Effectiveness of Nudges

Nudges are methods designed to influence consumer’s spending behaviours without offering financial incentives, sanctions or limiting their choices. Many countries love to use nudges to influence consumers to make certain economic decisions due to its multiple benefits. Apart from that, companies also use nudges for their goods.

One such benefit is the low-cost nature of nudges. For governments, using a nudge to influence a consumer is much more desirable than using subsidies or bans. Singapore is an example of a country who utilises nudges as the government implemented a healthier choice symbol in several products to influence consumers to consume food and beverage products that were healthier, which helps to reduce the possibility of Singaporeans purchasing unhealthy goods that would lead to chronic diseases and a bigger burden on the healthcare sector. Putting a symbol on these products does not extensively add to the costs incurred by the government, but yet it might help the government to reach its social goals and reduce negative externalities by reducing the amount of cigarettes consumed.

Apart from Singapore, Denmark also utilised nudges as its street lights turn red when Solar panels are no longer sufficient to power the light. The red colour nudges the consumer, resulting in them being more wary of their electricity consumption. Through the nudge, they might decrease their electricity consumption which means consumers are better off as they will be more mindful of their consumption. Society is also well-off since the decrease in electricity consumption will result in reduction of threats to sustainability.

However, nudges are still a relatively new policy and more research has to be done with regards to the effectiveness of such nudges. Furthermore, Nudges may not always be for goods that bring positive externalities, and that poses a problem for resource allocation. More importantly, nudges may also have differing impacts on different people of different income levels, different cultures and also differing generations as nudges may not always easily influence other people’s decisions. If people refuse to be nudged and refuse to be influenced, the nudges will be ineffective and there will not be a change in the level of consumption of these goods. Furthermore, if people fail to be nudged and are confused by the nudges, they may also not change their consumer behaviour. Even if they do change their behaviour, it would be temporary and would only occur in the short term, showing how nudges do have its limitations in comparison to other policies like taxes, subsidies and awareness creation efforts.

In conclusion, there can never be one true policy to influence consumer’s economic decisions. Different policies cater to different types of goods and also different types of consumers and as such the effectiveness of nudges depends on the target audience, which would require more research to ensure increased effectiveness. More importantly, policies can be implemented in conjunction with nudges such as awareness creation or subsidies to further enhance the effectiveness of the policy.

Nikhil Parmar

Bibliography

Website sources

Keating, Sarah. “The Nation That Thrived by ‘Nudging’ Its Population.” www.bbc.com, 2018. https://www.bbc.com/future/article/20180220-the-nation-that-thrived-by-nudging-its-population. (Accessed April 9, 2022).

Online Journals

Sunstein, Cass R. “Nudges That Fail.” Behavioural Public Policy 1, no. 1 (2017): 4–25.

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