In Nudge, Thaler and Sunstein introduced nudges as a manner of encouraging better decision making without obstructing freedom of choice. The concept as a whole piqued the interests of governments, policy makers and businesses as a way to encourage people to make choices that will impact them positively without actively forbidding alternative options.
Since its introduction, the notion of nudging people towards positive decisions most advantageous to themselves has been contentious. Is it ethical for governing bodies, policy makers or financial institutions to decide how consumers and citizens should choose or think? Should choice architects be in a position to dictate or structure choices, considering they themselves have personal biases? Continually, the argument is made that nudges and behavioural science intervention techniques may be viewed as manipulative as they infringe upon autonomous decision making.
What is the Transparency Effect?
As the ethics around nudging and the question of transparency arises, critics and supporters alike agree that nudges and behavioural science interventions could be made transparent by disclosing its presence and purpose to end users. Research shows that nudges can still be a highly effective tool even when we told we’re being nudged. Being honest with users about behavioural motives doesn’t result in diminishing outcomes, and transparency can actually bolster effectiveness of nudges.
How can financial institutions leverage the transparency effect in digital banking services?
Strategic transparent messaging is crucial
In order to avoid reactance and any associated negative emotions that can arise from feeling restricted and having one’s freedom of choice removed, it is crucial that banks use transparent messaging to communicate behavioural motives and highlight when nudges are in play to develop deeper, more trusting relationships with consumers. We already know that nudges can still be highly effective even when we are aware of them, so isn’t it better to be purposefully transparent and encourage healthy and sustainable financial habits in a direct and honest way that avoids reactance?
Personal Financial Management tools
When deploying Personal Financial Management (PFM) features, or financial wellbeing programs, banks can use transparent messaging to give users a better overview of their expected outgoing payments and how their cashflow is looking. Money management features should surface choices and alternatives in a way that highlights the potential outcomes of the financial decisions being made. Transparent messaging will enable users to have a better understanding of their current decision making, hopefully encouraging better financial decisioning in the long run.
Defaults as the standard, but make the opt out option easy
The setting of defaults is a highly effective behavioural science technique to encourage user buy in. While defaults often act as a reference point for users, it should always be equally easy to opt out of. The value of the opt out option in a situation with a default setting cannot be overlooked – not only is it enabling transparent messaging, it is also taking it one step further by ensuring that the intervention is being thoroughly considered by the users, thus hopefully influencing long term behavioural change.
Using the transparency effect by being upfront with users about nudging and behavioural science techniques should be the way forward not just for ethical reasons but also to ensure that they don’t end up being triggered by reactance. Ensuring that consumers have adequate information to make informed choices and the full freedom to choose what works best for them can create real value for both banks and users to build long term trust and value for the relationship in the long run.