New Market Opportunities for Businesses in Nudging for Societal Impact

by Marieke Huysentruyt

We all make choices that we afterwards regret. Sometimes they are trivial, like the occasional indulgence in a sweet treat; but sometimes they have far-reaching consequences not only to our personal well-being but also to society, the costs of welfare at large. Consider an example in health: 75% of us do not stick to the drugs regimen that our doctor prescribes, even when such failure poses immediate and serious (at times deadly) health risks.

The good news is that thanks to decades of empirical work in behavioral science we now understand people better than ever: why we do what we do, what drives our choices. One major insight is that context matters hugely, far more than we care to acknowledge. Seemingly minor situational changes- who is in the room, what you see, how something is presented, how it is described, what you are thinking of at that moment, etc. – can sometimes have surprisingly large effects on behavior, regardless of who we are. For instance, a change in default (opt out versus opt in) has dramatically improved pension savings and organ donations at a remarkably large scale. Furthermore, when we feel strapped for time, money, friends or calories, our “mental bandwidth” is reduced, leaving us even more vulnerable to the whims of situational cues.

Nudging for societal impact

The White House and Downing Street have warmed up to the behavioral science perspective and the improvements it inspires in policies and programs; so much so that they recently set up units to introduce behavioral ‘nudges’ right at the heart of their administrations. The goal of these ‘Nudge Units’ is practical and ambitious: it is to encourage government of all ranks to systematically consider how behavioral science insights can be used to accelerate the transition to a low-carbon economy, help workers to find better jobs, enable citizens to lead longer, healthier lives, improving access to educational opportunities and support for success in school, etc.

Many businesses are all too familiar with the vagaries of consumer choice (and some have learned the hard way, following a disastrous new product or service launch). Based on our experience advising companies on how to overcome behavioral barriers, we observe the emergence of a number of distinct, promising business strategies. First, behavioral science is spurring on a new league of start-ups whose core focus is to help us better follow-through on our intentions. Opower has revolutionized the energy business in the U.S. with behavioral nudges effectively driving consumer energy savings and EasyBill India has nudged consumers to pool their financial bills, helping them to avoid late payments. Second, behavioral science is helping businesses, particularly those at the leading edge, develop effective ‘shared value’ innovations: innovations that produce both a positive societal impact, and economic return. We experience in our work with pharmaceutical companies the extra mile they are going to improve medication adherence, and with large retailers their efforts to nudge their customers into a healthier lifestyle. Third, behavioral science is helping businesses identify more effective management practices. For instance, giving employees the opportunity to share their bonuses with coworkers or charities can increase their happiness, job satisfaction, and team performance.

Of course, not every business problem or opportunity can be tackled using behavioral science tools. Human behavior has to be at the core. Nevertheless, this opens up an immense spectrum of problems and opportunities, often where societal and economic progress must go hand in hand, and where business strategies that leverage behavioral science are not only powerful, but also help businesses sustain a competitive edge.