Do nudges increase consumer search and switching? Evidence from financial markets

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.