Behavioural Insights and Nudging in business policy
Nudging is one of the newest tools used by the Danish Business Authority (DBA) in our efforts to make it easy and attractive to run a business. By using behavioural insights - nudging, we develop new ways of creating solutions to remove burdens.
Nudging is used to tackle situations where businesses unwittingly follow a behavioural pattern that leads them to make mistakes, which are not intentional.
Using nudging as a tool combines using trials (preferably randomised control trials) and data analysis with knowledge of behaviour. Based on knowledge about behaviour from behavioural economics, cognitive psychology and social psychology we can identify areas with a potential for increased efficiency, better service or higher compliance.
The nudging tool is primarily used in the context of better regulation and is often combined with more qualitative research focused on identifying the behavioural patterns that might create inopportune outcomes for businesses as well as for the Danish Business Authority.
Initial trials have showed that nudging is a relevant tool for tackling diverse issues ranging from getting businesses to discover services that the authority provides to getting more businesses to turn in their annual report correctly.
It is possible to create nudge solutions that benefit both business and the authority. Some resent examples are:
A marked improvement in annual reports submitted to the DBA via a digital solution:
All Danish businesses are required to send an end-of-year financial report. There are, however, different requirements regarding the amount of information required, based on the type and size of the business.
We targeted the smaller businesses that have relatively uncomplicated annual reports and use the so-called “Regnskab Basis” digital solution, which involves: creating a draft of the annual report in Regnskabs Basis; printing out the information; getting the management and board to approve and sign off the annual report (if required, the accountant has to sign off as well); and getting approval of the report from the general meeting of the involved partners.
The person charged with reporting controls the draft and makes sure the information is identical to what has been approved, but there is a tendency to create the draft of the annual report after the general meeting, which indicates that the submitted report is not necessarily identical to the one approved by the management and board.
In 2013, 20,000 annual reports (under the responsibility of around 5,000 different individuals - in many cases, company accountants) did not follow the correct procedure, which represents about 43% of the annual reports submitted through the Regnskabs Basis digital solution.
To change behaviour and address systematic errors, 5,000 ‘nudging’ mails were sent out, leading to 50% fewer mistakes over the same three-month period in 2014 compared with last year.
The trial has reduced the rate of reoffending from 61% to 36% when compared to the same period last year. This action has helped to reduce the risk of penalties if the company’s annual report is subject to control, and led to time savings from getting it right in the first instance.
A marked improvement in quality of business data:
With the introduction of more and more digital services and data-based business models, the area of data quality is ever growing in importance. The nudge consisted of introducing a pop-up that allows for the businesses to see and control their own data as part of the normal log-on to the digital platform (Virk).
The nudge worked on the premise that businesses do not know that their data is outdated and that they don’t know how or where to correct the information.
During the trial, 15,000 businesses were presented with their currently registered data and were asked to verify them - 53% of the businesses confirmed their data by pressing the “verify” button and 42% pressed the “correct” button, giving us strong indications on the current data quality and the need for further measures that can help manage the problem.