Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Ideas Matter

  • HOME
  • CATEGORIES
    • Behavioral Economics
    • Environment and Climate Change
    • Macroeconomics and Finance
    • Microeconomics and Competitiveness
    • Politics and Institutions
    • Social Issues
  • Authors
  • Spanish

A Simple Nudge is a Better Nudge

July 19, 2017 by Carlos Scartascini Leave a Comment


What are the best ways to get people to change their behavior for their own, and society’s, good? Seeking to avoid coercion, policymakers increasingly turn to pricing strategies, like “sin taxes” on alcohol or cigarettes. Or they resort to techniques from behavioral economics like “nudges,” which employ peer pressure, moral appeals and suggestive images—such as pictures of diseased lungs on cigarette packages—among other techniques to edge people toward better habits.

But as effective as these methods can be, they have to be well-designed for maximum impact. That means they must transmit information that is simple, clear, and credible.

Consider a case in Argentina. When the natural gas company of Greater Buenos Aires introduced a new higher and progressive tariff schedule for natural gas, it sought to increase revenues and reduce consumption. It also wanted to force higher income consumers to pay more. But, as revealed in an IDB study, the tariff schedule was too complex for most people to understand and adjust their behavior so they could use the system to their advantage. Future prices were based on the previous 12 months of consumption. They were revised bi-monthly, and they included consumption thresholds beyond which consumers would immediately pay a much higher price, even if their use of gas exceeded the threshold by a single cubic meter. If this made it extremely difficult to compute ideal levels of consumption, it also gave little to consumers in the way of helpful suggestions. Should they take shorter showers? Drink fewer mates? The gas company provided few clues.

All this had an impact. While the price increases were amply covered in local media, only 14% of households knew that consumers were re-categorized (and unit prices determined) in each billing cycle and less than 5% fully understood the pricing scheme and the price difference between thresholds, according to a telephone survey we conducted. Consumers still reacted to prices: a 25% price increase reduced residential gas consumption around 4%. But since they were largely in the dark about how the system worked, they couldn’t effectively plan their consumption and the policy fell short of its potential.

By contrast, California took advantage of various effective pricing and nudging strategies to try and reduce urban water consumption during five years of epic drought that officially came to an end in April. As I indicated in a recent IDB presentation, one of the key elements in this statewide “Save Our Water” campaign was simplicity: easy to understand signs and pictures that appealed to citizen’s responsibility. One sign, for example, featured illustrations of a shower, toothbrush, bathroom faucet and dishwasher. The accompanying text explained how many gallons of water could be saved by efficient water use, like running the dishwasher when full rather than half full. Like many other messages that combine a moral appeal with actionable and clear information, it was designed for impact.

We dealt with similar design issues in our first study on the role of messages in increasing tax compliance. We addressed several focus groups in the municipality of Junín, Argentina on the costs of not paying their taxes. We found that if we informed taxpayers that the monthly interest on their debt was 2%, they would think that was a relatively small cost and not change their behavior. However, if we rephrased the same information to make it clear that a $1000 tax liability would result in an additional $268 in arrears, people became worried. Thanks to this reformulation of a basic message, we increased compliance. Similarly, we have shown that prizes and rewards can make a significant difference in getting people to pay their property taxes, but only when the design is right.

We have taken these insights to heart in a series of interventions that we are currently implementing to improve the disclosure of benefits of different payment plans in a tax amnesty, the evolution of public works in a city, crime trends, criminals’ profiles, and the workings of the justice system in several countries in the region.

The key point is that pricing and nudging strategies can work by connecting to both intellectual and emotional components of the psyche. But to do so, the messaging has to be well-designed, simple, clear, concise, and credible.


Filed Under: Behavioral Economics, Microeconomics and Competitiveness Tagged With: #BehavioralEconomics, #nudges, #PricingStrategy, #Taxes

Carlos Scartascini

Carlos Scartascini is Head of the Development Research Group at the Research Department and Leader of the Behavioral Economics Group of the Inter-American Development Bank. He has published eight books and more than 60 articles in academic journals and edited volumes. He is a member of the Executive Committee of IDB's Gender and Diversity Lab, member of the Board of Advisors of the Master of Behavioral and Decision Sciences at the University of Pennsylvania, Associate Editor of the academic journal Economía, and Founding Member of LACEA's BRAIN (Behavioral Insights Network). A native of Argentina, Dr. Scartascini holds a Ph.D. and an M.A. in Economics from George Mason University.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

Search

Related posts

  • Faced with a Water Shortage, a Flood of Ideas.
  • The Do’s and Don’ts of “Nudging”
  • Behavioral Economics and the Messaging That Works
  • The Importance of Good Regulations: When Investing Well Is Not Enough
  • Rewards Help Tax Payments Become "Contagious"

About this blog

The blog of the IDB's Research Department shares ideas that matter on public policy and development in Latin America and the Caribbean.

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

    Blog posts written by Bank employees:

    Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


    For blogs written by external parties:

    For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

    The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

    Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



    Privacy Policy

    Copyright © 2025 · Magazine Pro on Genesis Framework · WordPress · Log in

    Banco Interamericano de Desarrollo

    Aviso Legal

    Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

    facebook
    twitter
    youtube
    This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
    To learn more about cookies, click here
    X
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
    Non-necessary
    Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
    SAVE & ACCEPT