Jun 13 2013

A Practitioner's Guide to Nudging

Report  
Number  
303

Behavioral economics shows that consumers don’t always make financially rational decisions, which can hurt them. Credit unions can build gentle behavioral nudges for members into products and services, thus keeping all options open but prizing the better ones.

Kim Ly
Rotman School of Management, University of Toronto
Nina Mazar
Rotman School of Management, University of Toronto
Dilip Soman
Rotman School of Management, University of Toronto
Min Zhao
Rotman School of Management, University of Toronto
Report Number 303

Executive Summary

There’s a classic behavioral 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 behavioral economics research. A Google search yields more than 4 million hits. But very few behavioral 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 behavioral 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 behavior.

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 behavior, for example, 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.

The guide aims to convince readers that the audit process can be applied to almost any decision. For credit unions, it could be used to think through the steps that members take when they decide to buy a car, purchase a home, choose a credit card, purchase an insurance policy, or save.

This report is sponsored by Rotman School of Management at the University of Toronto and Credit Union Central of Canada.