Give ‘em a Nudge

By Barry Stern, Ph.D. 

Renting a car at the Houston airport late one night last week, I was asked if I wanted the CDW (Collision Damage Waiver) or “just” the LDW (Loss Damage Waiver) coverage. My automatic “no” response to the “would you like insurance coverage” is deeply ensconced, but this variation caught me off guard.  Trained to respond to the less costly of the two options I’m typically offered, I naively went for the limited coverage.

But why are these tricky “choice closes” so effective even for a tired ole travel dog? Some provocative answers are contained in a powerful, fun read I’ve just completed in the book Nudge by Richard Thaler (an economist) and Cass Sunstein (an attorney) both from the University of Chicago. They explain we are, well, “Human”, contrasting our condition with fictional and always logical “Econs” who, like Spock from Star trek, behave based solely on logic. Econs don’t have upside down mortgages, they get the right amount of exercise each day, and are impervious to the latest manipulations of salespeople trained and incented to trap you into thinking you need something you actually don’t.

What are the broader implications for organizations? Conscious practice of “choice architecture” or engineering the environment to nudge people to make better choices.  For example—

• Want people to make healthy food choices in your company cafeteria? Put healthy foods at the beginning of the line. 
• Want people to contribute to the company 401K so they receive the full company match? Set the default value of your company’s 401K to “contribute @ X%” level.
• Love that succession management practice adopted by IT last year? Or the impact of that front line training in your Chinese operations? Spend more of your precious time broadcasting their successes instead of trying to “logic others” into doing the same thing.

The rather controversial term “libertarian paternalism” is used for such conscious practice of choice architecture. That is, one doesn’t eliminate choices, just orchestrates the environment to have people choose the options that are beneficial.  Why not learn the rules and then nudge boldly, consciously, and creatively? 

Barry Stern is vice president, Consulting Services and Delivery for Development Dimensions International (DDI).

Comments

[Reci Schmellick]

Barry, sounds like a good read. I also recommend How We Decide...another thought provoking book on the emotional/logic of our decision making.