Nudge Theory Case Study

NUDGE

Introduction

A catering manager has a number of ingredients which, unfortunately, are non-returnable and about to reach their use-by dates. He needs to become creative and use the goods rather than waste them.

With a little support from the sales and marketing department, he decides on a plan for the items.

The next day just beside the cash register a table is laid out with plates of Apple tart. As each diner approaches the cash register they are asked “would you like cream with your apple tart?”. If diners said yes they got apple tart with cream and if they said no they got apple tart without cream.

Apple tart sales rocketed and the catering manager cleared his stock of surplus ingredients and boosted the sales figure for the catering department.

What has happened here is the sales and marketing people have engaged in choice

They are using Nudge to guide people into making socially and financially advantageous behaviours without going so far as forcing them into it. David Cameron’s UK Government has embraced the Nudge Theory.

The Conservative party has embraced Behavioral Economics in general and The Nudge Theory in particular. The UK government became the first in the world to set up a dedicated "nudge unit" (otherwise known as the behavioral insights team) in 2010. This unit is tasked to apply insights from Behavioural Science into public policy. The team, made up of 13 individuals from academia, policy making and marketing, "applies insights from academic research in behavioral economics and psychology to public policy and services". Two of the successes attributed to Nudge are:

- A trial with HMRC that showed how telling late tax payers that most people in their towns had already paid their tax increased payment rates by 15 percentage points. When rolled out this will generate £30m of extra revenue to the Exchequer