3 minute read 19 Jul 2021
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How HR can apply nudge theory to drive behavioural change

Tom Smith
By Tom Smith

Senior Manager, EY Lane4, EY Professional Services Limited

Business psychologist. Mentor to aspiring psychology students. Writer of historical fiction and community volunteer.

3 minute read 19 Jul 2021
Related topics Workforce
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Applying nudge theory to your company’s learning initiatives can drive lasting behavioural change.

In brief:
  • Nudges have predominantly been used in government policy as a way of influencing the choices we make without taking away our power to choose.
  • In order to design an effective nudge, the behaviour which you’re looking to change must be deeply understood and observed.
  • There are three different types of nudges which target behavioural change in different ways.

In 2017, the Nobel Prize in economics was awarded to Richard Thaler for his contributions to behavioural economics through ‘nudge theory’. Although its application has mainly been in government policy, its use isn’t limited to that field. This article discusses how nudge theory can be applied by Human Resources (HR) and business leaders to drive behavioural changes in their organisations.

What is a nudge?

Simply put, nudges aim to influence the choices we make, but without taking away the power to choose. Nudges are beneficial as we don’t always think and decide logically and consciously, weighing up all of the costs and benefits. The majority of our decisions are made instinctively and unconsciously. Therefore, in order to drive a positive change in people’s behaviour, we need to tap into that instinctive way of thinking.

The UK Government has had a lot of practise at this. In fact, they even have a Behavioural Insights Team, also known as the Nudge Unit. One of their most successful pieces of work has been the workplace pension scheme, Nest. This scheme changed the workplace pension to something that you opt out of (as you are now automatically enrolled), rather than something you have to opt into. The thinking behind this is that most people want to put money aside for their retirement but didn’t opt in because setting up a pension is seen as too much time and effort. And it’s worked. Since auto-enrollment began in 2012, active membership of private sector pension schemes has jumped from 47% to 78% of UK employees in 2020.1

Nudges aren’t just applicable to behavioural economics. The psychology behind the theory can be applied to any situation where you’re looking to enable change in people and shift behaviour. It’s therefore a valuable piece of psychology for HR and leadership teams to consider when designing a learning intervention or a change programme.

How can you create nudges to enable behavioural change?

Maintaining the freedom of choice is key with nudge theory. Rather than trying to change employee behaviour through enforcement or punishment, encouragement, choice and enablement is at the centre of driving change.

Creating nudges is not a simple process. It’s important to observe people’s current behaviour before identifying which behaviours require changing. Once you’ve spent time considering this, you’ll be in a position to design your nudges, which largely fit into three categories:

1. Perception nudges

Target the underlying perceptions of organisational behaviour to bring about a change in understanding, and therefore, a change in behaviour.

An example – we react differently to the same information depending on how it is framed and our choices are often affected by whether the outcomes are framed in terms of the gains or losses.2 For example, food described as 99% fat free is perceived as more favourable than food described as 1% fat.

2. Motivation nudges

These are needed when you want employees to care about a change. One way of doing this is to reference other people’s behaviours to highlight what is acceptable and desirable.

An example – Electricity companies use information collected from smart meters to tell their customers how their energy usage compares to their neighbours. Telling people that they use more energy than their neighbours has been found to motivate people to reduce their usage.3

3. Ability and simplicity nudges

This is eeded when colleagues feel that it is too much effort to carry out a desired behaviour. It is important to enable people to change and make changes simple. The easier it is, the more likely people will carry it out.

An example – we can be deterred from taking action by seemingly small barriers. HMRC improved tax collection rates by making it easier for people to pay. Rather than sending people to a web page that contained the form they needed to complete, they sent them directly to the form. Doing this increased response rates from 19% to 23%.4

How EY can help

Learning and development consulting

To adapt to the emerging new work environment, people will also need vastly upgraded digital, technical, management and cultural capabilities.

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  • Show article references#Hide article references

    1. Employee workplace pensions in the UK: 2020 provisional and 2019 final results, Office of National Statistics (accessed via www.ons.gov.uk, 24 June 2021).
    2. A. Tversky A & D. Kahneman D, “Prospect theory: an analysis of decision under risk,” Econometrica, 1979.
    3. J Slemrod & H Allcott, “Social norms and energy conservation,” Journal of Public Economics, 2011.
    4. The Behavioural Insights Team, Four simple ways to apply behavioural insights, 2015 (accessed via www.behaviouralinsights.co.uk, 24 June 2021). 

Summary

Nudges are a powerful way of creating behavioural change while keeping choice and encouragement at the heart of driving that change. Creating effective nudges is a complex process and to truly make an impact, the behaviour that is trying to be changed needs to be acutely understood. 

About this article

Tom Smith
By Tom Smith

Senior Manager, EY Lane4, EY Professional Services Limited

Business psychologist. Mentor to aspiring psychology students. Writer of historical fiction and community volunteer.

Related topics Workforce
Upvote