When push comes to nudge

It was called the "wackiest and most vogueish corner of government" when David Cameron launched it back in 2010. But what is the 'Nudge Unit' up to now? And do its achievements bear scrutiny?

Behavioural Finance

Source: Illustraion by Alex Esquerdeiro. Words by Richard Rawlinson

For years, governments lagged behind business in using behavioural science to shape perception and behaviour. According to David Halpern, Director of the government's Behavioural Insights Team (BIT), psychology used to be regarded as the "sickly sibling to economics". But the publication of Nudge in 2008 by Richard Thaler (who went on to win a Nobel Prize for his contribution to behavioural economics) changed that. The book made a compelling case for the power of 'choice architecture' to 'nudge' people towards smarter decisions. Nudge also struck a chord with David Cameron's Director of Strategy, Steve Hilton, who encouraged the former Prime Minister to set up a Behavioural Insights Team.

Dubbed the 'Nudge Unit' by the press, the BIT was charged with finding ways of 'nudging' people into decisions that not only benefit them, but society as a whole. It had to earn its keep – and if it didn't save the government at least 10 times its running costs (£500,000 a year) in two years it would be closed down. To many people's surprise, it overshot its target and stayed open; other governments soon followed its lead. It was partly privatised in 2014, and now employs 70 people across London, New York and Sydney.

But what has the BIT achieved? One early success was persuading 100,000 more people to join the organ donor register via text messages triggered when they renewed their car tax online. A letter from HMRC that included the information that most people in the recipient's town or postcode had already paid their tax bills boosted payments by around 15%. And personalised text messages sent to people owing fines 10 days before the bailiffs were due reportedly saved the Courts Service £30 million a year.

Personalisation has proved very successful across a number of projects. The BIT trialled a scheme for Bristol University, which was looking to increase the number of applicants from disadvantaged backgrounds. An undergraduate called Ben wrote a letter to pupils whose background matched Bristol's target audience, explaining in straightforward terms that elite universitites were desperate for students like them. The letters were hand-signed and sent to pupils in Year 12 (that's the Lower Sixth in old money). The result? Two years later, students who had been sent these letters were 34% more likely to be studying at a prestigious university than their peers who hadn't received a letter from Ben.

More recently, Warwick Business School (which works closely with the BIT) teamed up with the Clean Up Britain campaign to tackle the problem of littering in the UK. As a nation, we drop a staggering 120 tonnes of cigarette butts, packets and matches, as well as 2.3 million pieces of litter on a daily basis. One idea that's currently being explored is personalisation. As littering is an anonymous activity, writing the purchaser's name on the bag might put them off discarding it – a case for naming and shaming perhaps?

The influence of the BIT has now spread beyond government policymaking into the third sector, with the World Bank, the UN and the OECD each setting up their own 'nudge' unit. Behavioural science, it seems, is now giving economics a run for its money.

Fooling the forgers

Fooling the forgers

When the European Central Bank (ECB) was planning to introduce the new €50 banknote, it invited a neuroscientist to be a design consultant. Stanford University’s David Eagleman, creator of the BBC television series The Brain, was initially surprised to be headhunted for such an unlikely role. That’s until a bank representative explained how his expertise might determine a fresh solution to Europe’s counterfeiting problem.

The EU captures hundreds of thousands of fake euro banknotes each year, and modern brain science can offer an understanding of what details we notice on an authentic note, and why we fail to notice inconsistencies on a counterfeit note.

At the heart of the issue was that, while governments spend millions on security features, the public remains remarkably unobservant about forgeries. Features include holograms, watermarks and ink that changes colour when the note is tilted at different angles. However, even the less sophisticated fake notes tend to surface only at the banks because real notes have machine-readable code. The ECB’s mission for Eagleman was to explore how banknotes could be better designed, so the person on the street would be more likely to notice when something was amiss.

The neuroscientist soon discovered that, although we handle currency on a daily basis, we see only the details that our brains go out and seek. We may glance at a note to verify it matches the general template we’re expecting, but we don’t scrutinise the details.

This led to Eagleman proposing that the watermark on the €50 note should be a face instead of a building because the human brain is massively specialised for faces, but has less neural capacity devoted to edifices. The ECB liked the idea, and the result was a portrait of the mythological princess Europa, a diplomatic choice to get different countries to agree on one person’s face.

More radically, Eagleman proposed getting rid of all the decorative design features, suggesting a blank white piece of paper with a single hologram in the middle. This, he argued, would stop people being sidetracked by details that have nothing to do with security. This may have been an effective solution, but with currency so often an artistic representation of the power of the ruling body, it was deemed a break too far with tradition.

Ageing and saving

Facing your financial future

“If only I knew then what I know now.” This sentiment is often expressed by parents when trying to encourage children to avoid repeating the mistakes they made in their past. The trouble is that good advice is often ignored, prompting the adage, “Youth is wasted on the young”.

When a 2009 study by the University of California, Los Angeles, asked students to say how much of their salary they would put towards their retirement, their reluctance to invest came as little surprise. The reason was simple: deep down, we don’t identify with that older person we’ll be one day.

However, when some of the students were shown virtual reality simulations of themselves that were computer-generated to make them look much older, their response was significantly different. Those forced to visualise themselves at retirement age put 30% more into savings funds.

The financial industry is making increasing use of such neuroscientific findings to make it easier to save. Bank of America offers imaging software on its investment site, Merrill Edge, whereby a web app snaps a photograph of you with your computer’s camera, and then uses a facial ageing algorithm to show you what you’ll look like at 47, 57, 67, all the way to 107.

If this isn’t enough to scare you into saving, Merrill Edge is also charting increased cost-of-living projections alongside your gravity-ravaged face. In 2042, a loaf of bread is expected to cost more than $6 (£4.50). In 2082, a gallon of petrol could cost nearly $40 (£31).

Psychologists and behavioural economists such as Walter Mischel and Richard Thaler suggest we can learn self-control techniques that cool the desire for instant gratification. Reflecting on one’s own situation from the fly-on-the-wall perspective of an outsider can theoretically make it easier to reappraise and resist urges. Seeing our future selves can also determine whether we spend now or save for a later date.

The ‘end-of-history illusion’ is a belief held by people of all ages. Despite having experienced significant personal growth and changes in tastes up to the present moment, they believe they will not substantially grow or mature in the future

Money talk and the language divide

Linguistic analysis of 300 financial articles carried out by Starling Bank has revealed big differences between those aimed at women and those aimed at men. Some 65% of financial articles in women’s magazines define them as excessive spenders. Women are advised to take better control of their shopping habits and to save small amounts, earn small amounts, or depend on financial support.

Men, on the other hand, are spoken to as savvy financiers, with 70% of articles focusing on enhancing personal status through competitiveness and strong performance. Anne Boden, CEO and founder of Starling Bank, says, “Language is separating us into spenders and earners; into the frivolous and the empowered.” As a result, she has launched #MAKEMONEYEQUAL as a call to the media and business owners to avoid stereotyping.

Money is genderless, but will the way both genders are spoken to about money help lead to greater parity in the way that we earn it and spend it?

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