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Can’t resist your credit card? A Cambridge academic reckons he can nudge your bank account into better health

Falling credit cards

The power of “nudging” – subtle interventions informed by psychology to change people’s behaviour – is becoming increasingly accepted in marketing circles. As consumers we are now used to being given gentle reminders to eat better, drink less and exercise more – even if the messages are sometime ignored. And the use of these techniques is expanding rapidly, with new research showing that nudges can even be used to save us money and improve our financial management.

Joe Gladstone

Joe Gladstone

“If you ask people ‘do you want to save more money?’ or ‘do you want to eat fewer doughnuts and exercise more?’ they will usually say yes. However people often fail to follow through with these intentions,” says Joe Gladstone, a PhD researcher at CJBS and currently the Fox Fellow at Yale School of Management. “A good nudge is one that helps people achieve their goals, especially those people who are unable to accomplish things because they lack the self control required,” Gladstone explains.

Nudging can take many different forms. In the private sector, nudging can be combined with sophisticated marketing techniques to target individual customers. One piece of work Gladstone has been involved with has employed these techniques to try to help bank customers spend less money on unauthorised borrowing fees. One way to do this is to present the customer with the total amount of money they have paid on such charges across the course of a year. As Gladstone explains: “If we can show people what else they could have spent that money on, the cost of the bank fee will be more salient to them.”

Such techniques can be applied to many different areas. In 2010 the UK tax collection agency HMRC sent a letter to people who hadn’t paid their tax on time, using a behavioural science principle called social norm messaging – the idea that people are motivated to follow the behaviour of others. Extra sentences were added at the top of letters sent to late payers, suggesting that nine out of ten people pay their tax on time. The letters significantly reduced the incidence of late payments, saving the government millions of pounds in the process.

Recently, Gladstone has partnered with the UK Government Department of Health on an experiment designed to persuade more people to finish their courses of antibiotic medicine – an important issue, as the failure to do so helps create antibiotic-resistant bacteria and costs the National Health Service. The study includes thousands of patients across London using stickers attached directly to medicine packaging. Using different behavioural techniques the aim of the project is to find the best approach to increase medication adherence.

Jeroen Nieboer, a behavioural economist working at the London School of Economics, has worked with financial services firms to help them improve the outcomes for customers of financial advice and investment advice services. Like Gladstone, Nieboer believes some of the greatest potential benefits of using these techniques will be linked to using technology to personalise messages. “That’s one domain in which nudging can really develop,” he says. “Some of the high-level messages work, but we don’t know for how long. With personalised nudges, unless I’m annoying you, you can’t argue because it’s based specifically on what you’ve actually done.”

Greg Davies is the managing director and head of Behavioural-Quant Finance at Barclays, and has been running a behavioural science team at the bank for nine years. He sees nudges as effective tools – but just one among several other behavioural techniques. “Nudges tend to help people to do one thing at a time – for example, paying more into a pension,” he explains. “Nudges don’t help with decision-making in complex systems.

“[Nudging] can also come at a cost. So, for example, if you auto-enrol someone in a pension scheme, that in itself does not promote engagement: if I believe someone clever has done this on my behalf it’s almost an invitation for me not to engage further. So we need to supplement nudges with other techniques.”

Barclays is using behavioural science to assess customers’ financial “personalities”, then determining which products it would be best to offer to them. Davies’s team are also trying to learn how computer games draw players into interactions within increasingly complex environments, in order to use similar techniques to encourage customers to engage more fully with their own financial affairs and future – something many instinctively recoil from doing.

Gladstone points out that we are still at a very early stage of seeing businesses and organisations using nudge and other behavioural techniques. But in future he believes many more are likely to do so, particularly the use of randomised experiments to test different approaches. “Ongoing experiments is how we will dramatically improve how businesses work and how governments work,” he says. “What’s exciting is that so many organisations are now starting to realise the potential this has to help consumers.” Nudging and other behavioural techniques can help people to help themselves – and could also help improve the fortunes of businesses across a wide range of different industry sectors.