Why don't sensible people do sensible things?

VOL. XXXXVI NO.4

OCTOBER 2020

CONTENTS

CHINA: Business, Technology & Economy in 2020

The Art & Power of Nudging M S Narayan

Partnerships in the Age of Covid Panel Discussion

Transforming India & Indian Businesses Pradeep Deshpande

Women Leader Series: Policing in Covid Times & Beyond

Lakshmi Venkatachalam

Panel Discussion

EDITOR Gp Capt R Vijayakumar (Retd), VSM EDITORIAL SUPPORT Gp Capt Dr R Venkataraman (Retd) LAYOUT EXECUTIVE D Rajaram

MADRAS MANAGEMENT ASSOCIATION Management Center, New No.240 Pathari Road ﴾Off Anna Salai﴿, Chennai 600 006 Ph:044‐2829 1133 Email:mma@mmachennai.org | mandate@mmachennai.org www.facebook.com/mmachennai

M S NARAYAN

are ads on TV and even reminder letters.

value of future benefit in favour of

They send this kit out once every two

immediate gratification. In the same

years. It takes maybe 10 to 15 minutes

way, we intend to join the gym but it is

ecent insights into how

to take this free test. Yet, for the last 10

always something we will do tomorrow

people think impact all of us.

years, I have put these kits aside, fully

—and tomorrow never comes.

Governments

and

intending to, yet never actually getting

organisations use these insights to push

around to do the test. I am not alone

Jumping to conclusions

us to certain decisions, often for our

—58% of Australians don’t send the test

If you are asked the following question:

benefit and perhaps, sometimes, not

kit back. Why don’t sensible people do

A bat and ball together cost $1.10. The

with our best interests at heart. M S

sensible things that could potentially

bat costs $1.00 more than the ball. How

Narayan, Principal Advisor­Gateway,

save their lives?

much does the ball cost?

R

Sydney, Australia, explores the factors at play in “Think, Think, Nudge, Nudge,” a talk organized under the Pond’s veteran series at MMA. When you turn 50 in Australia, you get a bowel cancer test kit, free of cost, from the government. The kit comes with a letter that says, “Every week, 80 Australians die of bowel cancer. With early detection, 90% of bowel cancers can be successfully treated.” And there

Many of us jump to the conclusion Dessert choices

that the ball costs 10 cents—and we are

If you were deciding next week’s dessert

not alone. Around half of Princeton

today, would you choose chocolate or

graduates gave this (wrong) answer

fruit? 74% people opted for fruit in a test

when this test was run. If this question

that was run in 1998 (Read and van

were to be asked in a Class X exam,

Leeuwen). But when the same question

students would have given the correct

was tweaked and asked: If you were

answer as 5 cents. But when asked

deciding tonight’s dessert, would you

outside of a formal test, many people

choose chocolate or fruit? Most people

instinctively jump to an answer. We go

opted for chocolate. Clearly, we know

for the simple, obvious choices.

what is good for us. But we discount the

Business Mandate fountainhead of excellence

Leveraging the understanding of human behaviour If we can recognise human behavioural patterns, we may be able to develop highly adaptive and effective programs, and find ways to overcome our cognitive limitations. This knowledge can be of great value to designers of public policy, such

as

me.

It

requires

an

understanding of some of the theoretical frameworks that acknowledge that people are not always rational and recognize what possibly can be done to Understanding how people behave is

Professor at the University of Chicago,

key

won the Infosys Prize in 2018). In this

Policy makers need to understand how

book, the authors looked at how our

Not always the best choice

people actually behave, which is not

mental capacities are consumed by

In 1738, Daniel Bernoulli hypothesised

always rational. For example, our

conflicting demands. They tested the IQ

that people maximise utility in making

behaviour is not directed towards an

of farmers in India before and after

choices. For 200 years, this was taken

objective

overcome this failing.

but

our

harvest and found that IQ was

as a ‘given’ by economists. Then in the

representation

or

significantly lower pre­harvest (when

1950s, Herbert Simon, who was to win

construct of the world. We may be afraid

they were cash strapped) than post­

the Nobel Prize in Economics many

of flying, even though objectively it is

harvest. Similarly, in the UK, a group of

years later, argued that people do not

the safest mode of transport. We also

people were told that they had to spend

necessarily maximise utility because of

overestimate our mental capacities or

1000 Pounds on car repairs the next

limitations in knowledge, social and

bandwidth. When we text or answer the

day. Just contemplating this expense

personal connections. They are often

phone while driving, even if it is hands­

resulted in a 13­14 point drop in IQ

happy with less than optimum solutions

free, our peripheral vision and reaction

—almost as if they had stayed awake all

—i.e., finding an acceptable solution

time are affected as much as if we were

night.

even if it doesn’t maximise benefits.

real

idiosyncratic

world

legally intoxicated.

Thinking about the fact that we may or may not have money affects our

Scarcity affects mental capacity

mental capacity and decision making. It

In the 2013 book called ‘Scarcity: Why Having Too Little Means So Much,’ Mullainathan and Shafique came to some

stunning

conclusions.

(Incidentally, Prof Mullainathan, now a 30

OCTOBER 2020

Simon introduced economists to terms such as “bounded rationality” and “satisficing”.

may be that people are not poor because

Cass R Sunstein and Richard H

they make foolish choices; rather, it may

Thaler wrote an article in The New

be poverty that consumes mental

Yorker, (Dec 2016) titled, ‘The two

resources and leads people to make bad

friends who changed how we think

choices.

about how we think.’ They were

Business Mandate fountainhead of excellence

When dealing with complex

think irrationally. If we can identify the

Amos Tversky who published a paper in

problems,

use

patterns in which people think

1979 which disrupted the world of

heuristics or mental shortcuts

irrationally, then we can design choices

referring to Daniel Kahneman and

Economics by outlining what they called Prospect Theory. According to this theory: •

people

to transform complex matters into simpler ones, to make decisions.

Daniel Kahneman won the Nobel

Losses mean more than gains.

better decisions.

the very popular best seller, ‘Thinking

principles. For example, nudging was

Fast and Slow’, which many people

never to be about compulsion, reducing

would have read. His 38 minute Nobel

freedom of choice or significantly

People make decisions based

Prize acceptance speech is well worth

changing economic incentives. It was

on the potential value of losses

listening to.

not about forcing people to do

than the joy we get from gaining $20.

something they didn’t want to do.

and gains rather than the final Nudge Theory

Instead, nudges should be easy to avoid.

matter

Richard H Thaler and Cass R Sunstein

The theory was put forward as an ethical

—people care more about

wrote the bestselling book, “Nudge,” in

way of simply helping people to make

2008. They took Kahneman and

better decisions, for their good, by using

Tversky’s concepts and built on them,

knowledge of the mental shortcuts or

packaging them attractively and

heuristics that people use to make

accessibly.

decisions.

outcome.

Reference

points

what they gain or lose depending on what they start with •

understanding and help them make

The theory established some

get from losing $20 is greater

•

that will take advantage of this

Prize for Economics in 2002. He wrote

This means that the pain we

•

•

People tend to underestimate high

probabilities

and

See

some

examples

small

The idea behind Nudge Theory is

comparing Traditional and Nudge

probabilities. If something has

that people can be “nudged” to think

approaches to addressing an issue in the

properly and make better choices by

table on this page. The authors called

offering them choices that are designed

nudge theory ‘Libertarian Paternalism.’

to help them do so. We know that people

Of course, while there was a degree of

overestimate only

1%

chance

of

a

happening, people think that it has a 5 to 10% chance and they behave accordingly.

Some examples comparing Traditional and Nudge approaches to addressing an issue

OCTOBER 2020

31

Business Mandate fountainhead of excellence

•

Loss aversion

•

Self­control strategies

•

Availability

•

Spotlight effect

•

Optimism/overconfidence

•

Temptation

•

Priming

•

Conforming/following

the

herd •

Language and signage design

There are, of course, others.

Growing global interest David Cameron, former Prime Minister of England, after reading ‘Nudge,’ reportedly became a fan of the book. He set up a ‘Behavioural Insights Team (BIT)’ aka ‘Nudge Unit’ in 2010 with an annual budget of GBP 500,000. The BIT team was challenged to produce a ten­ fold return on operating cost in two years, failing which the unit would be shut down. The team coopted Richard Thaler (2017 Nobel Prize winner in Economic Sciences and co­author of Nudge Theory) to be an advisor and saved 22 times its running costs.

This success led to BITs being formed in many countries. Google searches on ‘Nudge Theory’ continue to paternalism, it was still consciously

that has not always been the case, as we

about preserving liberty and allowing

shall see later.

grow year after year, which shows the ongoing interest in these ideas.

In 2017, OECD published 100 case

people to make their own choices. In their construct, ‘nudge theory’ was

Common mental short cuts

studies from 202 countries across the

aimed at making the community better,

In addition to the examples of anchoring

world highlighting success stories from

not a mechanism for commercial

and status quo discussed above, there

the BITs. In 2018, the World Bank

exploitation

are many other such heuristics or

published a study on Behavioural

mental shortcuts, including:

Development Economics identifying

or

government

manipulation. In practice, of course, 32

OCTOBER 2020

Business Mandate fountainhead of excellence

global leaders in this area.

.... the experiment ran for just five weeks, and cost very little. And just changing around 15 words on a web page ended up potentially saving many lives.

Success stories from around the world In the UK, the BIT team increased tax receipts by 200 million Pounds a year.

They achieved this by sending an initial letter to the defaulter saying something along the lines of, “90% of the people

just changing around 15 words on a web

road, people were nudged to

have paid their tax on time. We note

page ended up potentially saving many

stay in their lane.

that you have not. Can you please pay by

lives.

•

The ‘Keep Singapore Clean’ campaign is another example

this date?” Many responded. Another

In Tokyo train stations, there was

letter said “Nine out of ten people in

reportedly an 84% reduction in suicide

your local area pay their tax on time.

Government nudging people

attempts when they installed ‘Blue’ LED

to do the right thing using

You are in the minority…”And so, with

lights above train station platforms, a

publicity, and social pressure.

a series of letters, they nudged people to

low­cost alternative to sliding barriers.

“follow the herd”—and comply.

The blue lights reportedly have a

Enrolling organ donors was another

soothing effect on the mind. This idea

big success of the BIT in the UK. The

has since been adopted elsewhere in the

Nudge Unit was able to increase the

world too.

number of people registered as organ donors by 96,000 a year. How did they achieve this? The ‘Nudge unit’ created nine different versions of the landing page where people had to go to renew

•

the speed limit. In a 25 mph zone area, those who exceed

limit are eligible to go into a

Marking of lines on the road

lottery to win a share of the

to demarcate lanes and ensure

fines. The result: The average

lane discipline is an example

speed of vehicles in this site

of a ‘nudge.’ It is the single device in the world. There are

read, “Three people a day die because

many stories on how it came

there are not enough organ donors.”

into being. One story is that a

version, which was based on the

to nudge people into obeying

those who drive within this

slightly different wording. One version

If so, please help others.” This last

In Stockholm, ‘speed camera lottery’ signs were introduced

Here a nudge, there a nudge

most effective road safety

organ transplant, would you have one?

•

the speed limit are fined and

their car registrations. Each version had

Another version said, “If you needed an

of behaviour change by a

lady doctor in California, Dr Jane McCarroll who narrowly escaped being run over by a truck coming in the opposite direction,

decided

to

‘reciprocity’ heuristic, was the most

something

about

effective in getting people to agree to be

painted a line in the middle of

organ donors. The experiment ran for

the road herself. By artificially

just five weeks, and cost very little. And

reducing the width of the

it

do and

dropped from 32 mph to 25 mph.

•

Smaller plates in a hotel buffet reduced food wastage by 22%

•

To reduce cigarette littering, a campaign was run themed, “Think inside the box. Vote with your cigarette butt. Who is the best player in the world – Ronaldo or Messi?” For each player, there was a box into which cigarette butts could be deposited to “vote”. This led to a 74% reduction in cigarette OCTOBER 2020

35

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•

•

littering.

by taking the stairs is a nudge.

to charity. Compared to the first group,

Similar, fun­driven, concepts

In another famous nudge, at

there was appreciable reduction in fuel

were devised to encourage

Odenplan

station

savings delivered by the second and

people to dispose of chewing

Stockholm,

stairs

gums in designated spaces

modified in such a way that

and waste in segregated

when people walked on the

“Lemonade,” a disruptor in the

boxes.

steps, musical note were

insurance industry in the US employs

In a behavioural test done in

produced. This led to a 66%

on its rolls a world leading behavioural

India on car drivers, a button

increase in the use of stairs.

economist as Chief Behavioural Officer.

was introduced to encourage a

Such musical stairs have

reduction in honking. Every

spread to Milan, Melbourne,

time a driver honked, a red

Istanbul, KL and Auckland.

light would flash and would

Fun can obviously change

keep flashing annoyingly until

behaviour.

manually switched off. There

•

were

third group.

Lemonade makes use of AI and behavioural insights. For example, when people are asked to fill a form, if they are asked to sign at the top rather than at the end, they are more likely to be

was a 61% reduction in

Nudges in business

honest in their declarations and less

indiscrete honking.

Virgin Atlantic was able to save 6828

likely to lie. Lemonade uses techniques

In Copenhagen, authorities

metric tons of fuel by nudging their

such as this. They are even referred by

provided waste bins and made

captains. A test was run by behavioural

them highly visible. They also

some as ‘The Tesla of the Insurance

scientists on pilots, who were divided

industry.” While this may be hype, they

into three groups. The first group was

are definitely a business to watch out

told that fuel consumption during the

for.

painted

green

coloured

footsteps that led to the waste bins, thus nudging people to use the bins and resulting in a •

in

trip would be monitored. The second

46% reduction in litter

group was given a target consumption

Nudging and marketing

Reminding people to use the

figure; the third group was given a

Marketers

steps instead of escalators by

target and told that if they beat the

unknowingly used nudges for years; for

painting the calories burned

target, a certain sum would be donated

example, by comparing in advertising

have

Fundamental differences between nudging and traditional marketing

36

OCTOBER 2020

knowingly

or

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OCTOBER 2020

37

Business Mandate fountainhead of excellence

What next for Behavioural Insights

Nudging can also be used in ways that are not necessarily in people’s interest. For example, the UK proposed a new campaign—trying to get people back to work in offices rather than from home during the Covid 19 pandemic.

﴾BI﴿?

•

innovation adoption suggests that there could be a trough after seeing a peak of positive results

credibility, trust and influence are all

subscription with the cost of a chocolate

important factors.

sundae; or the cost of an Ikea coffee maker with the cost of parking.

Other examples are a service

and

inflated

expectations from BI. •

the daily cost of a newspaper

Gartner’s ‘Hype Cycle’ of

However, while in some countries

BI

units

have

harvested the low hanging fruit, there is still considerable

Also, one size does not fit all. A

scope in other countries to do

nudge that works in one context may

the same. At the same time, advanced BI units such as in

not succeed in another

Australia are working on

provider who offers different plans for

complex issues like gender

availing a service, identifies one of them

The dark side of nudge theory

as the most popular plan, thus

Nudging can also be used in ways that

anchoring and nudging people to make

are not necessarily in people’s interest.

that choice; and the use of price framing

For example, the UK proposed a new

scope for nudge techniques to

i.e., pricing at 599 rather than 600; or

campaign—trying to get people back to

be employed by governments

giving people a welcome gift for signing

work in offices rather than from home

and business.

up for a service. These are all nudges.

during the Covid 19 pandemic. The message says, in effect, “If you don’t go

Designing a nudge

back to work, the manager may forget

How do you design a nudge? It’s quite simple conceptually:

This was to counter the overwhelming

First: Frame the problem.

Next: Design experiments and run randomised and controlled trials.

Third: Interpret results.

Finally: Implement

It is important to be trusted when nudging. People are more open to being nudged if they have positive feelings

38

the

nudger.

OCTOBER 2020

•

•

is: “Yes, every day and in many ways.” Are you aware of this?

Are you happy to be nudged?

•

Likeability,

you

designed

your

nudges? Have you considered behavioural

accounts and fake news in social media

very difficult to get out of.

Are you a nudger? If so, how have

negative content on people’s emotional

make it is easy to join or sign up and

Are you being nudged? The answer, if you think about it,

Facebook did clandestine tests in

encounter ‘sludge’ where organisations

There is still considerable

I leave you with these closing thoughts:

from home.

that constantly nudge us. Finally, we

domestic

Closing thoughts

preference of people to continue to work

India to see the impact of positive and

and

violence.

well­being. We are familiar with fake

Cautions and observations

toward

you and you might risk losing your job.”

inequality

insights

in

designing these nudges?

•

Should you consider adding nudging to your tool kit? 