A Practitioner’s Guide to Nudging

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Executive Summary Overview Behavioural economics shows that consumers don’t always make financially rational decisions, which can hurt them. Credit unions can build gentle behavioural nudges for members into products and services, thus keeping all options open but prizing the better ones. ABOUT THE AUTHORS Kim Ly Rotman School of Business, University of Toronto Nina Mazar Rotman School of Business, University of Toronto Min Zhao Rotman School of Business, University of Toronto Dilip Soman Rotman School of Business, University of Toronto by Marc-Andre Pigeon Director, Financial Sector Policy, Credit Union Central of Canada I have a confession: I forget things. It’s a common human failing, I know. As I like to tell friends, part of the reason I forget things is that I have a lot to remember, certainly more than when I was 20 years old and I thought only about girls and school. Mostly girls. Despite these rationalizations, my forgetfulness gnaws at me because I like to think of myself as someone who is true to my word. But how can your word be your bond if you don’t remember what your words were? As my philosopher friend Karl likes to say, that there is a problem. More precisely, it’s a classic behavioural economics problem of bridging intention and action, words and deeds. In the corporate world, we know the solution: Devise mandates, strategies, and key performance indicators to help folks stay focused and not forget where they wanted to go or why. When you grind these measurement devices into culture and norms, you end up with some pretty good tools to keep people on track and mindful. In our personal lives, we do something similar by putting notes on the fridge, leaving ourselves voicemails, keeping to-do lists, or using apps that help us do all of the above. It’s not always that easy, of course. Sometimes we don’t even know what we really want until it’s too late. And if we don’t know what we really want, it’s challenging to help others achieve what they don’t know they really want. It gets kind of messy kind of fast. Enter Dilip Soman and his coauthors, who in this easy-to-read practitioner’s guide provide some tools that credit unions can use to help their members navigate through thickets of forgetfulness, complexity, and emotions. What Is the Research About? There is no shortage of behavioural economics research. A Google search yields more than 4 million hits. But very few behavioural researchers manage to bridge the gap between what their research finds and how practitioners can put those findings to work in real-life settings. Soman and his colleagues cross that divide. Drawing on their deep knowledge of behavioural economics, they have produced a guide that
practitioners can use to reevaluate the way they deliver banking services to their members. Throughout the guide, they use a number of real-world examples—some in financial services, some not—that help illustrate the power of nudges in shaping behaviour. What Are the Credit Union Implications? While the practitioner’s guide is written for a general audience, the authors show how a “decision audit” can be applied to savings behaviour, an area of concern to credit unions and their members and where the evidence is unequivocal: Most people say they want to save more than they actually do and most people, especially as they near retirement, say they wished they’d saved more than they actually did. Again, good intentions don’t seem to materialize into action. Soman and his coauthors suggest four questions to help audit decisionmaking processes and identify bottlenecks that may short-circuit the link between intention and action: 1. Decision properties. What are the incentives and motivations associated with the decision? Maybe members will be more willing to plan for retirement when they start caring for an aging parent? 2. Information sources. How do people gather information and what kind of information do they find? Maybe members are overwhelmed by the complexity of, and range of choice in, savings products? 3. Mind-set features. Is the decision likely to be driven by emotional factors? Maybe members don’t want to think about retirement savings because they’re afraid of getting old? 4. Contextual factors. What kind of external factors—peer pressure or perhaps a lengthy application form—influence the decision? Maybe members are just mimicking the behaviour of their friends who would rather pretend that they’ll never grow old? Applying these questions to decisions around retirement savings, the authors identify six discrete decision points and four bottlenecks, as shown in Figure 1. How do you break through these bottlenecks? The authors don’t provide any easy answers, but they do offer some hints: To help increase the PAGE 5 EXECUTIVE SUMMARY FILENE RESEARCH INSTITUTE
Page 1 and 2: REPORT A Practitioner’s Guide to
Page 3: Table of Contents 4 EXECUTIVE SUMMA
Page 7 and 8: A Practitioner’s Guide to Nudging
Page 9 and 10: In this report, we use the term “
Page 11 and 12: These four dimensions combined resu
Page 13 and 14: The results showed that the high-tu
Page 15 and 16: A Planning Aid to Increase Savings
Page 17 and 18: successful; in its first five month
Page 19 and 20: used, the Waterpebble automatically
Page 21 and 22: Select the Nudge Bottlenecks in the
Page 23 and 24: Identify the Levers for Nudging Ide
Page 25 and 26: possible, we recommend that it be a
Page 27 and 28: FIGURE 14 MINDSPACE FRAMEWORK Messe
Page 29 and 30: APPENDIX 2 Decision Map Checklist P
Page 31 and 32: Block FAFSA Experiment, National Bu
Page 33 and 34: 22 FIGURE 13 BEHAVIOURAL INFLUENCES
Page 35 and 36: Dilip Soman Rotman School of Busine

A Practitioner’s Guide to Nudging

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