Giving consumers clear and accurate information to compare different products could give the UK economy a sorely needed productivity boost, a new report from the ‘Nudge‘ unit argues.
The paper, published by the Behaviour Insights Team (BIT), found that giving consumers clearer information could improve productivity and boost growth.
It argued that consumers are often unable to access clear information comparing goods and services, leading to overpaying and worse quality services.
Examples include prices for the same product across different stores which vary by weight or price comparison websites which do not feature deals from smaller providers.
“If consumers cannot identify the best products and services, firms have no incentive to compete on quality, stifling innovation,” the report said.
Consumers respond to clearer information, the report found. For example, an extra star out of five for a restaurant rating boosts sales by seven per cent in the following year.
Giving clear information to consumers should make it easier for the most innovative firms to stand out from rivals and encourage competition, thereby helping to increase productivity.
Taking a proactive approach to ‘deshrouding’ markets could add anywhere between £5bn to £23bn to UK GDP by boosting productivity. “Until now, this lever has been largely overlooked,” the report said.
The report recommended that the government needed to commission analysis on the levels of shrouding in different sectors. Relevant regulators should be challenged to develop policies that address sector specific issues.
It also suggested that the government should make available centrally held information on certain sectors – such as complaints against landlords – to enable consumers to make more informed choices.
“The UK needs to get out of the productivity slump it’s been stuck in for more than a decade,” David Halpern, president and founder director of the BIT, said.
“This new analysis shows that boosting the consumers’ ability to tell good from bad products and services lifts economic growth substantially, and puts money back in hard-pressed consumer pockets. It’s a win-win.”
The BIT was set up in 2010 within the UK Cabinet Office to apply nudge theory within the government. Nudge theory is a concept in behavioural economics that tries to influence decision making through soft interventions.
Since 2014, BIT has been a limited company and is now fully owned by the charity Nesta.