| Abstract: |
As nudge interventions have become more popular, academic research is
developing that aims to assess to what extent and under what circumstances
these interventions are effective. My paper contributes to this stream of
research in a specific context: collating and synthesising evidence on the
effectiveness of nudge interventions that aim to increase consumer search and
switching in retail financial markets. Following a systematic search strategy,
I identified 33 papers containing relevant research, including qualitative
studies, online laboratory experiments, field experiments and ex post data
analyses, covering a wide range of retail financial products and a number of
different types of nudges. The review of these papers results in two main
contributions. First, it demonstrates that different study designs serve
different purposes in evidence accumulation. In particular, qualitative
studies and online lab experiments should not be used to ascertain the
magnitude of the intervention’s impact. Second, based on over 400 estimates
from the quantitative analyses in these papers, it establishes that the
currently available evidence shows that nudges increase consumer search and
switching in retail financial markets by 2-3 percentage points on average. The
most effective interventions appear to be the ones that make the consumer’s
life easier by taking some of the administrative burden over, and the ones
that make a relatively major change in the structure of the decision-making
environment. Disclosures, reminders, simplifications and informational nudges
tend to have a smaller impact. In other words, nudges that change the choice
architecture more profoundly have a higher impact on search and switching than
nudges that only provide, simplify or highlight information. Overall, while
nudge interventions may be efficient on a cost-benefit basis and can lead to
large increase in relative terms (e.g. doubling switching rates from 1% to
2%), regulators cannot expect them to alter consumer behaviour to the extent
that it would lead to a significant change in the competitive landscape. |