Read This Story to Learn How Behavioral Economics Can Improve Marketing

Richard Thaler’s 2017 Nobel Memorial Prize in Economic Sciences is a nudge for marketers to learn about behavioral economics. How can marketers nudge quick-thinking, short-attention consumers?

Richard Thaler was jolted awake by an early-morning phone call from Sweden. Over the days and weeks that followed, he was flooded with felicitations—e-mails, phone calls, media requests— leaving him more than swamped. The caller from Sweden told Thaler he had won the 2017 Nobel Memorial Prize in Economic Sciences for his research in behavioral economics. “Nothing more between now and the prize,” Thaler wrote two weeks after yet another request on his time, declining an interview to talk about how his nudge theory influences marketing.

Thaler is busy, caught in the surreal muck of a career-defining victory, but his wake-up call from Sweden should serve as a wake-up call for marketers to learn about his work and field of research. Thaler’s nudge theory carries serious weight in marketing, says Joel Rubinson, founder of Rubinson Partners and former chief research officer at The Advertising Research Foundation. “You can’t be in a meeting and say, ‘I never read [Nudge],’” Rubinson says with a chuckle.

Everyone gets nudged. If you weren’t nudged by this story’s headline to read on, then perhaps you were nudged by a snack wrapper, imploring you to pick up, unwrap and devour its salty-sweet contents. Perhaps you were nudged by a mobile notification: Respond to a friend request, tip your rideshare driver or—hey, it’s raining—order some delivery food.

This use of “nudge,” coined by Thaler and legal scholar Cass Sunstein in their 2008 book Nudge, is the potential to alter someone’s behavior without nixing any of their options or changing their economic incentives. Countries like the U.K. and Japan created “nudge units,” nudging citizens to cajole them into paying taxes. One of Thaler’s favorite examples of a nudge is a small decal of a fly placed in a urinal at Amsterdam’s Schiphol Airport. The fly decal improves men’s “aim”—the airport reported an 80% reduction in men’s room urine spillage after fly decals were installed in all urinals. In marketing, nudges have gone from the bathroom to the boardroom to improve market research, decrease selective attention in stores and convert online shoppers waffling about purchases.

The nudge has elbowed its way to the front of the conversation in behavioral economics, a field of research that blends psychology, economics and the scientific method to examine the human rationality of decision-making. Behavioral economics asks questions like: Why do people buy a bag of candy instead of a bag of vegetables when they’re trying to lose weight? Why do people buy $4 lattes when they’re trying to save money? The answer is often irrational.

Economists who believe in rational choice theory are not convinced that nudges change people’s behavior. They say that rational agents—aka homo economicus; the economic man; you—make choices based on available information such as costs, benefits, preferences and probability of events. Our choices are our own, these economists say, and a nudge is merely an additional datum in our free market of information. If nudges work, it’s because the nudge has given new information to a rational decision-maker. However, research in behavioral economics has shown that humans often behave irrationally, changing their action when the same choices are framed differently.

 

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