Nudge theory and not-for-profits

 In Decision-making, Insights, Not for profit

In Stockholm, they have a very interesting approach to getting drivers to slow down. It’s called the speed camera lottery and it works like this. Using number plate technology, any drivers who exceed the speed limit are fined. But crucially, all the drivers who drive under the limit are also spotted and they are entered into a draw to win the money made from the fines. Simple, but brilliant, and proven to reduce average speed by 22%.

Nudge theory

The speed camera lottery is an example of what Richard Thaler coined “Nudge Theory” in his 2008 book on choice architecture. He asked how we could structure choices to help people choose the right option for them, which is often not the case. When you’re ordering a soft drink and the medium is $4 and the large is $4.50 you are being subtly nudged in the wrong direction for your health. The choices are carefully set in a way to benefit the soft drinks company.

One of the early successes of Nudge theory was the Save More Tomorrow plan, which looked at how hard people find it to save money. The simple idea was that you signed up to a savings plan which didn’t start until you got your next pay rise, some months away. And then percentage of your salary you put to saving would increase every year, cunningly on the same date you got your pay rise – so you never noticed a loss of income. In this way, Thaler showed a fourfold increase in savings.

Governments started to take notice of this. Thaler went to work for the US government on Nudge projects. And in the UK, a Behavioural Insights team was set up in 2010 to look at how Nudge theory could be used to help UK citizens make better decisions.

Nudge theory and Not-for-profits

Which brings me to the application of Nudge theory to the Not for Profit sector. In May this year, the Behavioural Insights team released a paper on Charitable Giving which is a comprehensive look at how charities can nudge people to be a bit more generous. They also show in turn that financial generosity and volunteering are good for the individual’s health and happiness. So, what’s not to like about a nudge or two?

Here are some of their key nudge recommendations for charities:-

Defaults and opt outs

One of the most fascinating is the use of “default settings”, or “opt in” vs “opt out”. Let me explain. In Germany, 12% of the population are registered organ donors. Next door in Austria, the rate is over 99%. In Denmark the rate is 4%, next door in Sweden it’s 86%. The simple reason behind this is that in Austria and Sweden, when you get your driving licence there is an opt out box for organ donation, while for Germany and Denmark it’s an opt in box. Crazy.

For charities dealing with donations, learning from the Save More Tomorrow plan, you should have an opt out box to index link regular donations. That person who has generously signed up for $30 a month will probably be happy to see that increase by 3% a year.

And setting the default options for donation amounts is already a well-known way to increase donation amounts ($5, $100, $200, other).

What’s everyone else doing?

People considering donating want to know what other people are doing, and how much are they giving? It’s great if your website can show other people recently donating and how much they donated.

And if you are looking at legacy donations, a legal company found the text ‘many of our customers like to leave money to a charity in their Will,’ trebled the amount of people including a charity in their will.

In conclusion

There are many other applications of Nudge Theory, such as personalizing communications, or encouraging reciprocity with small gifts. It’s a theory of particular relevance in the not for profit sector as the vast majority of people want to give to charity, but other priorities sometimes just get in the way. Setting your nudges correctly can make it easier for your donors to make a choice which is a win-win for them and you.

Rob Pyne is founder of X or Y Decisions, a new organisation built to help the world make better decisions.