Sometimes paying is set up to be simple – but the default option (the situation that applies if you do nothing) is perhaps not to everyone's advantage. The so-called “Nudge Unit” of the British government – formally known as the Behavioural Insights Team – in 2014 looked into this, publishing a “how to” for applying behavioural insights. Called EAST – which stands for Easy, Attractive, Social, Timely – the publication lays out ways to encourage people to do things. But as the gym memberships and the magazines show, there's a catch: the interests of all parties are not always the same.
Use the default wisely
The authors, led by team chief executive David Halpern, say people “have a strong tendency to go with the default or pre-set option, since it is easy to do so” and that making an option the default makes it more likely to be adopted. This comes under EAST’s "make it easy” principle.
They cite gym membership, social networking sites’ default privacy settings and tariffs at some energy and broadband companies to show the private sector is paying attention to defaults. Public policy makers should harness the power more, they say. eZonomics has previously highlighted five ways “doing nothing” and taking the default option can help and six ways it can harm finances.
An example highlighted by both eZonomics and the Behavioural Insights Team is automatically enrolling all workers in workplace pensions, making it the default option, with a view to boosting the number of people saving into pension funds. Workers must actively opt out if they do not want to save for their retirement that way.
I will if you will
If we know other people are recycling or saving money, this helps set perceptions around social norms. Once we think an action is normal for everyone, we ourselves may be more likely to recycle or save money too. EAST authors describe an experiment where people writing their wills were asked if they would like to leave money to charity (which doubled the number who gave) and a portion were also asked if there was a cause they’re passionate about (which tripled the number who gave – and increased the size of the donation as well).
But social norms carry a warning as well. Just as they can encourage positive behaviour, they can inadvertently encourage negative behaviour too.
Help me stick to my goals
It’s easy to make a promise to save every month, not buy on impulse and eat well – but following through can be more difficult. Creating a commitment device – explained on eZonomics here – can involve placing restraints to increase the success of living up to the promise.
The EAST publication details a trial in the Philippines that showed savers who could restrict their right to withdraw money increased their savings by 82% after a year, compared with 12% for those without a commitment device. On websites such as StickK people can try this technique themselves.