial incentives, eg linked to the cost of smoking, combined with the value of giving up, which is much greater than the money saved. Smoking cessation increasingly uses multiple components, eg public commitment, family support, a peer network.

Other components often cited are:

Anchoring – establish expectations, eg of price or frequency. This is why reduced price things are appealing to many of us (I admit I’m one of them) – we take the original price into our thinking when considering the value of the item, even though rationally we know that things are only worth what someone will pay. Common sense might say these are the items that no one else wants.

Exclusivity/ scarcity – “Your policy entitles you to….” vs “Would you like to have….?”  makes it more likely they will accept what is being offered, as it appears to have more value.

So that’s the model used by the No 10 behavioural insights unit aka the “Nudge” unit, which has now been spun off as a separate company , part-owned by the Cabinet Office. More information on that here

Comment | September 2012