Ethics in digital nudging
Choice sets on websites and mobile apps can be designed in a way that is not beneficial to consumers. These so-called “dark patterns” and “sludges” come with reputational risks. Increasing attention on such unethical design practices could lead to regulatory intervention, including for insurers.
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When people visit websites and use mobile apps, the way purchase options are presented affects what one focuses on and eventually selects.1 So-called “nudges” are design features of websites and apps that make it more likely for a consumer to take a particular decision or direction without, at the same time, reducing the set of possible choices.2 For instance, an easy-to-understand and clearly-illustrated list of insurance options steers potential customers by informing and making their choice easier. Nudges on websites and apps can create a win-win situation for customers and insurers alike by helping potential customers better understand policy content and increasing the likelihood that they select a product that best suits their needs.
However, websites and app design features can also be devised in ways to drive consumers to options that are not the most beneficial for them. These are called “dark patterns.”3 Similarly, design aspects can also discourage behaviour that is in a person’s best interest, such as cancelling subscriptions or changing privacy settings.4 For instance, websites can be opaque about how to cancel insurance policies. This is when potentially beneficial nudges become “sludges”, a term that scholars and practitioners increasingly use to refer to design features that make the purchase decision-making process more cumbersome, not easier.5 The Behavioural Economics in Action at Rotman (BEAR) research centre (University of Toronto) has introduced a framework that illustrates the key differences between ethical nudges, dark patterns, and sludges (see adapted version below).6
Deploying dark patterns and sludges can not only harm consumers, but also damage a firm’s reputation when the practice is discovered and made public. In 2019, for example, a British online travel retailer made headlines when customers complained that the checkout process was so confusing, they inadvertently bought travel cancellation insurance that they did not want.7
Online purchasing continues to grow and, as the potential harm to consumers from dark patterns and sludges becomes more widely known, regulatory attention on the topic is increasing, including in the insurance sector. In the European Union, the Insurance Distribution Directive foresees that member countries will need to ensure that information on insurance products provided to (potential) customers “shall be fair, clear and not misleading” and that “insurance distributors always act honestly, fairly and professionally in accordance with the best interests of their customers”.8 In addition, the European Commission announced that it will address online commercial practices such as dark patterns as part of its “New Consumer Agenda”.9
The UK’s Financial Conduct Authority (FCA) is well advanced on the topic of dark patterns and sludges. Back in 2013, the FCA set out a framework looking at how behavioural biases affect decision making about financial products, and has since published further insights on how sludges and dark patterns can adversely influence consumer behaviour and reduce welfare.10 Regulators in other jurisdictions are following suit. The Australian Securities and Investments Commission (ASIC) and the Dutch Authority for Financial Markets have published a joint report in which they warn about the deliberate use of sludges and misleading website /app design features in sales of financial products.11 In March 2021, a first US state banned companies from using dark patterns.12
This increasing attention means that insurers and their insurance distribution partners using dark patterns and sludges face risk of regulatory intervention. To portray options on websites and apps in a transparent way and in the best interest of the consumers is thus advisable. Clear internal standards and compliance reviews on user interface designs can help insurers and their distribution partners make best use of ethical nudges and avoid misleading design tricks.
Graphic adapted from BEAR’s “The Nudge and Sludge Framework”
1 C. R. Sunstein, “The Ethics of Nudging”, Yale Journal on Regulation, Vol. 32, 2019, https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1415&context=yjreg
2 “A nudge (…) is any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their
economic incentives.” R. H. Thaler and C. R. Sunstein, Nudge: Improving decisions about health, wealth, and happiness, 2018, p.6.
3 Mathur et al., “Dark patterns at scale: Findings from a crawl of 11K shopping websites”, Proceedings of the ACM on Human-Computer Interaction (3), November 2019, https://collaborate.princeton.edu/en/publications/dark-patterns-at-scale-findings-from-a-crawl-of-11k-shopping-webs
4 R. H. Thaler, “Nudge, not sludge”, Science Vol. 361, Issue 6401, p. 431, 3 August 2018, https://science.sciencemag.org/content/361/6401/431.full
5 D. Soman, Sludge: A very short Introduction, The paper is based on remarks made at the Nudgestock 2020 annual conference on 12 June 2020,
6 The BEAR research centre from the University of Toronto is one of Swiss Re’s academic partners
7 S. Duke and D. Walsh, “Travel insurance cancellation ploy ’earns millions’ for Lastminute.com”, The Times, 2 November 2019, https://www.thetimes.co.uk/article/travelinsurance-cancellation-ploy-earns-millions-for-lastminute-com-c5kjwbwkz
8 Directive (EU) 2016/97, Chapter V, 2., https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32016L0097
9 New Consumer Agenda: European Commission to empower consumers to become the driver of transition, European Commission, 13 November 2020, https://ec.europa.
10 K. Erta et. al, Applying behavioural economics at the Financial Conduct Authority, Financial Conduct Authority, April 2013, https://www.fca.org.uk/publication/
occasional-papers/occasional-paper-1.pdf; and e.g. Relending by high-cost lenders, Financial Conduct Authority (FCA), 6 August 2020, https://www.fca.org.uk/
11 Disclose: Why it shouldn’t be the default, ASIC AFM, October 2019, https://download.asic.gov.au/media/5303322/rep632-published-14-october-2019.pdf
12 A. Akhtar, “California is banning companies from using”dark patterns”, a sneaky website design that makes things like cancelling a subscription frustratingly difficult”,
INSIDER, 16 March 2021, https://www-businessinsider-com.cdn.ampproject.org/c/s/www.businessinsider.com/what-are-dark-patterns-2021-3?amp
13 D. Soman, Sludge: A very short Introduction, The paper is based on remarks made at the Nudgestock 2020 annual conference on 12 June, 2020,