Nudge Theory and its Application on Public Policy

As defined by the pioneers of the field, Richard Thaler and Cass Sunstein, “A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behaviour in a predictable way without forbidding any options or significantly changing their economic incentives.”

The main focus of the Nudge theory is on the design of choices, which has an impact on the decisions we make. It suggests that decision-making should be based on how people actually think and decide, intuitively and irrationally, rather than how leaders and authority believe people think and decide, logically and rationally. A GPS, for example, is a tool that helps you reach where you want to go; it does not dictate where you go, but rather how to get there.

Humans, being irrational creatures, frequently require encouragement or intervention, a ‘nudge’, to get going and achieve what is beneficial for the country or society as a whole. This behavioural feature is recognised by the nudge theory. People can be persuaded and influenced to pursue or refrain from specific acts using nudges, rather than being pushed.

So how does this tie into public policy? The idea is that the citizens are not forced into any option and that they have the entire array of choices open to them. Small adjustments are made to gently nudge them toward a more desirable option. For example, in Africa, the government had allowed farmers home-delivery of fertilisers because many farmers put off purchasing fertilisers due to the effort needed in travelling to a market. Farmers were able to acquire fertilisers on time as a result of the ‘nudge,' which was beneficial to their farm output.

Some of the ways the nudge theory can benefit governments are:

1) Government agencies frequently work hard to urge citizens to observe certain public benefit programmes. Compliance is the goal. The rules governing these programmes, from tax and labour laws to unemployment insurance, these policies can be complex, difficult to follow, and often misinterpreted. Citizens may be tempted to cut corners due to the complexity. Instead of wasting money on poor enforcement, these agencies can utilise nudges to increase compliance at a low cost.

2) There is a shared interest among individuals who rely on social services, notably public health and return-to-work programmes, in encouraging participants to make better choices. Using nudges to enhance programme adherence could improve citizens' outcomes while lowering programme expenses.

3) Environmental stewardship (such as water conservation, recycling, or carpooling and other forms of ridesharing), preventive health measures (such as vaccines), and good neighbour practises (such as courteous driving, voting, or organ donation) could all benefit from nudges.

Both, Prime Minister David Cameron of the United Kingdom and President Barack Obama of the United States, attempted to use nudge theory to accomplish domestic policy goals in their respective countries throughout their tenure. Cass Sunstein, who helped formulate the theory, was named administrator of the Office of Information and Regulatory Affairs by the United States in 2008. The British Behavioural Insights Team, commonly known as the "Nudge Unit," was founded in 2010 at the British Cabinet Office and is led by psychologist David Halpern.

Some examples of administrative bodies using ‘nudges’ for favourable results are:

1) Ontario Employer Tax Collection-

Every year, employers in the Canadian province of Ontario must file and pay an Employer Health Tax (EHT), a payroll tax on health services supplied to current and past employees. In 2014, the Ontario government was dealing with a lot of enterprises who were late in filing their EHTs; more than 7,000 businesses filed late that year.

To deal with late EHT files, the province of Ontario used an implementation intention strategy. Several companies altered their collection letters in 2015 to emphasise on where participants may file a return, sending them to websites and service centres. Participants were also provided clear instructions on how to file the EHT return, as well as a date by which they must do so.

The data was evaluated a month later. Employers who used the implementation intention method boosted their filings by 13% more than those who received the conventional letter (53 percent vs. 46.9 percent). Ontario was able to drastically enhance company compliance by a single nudge.

2) New South Wales helps injured workers return to work faster-

New South Wales aimed to enhance injured workers' return-to-work (RTW) rates. New South Wales modified its RTW programme in collaboration with Australia's Behavioural Insights Team (BIT) to make the hiring process easier. Changing the choice architecture was at the centre of the makeover.

The old method was inconvenient and time-consuming. Participants were required to read 20 pieces of documentation during their first 21 days in the RTW programme after an accident. The legal language in these documents failed to engage participants; most didn't make it past the third letter.

A commitment device was incorporated in New South Wales, which gave injured workers an option to create a plan that included a return-to-work target. New South Wales asked participants when they felt they would be ready to return to work rather than telling them when they should be. They also requested that they devise a plan for their return. These workers returned to work 27% faster than the control group after the choice architecture was changed.

As these instances demonstrate, if properly applied and implemented, it has the ability to radically alter individuals' levels of trust, thus altering the nature of the "government–citizen" relationship. It has the potential to increase citizenry, democratic outcomes, and the efficiency of government services in the long run.