In contexts that range from savings to education to public health, nudges appear to be having a big impact. That impact has led to the rapidly increasing use of behavioral insights within governments, including the formation of “nudge units” in the United Kingdom, Australia, Germany and the White House. These units, staffed with behavioral scientists, are tasked with finding ways to apply nudges to solve old and new societal problems.
But are governments right to invest in nudging? Are nudges really a useful investment or would we be better served by relying solely on more traditional tools, including incentives like cash rewards or outright bans, to change behavior?
In a new paper, published this month in Psychological Science, we put nudging to the empirical test by comparing the cost effectiveness of a wide range of policy tools. We were surprised by our findings: In multiple areas, nudges have a much bigger impact, per dollar spent, than more traditional approaches, such as subsides, taxes and education.
Let’s begin with vaccinations, which public health experts have long identified as one of the most effective medical treatments. In 2011, two of us (Milkman and Beshears) worked with collaborators to assess the impact of a nudge that asked people to privately plan the date and time they would get their flu vaccine. The data showed that such “planning prompts” increased vaccination rates by 4.2 percent, generating 12.8 additional vaccinations for every $100 spent on the program.
This investment compares favorably to traditional interventions, such as paying students $30 to get vaccinated (3.65 additional vaccinations per $100) or an educational campaign on the health benefits of vaccination, which generated 8.85 additional vaccinations per $100 spent. In short, the nudge was roughly 1.5 times more cost-effective than the best traditional policy tool.
We also looked at energy conservation. The most effective nudge involved sending households a letter comparing their energy consumption to that of their neighbors, which led to a reduction in energy utilization of 27.3 kilowatt hours per dollar spent on the mailings. When judged against traditional interventions, such as offering utility customers a rebate if they cut their energy usage, the nudge proved to be eight times more cost-effective.
For policies designed to encourage college enrollment, nudges did even better. A 2012 study by Eric Bettinger and colleagues, done in conjunction with H&R Block, looked at the impact of using available tax information to auto-fill parts of the application for Federal Student Aid. (The application contains more than 100 questions.) High school seniors given the streamlined applications were 8.1 percentage points more likely to attend college the following year than seniors in the control group. According to the researchers, the nudge produced 1.53 additional college enrollees per $1,000 spent.
How does this compare to traditional interventions? According to the data, this nudge generated an impact that was roughly 40 times more cost effective than financial incentives tied to Social Security. Tax incentives performed even worse: Researchers have repeatedly found that they produce no measurable increase in college enrollment, despite their significant cost.
Nudges are famously effective in promoting retirement savings. For example, the Save More Tomorrow program developed by two of us (Benartzi and Thaler) has increased the savings of millions of Americans. And, a recent study conducted by the White House Social and Behavioral Sciences Team, in collaboration with the U.S. Department of Defense, sent most of the 806,861 military service members not contributing to their retirement plan an email nudging them to enroll. While 1.1 percent of those not sent an email began saving, the sign-up rate in the most behaviorally informed email group was 2.1 percent.
At first glance, this campaign’s impact seems modest. However, the low-cost of the email campaign meant that the intervention generated $1,600 in additional savings per dollar spent by the government. When we compared the cost-effectiveness of this nudge to the impact of traditional policy interventions, such as financial education and tax incentives, we found an impact that was more than 100 times larger.
On the basis of our findings, we have two general recommendations. First, governments should invest more in nudging, especially when the decisions they are seeking to improve through nudges might be biased or rushed. Our research shows that nudges generate an extremely high return on investment, at least compared to alternative policy tools.
Second, nudge units should track and share their data. It’s early days for the field: We need to learn from our successes and failures. It’s also crucial that we measure the relative effectiveness of nudges compared to other available interventions. Such data can help policymakers make informed decisions about how to allocate scarce public resources.
Governments have always been in the business of shaping behavior to achieve policy aims. Thanks to the progress of behavioral science, we now have a new set of tools that can help — and produce big returns on small investments.
The authors are a group of professors who study the application of behavioral science to public policy. Sunstein was in charge of the White House Office of Information and Regulatory Affairs during the Obama administration.