Ever since Richard Thaler and Cass Sunstein came out with their book Nudge in 2008, the field of behavioural economics has gained a lot of traction.
It gave economists a new way of looking at people’s behaviour around money and how that behaviour could be changed by way of a nudge.
By slightly changing the way a choice is presented, those who aren’t strictly wedded to one option may be influenced to change their choice. This has been shown across lots of choices, from signing up for a newsletter subscription to registering as an organ donor.
But now a new term has entered the world of behavioural economics: sludge. Sludge is like the evil twin of nudge.
They can look very similar and they both use research into human behaviour to try and change that behaviour. But while nudge tries to encourage change to help the individual, sludge seeks favour others.
Sludge can take on several forms, but they all have one thing in common: it is never in the best self-interest of the individual. It’s usually only in the interest of the company or organisation that is intentionally applying it.
So what types of sludge are out there? To identify a sludge it can be useful to know what a sludge is not.
Thaler and Sunstein propose that the following principles must be nudge elements, and if any are violated the nudge becomes a sludge.
- The nudge should be transparent and never misleading.
- The original set of choices should remain available.
- It should be easy to opt out of the nudge (for example, in a single click).
- The behaviour being encouraged should improve the welfare of those being nudged.
The fourth requirement highlights two common traits of a sludge:
- The presentation of a choice that discourages people from behaving in their best self-interest,
- Or that encourage people’s self-defeating behaviour.
Other indicators of a sludge may include anything that causes friction in decision-making to the detriment of the individual or a nudge that fails to promote the positive behaviour which is intended.
Examples of sludge
Discouraging people from behaving in their best self-interest can be done in multiple ways. For instance, a shop can offer a promo where you could claim back £5 of your purchase.
But to actually claim that £5, they could make you jump through so many hoops that you just give up. These hoops could include forms to be sent in physically or, heaven forbid, calling up their customer service.
There are various reasons why this works. One is procrastination. Humans tend to put off onerous tasks. A bit of unnecessary tedious work can easily discourage people from doing what is right for them.
But that’s not the only way to discourage people. Have you ever tried to cancel a subscription and found you had to go through three webpages to do so? And that on each page, you had to click on buttons that said things like “Yes, I want to give up all my benefits”? This is a heavy play on what’s called the endowment effect.
This effect explains that people value the things they possess more than what they are actually worth, making you reluctant to give them up. By highlighting the fact that you’re giving up something you already own, these websites hope you’ll reconsider.
Encouraging self-defeating behaviour
Another sludge method tries to push people into doing something that isn’t good for them. Booking websites are a great example. They use a range of behavioural biases, the most obvious being price anchoring and scarcity.
For price anchoring, these sites may suggest an initial price that is much higher than the customer intends to pay. This can encourage those without a strict budget to pay more than they should.
They could also add messages saying that there is only one room left at a hotel, which could prod you to book it instead of looking for other options. You may think that telling someone only one room is left is just giving some information, but sometimes, there are more rooms available. What they typically mean is: there is only one room left at this price.
Once that room goes, the price might increase or decrease and suddenly they have a dozen more available. Meanwhile, you just booked a room at a price that may not be in your self-interest.
What is being done against sludge?
While most of the above may sound pretty bad, it’s important to mention that people are fighting sludge. Several countries, such as the UK and Australia, now have “behavioural economics police”.
This “police force” can be made up of regulators and other organisations that want to protect consumers from sludge tactics. Their aim is to identify sludge and make consumers aware of it so they won’t fall into those traps. On the other hand, they want to see policy changes that would ban sludge practices.
For example, in many cases there is already a ban on what is called “opt-out selling”. With this practice, additional, optional purchases like flight insurance when booking flights were selected as a default and consumers had to realise this and deselect it manually.
But does sludge have to be bad? Cass Sunstein also explores the potential positive consequences of sludge. In his research, he says introducing some sludge can help give benefits, like health benefits, to the right people based on their need.
If the process of getting benefits is too easy, people who don’t actually need the benefits may be incentivised to apply for them as well. As a result, those who need them most may not get the benefits because the money has already been given to someone else.
Adding in a bit of sludge, like annoying paperwork, could stop those who don’t actually need benefits from trying to get them.
But does this count as sludge? While this practice doesn’t look after the self-interest of every single individual, it does look after the self-interest of certain individuals: those who are most in need.
So if the definition for sludge includes that it’s a nudge for evil, then this type of “sludge” that is used for a common good, wouldn’t actually be sludge. Adding some friction to make activities more difficult to complete, just like if things are made easier to achieve, can be useful.
When is sludge sludge?
So how do we decide when something is sludge or not? Intention could play a key role here. If the intention is doing something to increase the welfare of a person or people, then maybe we shouldn’t call it sludge because the intention is good.
If a measure is implemented to deliberately harm the self-interest of a person or people, we can call it sludge.
In the examples Sunstein writes about in the previous section, the intention is, arguably, good. So it’s not sludge.
If we follow this definition, then the other two forms of sludge – anything that causes friction in decision-making and failed nudges – are also not sludge. Sometimes friction in decision-making is simply the consequence of inadvertent inefficiency, poor communication skills or other non-malevolent reasons.
And a nudge that fails also shouldn’t be labelled as sludge, because it either doesn’t hurt anyone’s self-interest and even if it did, it wouldn’t have been done on purpose.
As time goes on, the definition of sludge might be narrowed down or changed, but as it stands, the intention behind a nudge is an essential factor.
Another approach is to come back to the principles of a nudge and to ask whether any are violated when a decision is presented in a different way. If any of them are violated, then we could consider it sludge.