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
Business Mandate fountainhead of excellence
•
•
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
Business Mandate fountainhead of excellence
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?