New Research Underscores Power of Behavioral Nudges

New Research Underscores Power of Behavioral Nudges

In recent years, behavioral economists have become increasingly enthusiastic about the concept of “nudging”—prodding people toward more beneficial behaviors by making them the default option in some of the many choices individuals make about their health or finances. An example of nudging with which employers will be familiar is auto-enrollment in 401(k) plans, which past research has shown results in much higher participation rates than an opt-in system: When the default option is to participate, employees are more likely to do so because it takes more effort not to. Employers have also experimented with nudging strategies to encourage employees toward healthy choices like getting their yearly flu shot.

The latest research The Association for Psychological Science highlights a new study published last week that “compared the effectiveness of nudge-type strategies with more standard policy interventions” and found that nudges are substantially more effective at encouraging both financial and physical wellness:

In the case of retirement savings, for example, a nudge that prompted new employees to indicate their preferred contribution rate to a workplace retirement-savings plan yielded a $100 increase in employee contributions per $1 spent on implementing the program; the next most cost-effective strategy, offering monetary incentives for employees who attended a benefits fair, yielded only a $14.58 increase in employee contributions per $1 spent on the program.

Similarly, a nudge-based mailing that prompted employees to write down when and how they planned on getting their flu shot led to about 13 additional people getting vaccinated per $100 spent on the mailing; by contrast, an education campaign on the benefits of the flu vaccine led to only about 9 additional employees at a health care facility getting vaccinated per every $100 spent on the campaign.

“We had a hunch that nudging, and especially digital nudging, would be very cost effective, but I was truly surprised to see that the cost effectiveness of nudging is often 100, and even 1,000, times greater than more traditional interventions,” says co-author Shlomo Benartzi, a professor at the Anderson School of Management at the University of California, Los Angeles. “This has huge implications for governments and businesses alike.”