Is It Time to “Nudge” Compliance?

Ultimately, the job of a compliance officer is to influence human behavior. Their success in this role is a direct consequence of how well they understand the causes of unethical behaviors and the varied tools at their disposal to ensure compliance with ethical guidelines. The behavioral sciences are thus an invaluable source of domain knowledge; research in psychology, behavioral economics and related disciplines can shed light on the mechanisms leading managers and employees to behave unethically and propose measures to increase compliance, and tools emerging from this research can be used alongside traditional measures to strengthen compliance programs.

Nudging is one such tool that has been receiving increasing attention by policymakers and should be added to the compliance officer’s repertoire.

The concept of nudging, made famous in 2008 with the publication of Nudge by Richard Thaler and Cass Sunstein, received revived attention when, in 2017, Thaler was awarded the Nobel Prize in economic sciences “for his contributions to behavioral economics.” A nudge, as Thaler and Sunstein introduced the term, is any change to the context in which people make decisions that is easy to avoid but predictably influences their choice or behavior. Unlike rigid rules or insurmountable barriers, nudges… well, nudge people toward a certain behavior while keeping all options open. What’s more, they are often relatively cheap to implement and may have large effects.

How to “Nudge” Employees Toward Ethical Behavior

Some classic examples of nudges used successfully in the past:

• In collaboration with Her Majesty’s Revenue & Customs, the Behavioural Insights Team tested several small changes to letters sent to debtors. The key change in the letters was an addition of one extra sentence highlighting that most people pay their tax on time. The most successful letter, which also stated that most people in the recipient’s town had already paid, raised the rate of repayment by 15 percentage points. This small change, if implemented across the country, could cause the payment of an extra £160 million in just six weeks.
• Following an old idea, etching a fly on the urinals of Schiphol Airport successfully reduced “spillage,” lowering cleaning costs.
• The Save More Tomorrow retirement plan was able to increase employees’ 401(k) contributions by committing them to saving at a higher rate not immediately, but automatically after their next pay increase.

Nudges are effective because they exploit important features of how our minds work. For example, we often rely on what can be called automatic thinking, which operates differently from the rational, step-by-step kind of thinking we would use to solve math problems: Instead of calculating costs and benefits, we often make decisions based on other salient features, such as how many people seem to act a certain way. We also tend to have self-control problems, valuing benefits in the present more than possible costs in the future. And we generally suffer from inertia, preferring to take no action at all, even if the default option is not ideal. Can you see how these principles were applied in the three examples above?

The examples above suggest that knowing the appropriate behavior is not always sufficient to lead us to carry out that behavior; researchers in the field of behavioral ethics know this. While we want to see ourselves as good, ethical people, we also often have an incentive to cheat to enhance our own self-interest, and, surprisingly, people manage to do both at the same time! On top of this, we often fail to see the ethical implications of our actions in the moment, behaving as boundedly ethical agents, even though we would be able to, at a later point, recognize our actions as unethical. This results in a world populated with people who want to be ethical and mostly know how to achieve that goal, yet manage to cheat just enough that they accrue undue personal benefits and still see themselves as good people.

The Disconnect

If our minds are not totally rational when it comes to ethics, can we nudge employees into more ethical behaviors? The answer seems to be yes. A few examples of note are:

• In a paper reporting six studies in which employees exposed superiors to moral symbols (through an email signature or a moral symbol in the employee’s avatar), the superiors were less likely to ask them to do something unethical. The authors liken these moral symbols to a “necklace of garlic” protecting employees from ethical vampires.
• Another paper provides evidence that we can guard against overbilling with a very simple change: Asking for an itemized bill (unit reporting) instead of simply a bill with the total cost of the service (cost reporting) reduced overbilling across seven studies.
• A last study looked at underreporting of miles driven for insurance purposes. The authors partnered with a large insurance company and randomized customers to receive either one of two forms. The standard form asked them to sign after a statement of honesty (“I promise that the information I am providing is true”) at the bottom of the page, as usual. The modified form asked customers to sign the honesty statement at the top of the page, before filling out their mileage report. On average, participants signing at the top of the page reported having driven an extra 2,428 miles.

While there are no foolproof recipes for the creation of ethical nudges, researchers have begun to come up with useful frameworks. For example, researchers in behavioral economics and behavioral ethics offer three principles to develop ethical nudges, summarized in the acronym REVISE:

REminding refers to subtle cues that can be placed in critical moments that make morality more salient and make justifying dishonesty more difficult;

VIsibility is about reducing anonymity by making our behavior visible to others or increasing our sense of being seen (e.g., with pictures of eyes);

SElf-engagement refers to getting people to see their concrete actions as having a direct correspondence with their abstract moral standards.

These principles often work in tandem. Can you see them in action in the examples above?

Nudging is not a panacea. But it is a useful tool in the compliance officer’s repertoire, and it has the potential of causing measurable change at a fraction of the cost of other tools. Another strength of most nudging interventions is that we can test them and really understand whether they were effective or not.

Compliance officers are in a perfect position to apply nudges to have a real impact in the corporate world and to measure their results, helping us all discover when and how nudging is most effective. We urge you to collaborate with researchers or behavioral science units inside or outside your organization, test ethical nudges and report the results whenever possible. You’ll be helping your organization and science at large.