MGMT review 2

MGMT 3500 Principles of Management

Nudge Effect:

Nudge theory was named and popularized by the 2008 book, 'Nudge: Improving Decisions About Health, Wealth, and Happiness', written by American academics Richard H Thaler and Cass R Sunstein. The book is based strongly on the Nobel prize-winning work of the Israeli-American psychologists Daniel Kahneman and Amos Tversky.

Nudge theory is mainly concerned with the design of choices, which influences the decisions we make. Nudge theory proposes that the designing of choices should be based on how people actually think and decide (instinctively and rather irrationally), rather than how leaders and authorities traditionally (and typically incorrectly) believe people think and decide (logically and rationally).

In this respect, among others, Nudge theory is a radically different and more sophisticated approach to achieving change in people than traditional methods of direct instruction, enforcement, punishment, etc.

The use of Nudge theory is based on indirect encouragement and enablement. It avoids direct instruction or enforcement. Here are some simple examples to illustrate the difference between traditional enforced change and 'Nudge' techniques:

enforce	nudge
Instructing a small child to tidy his/her room.	Playing a 'room-tidying' game with the child.
Erecting signs saying 'no littering' and warning of fines.	Improving the availability and visibility of litter bins.
Joining a gym.	Using the stairs.
Counting calories.	Smaller plate.
Weekly food shop budgeting.	Use a basket instead of a trolley.

Nudge theory accepts that people have certain attitudes, knowledge, capabilities, etc., and allows for these factors (whereas autocratic methods ignore them). Nudge theory is based on understanding and allowing for the reality of situations and human tendencies (unlike traditional forcible instruction, which often ignores or discounts the reality of situations and people).

Fundamentally (and properly, according to its origins) Nudge theory operates by designing choices for people which encourage positive helpful decisions; for the people choosing, and ideally for the wider interests of society and environment, etc.

Additionally, Nudge theory offers a wonderful methodology for identifying, analyzing and re-shaping existing choices and influences that people are given by governments, corporations, and other authorities. Given that so many of these choices and influences are extremely unhelpful for people, this is a major area of opportunity for the development and use of Nudge theory, even if it were not envisaged as such by its creators.

Nudge theory is very relevant to leadership, motivation, change management, and many aspects of personal/self-development. Nudge theory seeks to minimize resistance and confrontation, which commonly arise from more forceful 'directing' and autocratic methods of 'changing' people/behavior.