Beyond the Veil of Persuasion: Unmasking Dark Nudges in Corporate Governance Ethics

By ESG Analyst Riordan Routh

To Nudge: A Brief Definition

“A “Nudge” is a way to manipulate people’s choices to lead them to make specific decisions: For example, putting fruit at eye level or near the cash register at a high school cafeteria is an example of a “nudge” to get students to choose healthier options. An essential aspect of nudges is that they are not [meant to be] coercive: Banning junk food is not a nudge, nor is punishing people for choosing unhealthy options”

-University of Chicago

1 Introduction

“In business ethics, the principles of action, the action itself, and the action’s consequences – must be taken into account.” (Solomon, 1991). Through the complex grey matter of dark nudges, one must surpass classic Deontology and Utilitarianism for another option called “Virtue Ethics”. “Nudges are defined as stimuli that help people/ businesses achieve what they want and plan to do anyway” (Reisch & Zhao, 2017). However, in recent examples such as Cambridge Analytica, nudges have influenced habits, shifted behaviours, and allegedly influenced several elections. Hidden as a market advisory consultancy, the company ended after five years with a $725m settlement over “deceptive practices to harvest personal information”. This is just one of the many examples of the immediate threat caused by dark nudges.

This article argues that within the ethical contours of nudging in business, a critical distinction must be drawn between beneficial behavioural guidance and the deployment of ‘dark nudges.’ These dark nudges, often masked under the guise of standard business tactics, raise profound socio-ethical concerns, challenging the integrity of consumer autonomy and demanding a re-evaluation of current business ethics frameworks. This multidimensional analysis aims to dissect and critically evaluate these practices, advocating for a more ethical and transparent approach to consumer influence in the business sector.

2 Theoretical Framework and Literature Synthesis

To properly assess dark nudges on a macro level, one must define the foundation theories and current literature surrounding ethical versus manipulative nudging. Through the work of Kahneman behavioural economics seems to be at the core of nudges. (Kahneman, Tversky, 1979; Thaler, 2015) approach the “impact of supposedly irrelevant factors on consumer behaviour”. These studies created indicative figures on understanding what had previously been described as economically irrational behaviour. These ground-breaking insights offer allow for a nuanced understanding of “consumer fallacies and [the promotion of] desired behaviours” (Reisch & Zhao, 2017). In other words, the beginnings of nudges can be linked to the behavioural studies of ignored data points. This definition is what I found so intriguing about the study of nudges as so little of its potential has been discovered. The counterpart to the latter is that nudging has yet to be properly regulated and as such has led to disastrous consequences as mentioned in the Cambridge Analytica scandal.

If it is ambiguous as to how nudges are defined, regulations and policies have been devised and philosophized. “Behaviorally informed consumer policy is based on the concept of libertarian paternalism, which is understood to include approaches that preserve freedom of choice but nonetheless incline or steer people in a particular direction” (Sunstein, 2014). Although the behavioural shift would no longer be fully spontaneous, nudging will still have some effect. Similar to the placebo effect, wherein even if the patient knows they are taking a placebo may still get a positive placebo response. This regulation may appear to be flawed because of the complex nature of identifying nudges. However, “if people believe that a nudge has legitimate goals and think that it fits with the interests or values of most people, they are overwhelmingly likely to favour it” (Reisch & Zhao, 2017). This would create a positive social virtuous circle. The co-alignment between the recipient and the creator of the nudge creates conscious positive behavioural change.

3 Methodological Rigor

Throughout my research, I have ensured a wide variety in choice of sources and analysis methods. Cross-referencing interviews, NGO reports, academic journals, statistics, quantitative data and qualitative research, I have been able to critically evaluate my sources. The various sources which are further described in the bibliography, conduct different approaches to calculating the ethical effects of nudging in business.

Although it may appear to be an abstract concept to analyze, there have been many attempts to rationalize data through proxy variables. The empirical study led by Ismaël Rafaï (Figures 19-23 Appendix) takes two factors to evaluate “people’s acceptability judgements about nudges: (1) whether the decision to implement the nudge was made in consultation with representatives of the targeted population and (2) the framing of both the purpose behind the nudge and its effectiveness” (Rafaï et al. 2022). On the other hand, Larry A. Floyd (As seen from figures 6-18 in the Appendix) developed a survey instrument using ten ethically related business ethics outcomes and decided to use a Likert-type scale to indicate the relative importance of each outcome. Both measures show different methods within the same field of research, overall contributing to a holistic comprehension of the relation between ethics and nudging in business.

4 Ethical Examination of Nudging

To verify the hypothesis that dark nudges are unethical I analyzed the underlying philosophical theories and regulatory standards implemented. The philosophical studies led by the American economist David R. Just conclude that nudges are a “nonintrusive type of paternalism as choices are not blocked, fenced-off, or significantly burdened” (Just, 2017). This counterbalances the thesis and puts the fault of dark nudges in business on the individual’s lack of clairvoyance. However, the study also affirms that “the individual may perceive a different choice set than is actually available based upon how the items are presented” (Just, 2017). The latter correlates with the overarching theme of the article. Through persuasive words or framing of questions and scenarios business can influence the perception of choice. An example of a framing nudge is the conundrum of the ballot wording for Brexit. One of the parties wanted the ballot to state, “Become independent” and the other “Leave the European Union”. The subtle nuance between both options could lead to a major outcome, all influenced by a nudge, altogether highlighting the importance of understanding nudges.

The Government of Canada’s Guidelines and Standards for Responsible Business Conduct (2022) does not explicitly mention any regulations, principles, or recommendations regarding nudges. The Guidelines reference the OECD to address concerns about the social, economic, and environmental impacts of business activities worldwide. Furthermore, it also invokes “The UN Guiding Principles (UNGPs) to implement the ‘Protect, Respect and Remedy’ Framework of the United Nations, clarifying the duties and responsibilities of states and companies to protect and respect human rights in the context of business activities”. While the Guidelines do not directly address nudges, their emphasis on the OECD’s principles and the UN’s ‘Protect, Respect, and Remedy’ Framework underscores the importance of ethical considerations in business practices, which is crucial when evaluating the ethical implications of using dark nudges in business activities, particularly in terms of respecting and protecting human rights and social, economic, and environmental impacts.

5 Empirical Investigation

The key empirical findings are drawn from quantitative data led by Post-Doctoral Researcher at the University of Berlin Maike Gossen, and Qualitative Research executed by cognitive scientist Harry Brignull. The Quantitative data reveals statistics regarding the nudging of sustainable consumption. “[Their] empirical research is based on a large-scale dataset containing sustainability information of nearly 17000 fashion products of the leading online retailers in Germany Zalando and Otto. The results show that many fashion products are tagged as sustainable with two-thirds carrying a private label and one-third a third-party verified label. Only 14% of the tagged products however present credible third-party verified sustainability labels” (Gossen, 2022). Figure 1 (Appendix) illustrates the misleading sustainability labels in the fashion industry. Figures 2 & 3 (Appendix) reinforce the empirical evidence of the lack of credible third-party verification for a majority of supposedly sustainable consumption. Altogether, the quantitative analysis demonstrates the unethical use of dark nudges in the German retail industry. This issue ties back to the notion of painting an incomplete set of options for the consumer, as mentioned in the ethical examination of nudging.

The qualitative research brings light to businesses’ back-office practices that contribute to dark nudges. Hannah Sellam delves deeply into the world of dark nudges and their ethical implications in her interview with Harry Brignull. The latter describes a Dark Pattern as “an element of a manipulative interface designed to trick the user into taking actions that they might not have done freely. Dark patterns are often used even with paid purchases or subscriptions. Examples of Dark Patterns include ‘sneak to basket’ (Appendix) and ‘roach model’ (Appendix). People categorize Dark Patterns in different ways, such as coercion, confusion, distraction, interruption, and obfuscation” (Sellam, 2020). The conclusion of the qualitative research completes that of the quantitative data. Moreover, behavioural dark nudges are creating a rise in psychologists being hired as marketing consultants for businesses. The empirical investigation confirms the desperate need for regulation of dark nudges before it becomes a common trend that all companies must adopt to remain competitive.

6 Analytical Discourse

The “Dark Nudges” research from the theoretical, empirical and ethical threads can be synthesized in the broader implications for business ethics. The foundational theories brought forth by Daniel Kahneman on behavioural economics go hand in hand with the empirical data from Maike Gossen’s report. The unimportant variables such as the credibility of the sustainability tag led to a complete misguidance for a target segment of sustainable retail customers. Although theory can only take you so far, this example correlates with the original hypothesis.

This manipulation of consumer choice also reflects the philosophical dilemma posed in the ethical examination of nudging. David R. Just defends the idea that nudges are nonintrusive as the receiver of the nudge, in theory, is not forced into a decision. Here we see a slight misalignment between both empirical and philosophical theories. The distortion between both theories lies in the nuance between “forced” and “coerced”. This grey zone is key to understanding the ethical contours of dark nudges. The synthesis of the Dark Nudges research, incorporating theoretical, empirical, and ethical threads, distinctly aligns with the main thesis of the article. The analytical synthesis of the research underlines the urgent need for global acknowledgement of the ethical dilemmas and consumer manipulation of dark nudges.

7 Reflexive and Integrative Narratives

When I began my research on nudging, I came in thinking of all the negative impacts it has had on society. I took on the stance of virtue ethicist when I studied Philosophy when I was told that one either had to believe in Deontology or Utilitarianism (I was not particularly fond of my options). However, in the words of Robert C. Solomon “how one ultimately judges business ethics and virtue ethics in business will depend on how one thinks about these weighty issues… Among the business virtues we would expect to find special versions of honesty, courage, temperance, and justice” (Solomon, 1999).

Although my viewpoint has not changed on the dangers of unethical practices of dark nudges in business. I have found hope for a positive use of nudges. The article written by Reisch and Zhao in 2017 changed my dogmatic view on the subject matter. The research reveals that if “people believe that a nudge has legitimate goals and think that it fits with the interests or values of most people they are overwhelmingly likely to favour it”. The notion of “self-improvement can be helped through nudges” acted as the light at the end of the tunnel for me. Overall, my research has deepened my understanding of nudging in business ethics. While it confirmed the risks of dark nudges persist, there is also a promising potential for ethical nudges to align with and enhance societal values.

8 Conclusive Insights

In conclusion, this article has demonstrated to what extent there must be a clearer identification of the nuance between positive and dark nudges. This paper advocates for solutions such as the implementation of a special team within the United Nations that tracks the potential use of unethical dark nudges, corporate governance through rules of transparency when using nudging techniques, or even new policies put in place. Altogether, although the research focused primarily on the existence of consumer manipulation through dark nudges, it should not take away from the positive impacts ethical nudging could have in the future. The measures that could be put in place are vital for the empowerment of consumer choices and the ethical business environment.

9 Annotated Bibliography and Source Integration

Academic Journal Articles

Behavioural Economics: Reisch & Zhao (2017) explore the intricate psychology behind consumer decision-making, highlighting the thin line between ethical persuasion and manipulative nudges in business practices.

Reisch, L. A., & Zhao, M. (2017). Behavioural Economics, Consumer Behaviour, and Consumer Policy: State of the Art. Behavioural Public Policy, 1(2), 190-206. https://doi.org/10.1017/bpp.2017.1

Ethical Theory in Business: Floyd et al. (2013) discuss the foundational ethical theories that should govern business ethics, crucial for distinguishing between ethical and unethical nudging.

Floyd, L. A., Xu, F., Atkins, R., & Caldwell, C. (2013). Ethical Outcomes and Business Ethics: Toward Improving Business Ethics Education. Journal of Business Ethics, 117(4), 753-776. https://doi.org/10.1007/s10551-013-1717-z

Case Studies: Schmidt (2017) analyses real-life business scenarios where nudging has been employed, offering insights into the ethical implications of these strategies.

Schmidt, A. T. (2017). The Power to Nudge. American Political Science Review, 111(2), 404-417. https://doi.org/10.1017/S0003055417000028

Philosophical Critiques: Just (2017) critically examines the moral implications of nudging tactics, emphasizing the ethical paradoxes inherent in influencing consumer behaviour.

Just, D. R. (2017). The Behavioral Welfare Paradox: Practical, Ethical, and Welfare Implications of Nudging. Agricultural and Resource Economics Review, 46(1), 1-20. https://doi.org/10.1017/age.2017.2

Regulatory Framework Analysis: The Government of Canada (2022) provides guidelines for responsible business conduct, crucial for setting ethical boundaries in the application of nudges.

Government of Canada. (2022, April 26). Guidelines and standards for responsible business conduct. https://shorturl.at/aqCDJ

Sunstein, C. R. (2014). Why nudge? The politics of libertarian paternalism, New Haven, CT: Yale University Press.Google Scholar

Statistics and Quantitative Data

Consumer Survey: Gossen et al. (2022) provide empirical data on public opinion towards various business nudging strategies, highlighting the ethical considerations from a consumer perspective.

Gossen, M., Jäger, S., Hoffmann, M. L., Bießmann, F., Korenke, R., & Santarius, T. (2022). Nudging Sustainable Consumption:A Large-Scale Data Analysis of Sustainability Labels for Fashion in German Online Retail. Frontiers in Sustainability, 3, 922984. https://doi.org/10.3389/frsus.2022.922984

Business Performance Metrics: Rafaï et al. (2022) analyse the impact of framing and consultation in nudging, underlining the ethical importance of transparency and public perception.

Rafaï, I., Ribaillier, A., & Jullien, D. (2022). The Impact on Nudge Acceptability Judgments of Framing and Consultation of the Targeted Population. Behavioural Public Policy, 1-16. https://doi.org/10.1017/bpp.2022.13

Qualitative Research

Interview Transcript: Sellam’s interview with Harry Brignull (2020) reveals first-hand expert views on dark patterns in nudging, offering a deep dive into the ethical concerns raised by such practices.

Sellam, H. (2020, January 5). DARK PATTERNS – Interview of Harry Brignull, the inventor of this concept. Medium. Retrieved from https://hannahsellam.medium.com/dark-patterns-interview-of-harry-brignull-the-inventor-of-this-concept-4dcede7eac16

Secondary Sources

Literature Review: Oliver (2017) provides a comprehensive overview of behavioural public policy, including ethical considerations in business nudging.

Oliver, A. (2017). The Origins of Behavioural Public Policy. In Nudges (pp. 108-127). Cambridge University Press. https://doi.org/10.1017/9781108225120.008

News Article: Brooks et al. (2022) discuss recent developments in AI-enabled dark nudges by food and beverage companies, a critical analysis of ethical practices in modern business strategies.

Brooks, R., Nguyen, D., Bhatti, A., Allender, S., Johnstone, M., Lim, C. P., & Backholer, K. (2022). Use of Artificial Intelligence to Enable Dark Nudges by Transnational Food and Beverage Companies: Analysis of Company Documents. Public Health Nutrition, 25(5), 1291–1299. https://doi.org/10.1017/S1368980022000490

Industry Reports: Amar et al. (2022) from McKinsey & Company explore the transformative power of AI-driven nudges in operations, emphasizing the need for ethical considerations in their deployment.

Amar, J., Majumder, S., Surak, Z., & von Bismarck, N. (2022). How AI-driven nudges can transform an operation’s performance. McKinsey & Company. https://www.mckinsey.com/capabilities/operations/our-insights/how-ai-driven-nudges-can-transform-an-operations-performance#/

NGO Reports

NGO Publication: Medina & Pagel (2022) from the World Bank discuss the unintended consequences of saving nudges, a perspective that underscores the ethical ramifications in financial decision-making.

Medina, P. C., & Pagel, M. (2022, April 19). Do saving nudges cause borrowing? Evidence from a mega-study. World Bank Blogs. https://blogs.worldbank.org/allaboutfinance/do-saving-nudges-cause-borrowing-evidence-mega-study

Additional Resources

Book: Thaler & Sunstein (2021) provide an in-depth exploration of the concept of nudging, pivotal for understanding the ethical boundaries in its application.

Thaler, R. H., & Sunstein, C. R. (2021). Nudge: The Final Edition. Yale University Press.

Book: Kahneman, Sibony, and Sunstein (2022) delve into the often-overlooked impact of variability in judgment, crucial for understanding how ‘noise’ influences ethical decision-making in business nudging practices.

Kahneman, D., Sibony, O., & Sunstein, C. R. (2022). Noise: A flaw in human judgment. Littlle, Brown Spark.

Solomon (1991) discusses business ethics in depth, providing a foundational understanding necessary for evaluating the ethics of nudges in business contexts.

Solomon, R.C. (1991). “Business ethics”, pp. 354-365 in P. Singer (ed.) A Companion to
Ethics. Oxford: Blackwell

10 Appendix and Supplementary Data

Figure 1: Share of products with private labels and third-party labels.

Figure 2: Share of products with a third-party label.

Figure 3: Share of products with a credible third-party label.

Figure 4: Sneaking into Basket model:

“Sneaking products into users’ shopping baskets is a dark pattern that tricks people into purchasing more than they intended to do. For this very reason, the European Commission illegalized this design pattern under the consumer rights directive. Often, this dark pattern is now replaced by suggestions of products that may be of interest to a customer.

For example, when you are booking a flight from the Dutch Royal Airlines web page, a charitable donation on your behalf is made to compensate for your carbon footprint. Although we believe this is an environmentally responsible step to take, they don’t ask you explicitly and try to trick you into accepting it, which makes it a dark pattern.”

Interaction Design Foundation – IxDF. (2020, October 2). What is Sneaking Into Basket?. Interaction Design Foundation – IxDF. https://www.interaction-design.org/literature/topics/sneaking-into-basket

Figure 5: Roach model:

“Roach Model Pattern
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