Small factors in a context - whether it be in a government service, a financial institution or a retail environment - either facilitate or impede the end user in accomplishing an objective. University of Toronto behavioural economics expert Dilip Soman shows that if these factors are designed to facilitate a good decision, they are called 'nudges'. But in some cases the contextual variables actively impede activities that are in a consumers' best interest. This is called sludge, and it exists in all walks of life. He discusses where sludge is most common, the biases it targets, and what to do about it.
While they go about things in very different ways, every organization is actually in the same business: behavioural change. Whether it is a bank encouraging consumers to switch to their product; a government agency trying to get citizens to pay taxes on time;or a health agency interested in improving the consumption of medication, behaviour-change challenges abound. As a result, some of the smartest organizations have begun to embed behavioural insights (BI) into their everyday processes. The authors describe the four main ways that BI can add value to any organization, as well as four approaches that an enterprise can take to embedding BI in its work.
As consumer touchpoints increasingly migrate online, it is important to understand how human nature manifests itself in a digital environment. The authors-including the head of the University of Toronto's Behavioural Economics in Action research institute-describe five behavioural biases brought on by a digital environment and present their research findings on three characteristics of digital behaviour: the 'screen effect'; the choice-engine effect; and the connectivity effect. They make it clear that online decision making is not merely the digitization of decision making in a brick-and-mortar world: It is a playing field with completely different rules.
From Canada to Australia, Denmark to Singapore, governments are embracing insights from Behavioural Economics to improve the lives of their citizens. The authors describe the basics of 'Choice Architecture' and show that testing different 'nudges' with users provides an outlet to review the status quo and improve interactions with the public.
Gathering the evidence required to back up a corporate claim has always been important, but the case for effective evidence gathering has never been greater than today. Unfortunately, while the data that organizations ordinarily collect can be useful, it is often insufficient to answer relevant questions. In other words, the evidence required typically isn’t ready to be analyzed and often must be developed using real-world experimentation. This paper examines how businesses can perform randomized controlled trials. To help you conduct better testing for your own business, we also address three questions: What if you can’t run a randomized controlled trial in a lab? Which organizations should conduct tests? How should you conduct your testing? The potential for confusing correlation and causation only becomes greater in a world of big data. Determine if an outcome is significant by using a simple statistical test such as the T-test, and specify your required level of significance before running the test. One way to achieve the best of both worlds is to use a field experiment—an experiment run in the real world but with as many confounding influences as possible removed. Although messier than lab tests, field experiments inspire greater confidence that the results will be relevant. Whenever it is feasible to randomize what you offer your customers, you have the potential to gain a better idea of what works best. Testing can save your organization money, make your actions more effective, and improve outcomes for your customers.
Every organization-regardless of industry-shares a common quest: they are all in the business of changing human behavior in some way. For-profit companies try to convince consumers who currently buy a competitor's product to switch to theirs; while governments try to convince citizens to pay their taxes on time or renew their driver's license online. Yet, the author argues, if you think about what people actually do in organizations from day to day, the bulk of their efforts are spent on 'first-mile problems'. These include efforts devoted to thinking through the competitive landscape and coming up with new products and services. Very little attention is paid to the 'last mile'-the part where the consumer actually walks into your establishment or begins a dialogue with your staff, and then makes a decision to switch to embrace your product (or not). The solution to this 'last-mile problem', he shows, isn't so much about creating awareness about your offering as it is about facilitating action. Throughout the article, he provides guidance on how to successfully embed the science of behavioural insights into the DNA of both government and for-profit organizations.
Innovations often fail due to one simple fact: innovators have a flawed understanding of the psychology of their end user. The author shows that, contrary to the view of traditional Economics, consumers are not driven purely by rational considerations. Real consumers are emotional; they are lazy (both physically and cognitively); and they are systematically influenced by context in making decisions. After describing several common biases, the author provides four recommendations that can help to reverse innovation's dismal success rate to date.
Have you been 'nudged' recently, to behave in a more environmentally or economically-sustainable way? While you might not know it, chances are, you have. A nudge is any aspect of the 'choice architecture' that alters people's behaviour in a predictable way, without removing any options or changing economic consequences. The authors complement the existing literature on Nudging-based on seminal research by Richard Thaler and Cass Sunstein-by providing practitioners with several guidelines for developing nudges of their own. They describe 12 possible types of nudges-a 'taxonomy' of nudging-and show that developing nudges is an interdisciplinary process that is project-based and experimental in nature. As they indicate, nudging is a powerful approach that is now being applied effectively in both for-profit and individual welfare domains.
Waiting in line is a ubiquitous consumer experience, but it doesn't have to be a negative one. The author argues that service providers can foster positive experiences in several ways, by paying attention to the psychology involved in waiting. The 'psychology of time' includes three key factors: the important of progress; social comparisons; and the desire for social justice. When a service is designed with these in mind, the waiting doesn't have to be the hardest part.
Frugal innovation' is a new style of innovation that is popular in India and other countries in the global south, where citizens face global challenges such as poverty and climate change with limited resources. The solutions it puts forth must be low-cost, robust and easy to use, and have the potential to be targeted at large populations. However, solutions tend to be developed and used locally, and scaling local innovations presents some key challenges. The authors describe how to go about creating a 'hybrid model' for scaling an innovation, which entails attention to five baseline factors: cost, active demand, a sustainable business model, outcome demonstration and effective leadership.
In most western societies, the concept of choice -- and the ability to exercise it -- is seen as fundamental to people's sense of autonomy and well being. As a result of this 'choice is good' thinking, the number of offerings in a wide variety of product and service categories has increased significantly over time. For instance, compared to just 10 years ago, the range of products available in a typical North American supermarket has increased by 55 per cent. The author describes five strategies for dealing with 'overchoice', including 'organizing and eliminating options' and 'encouraging attribute-based decision making'.
Some of the toughest decisions in life are so-called 'should vs. want' decisions: you know that you should be exercising at the gym, but you would rather go to the movies with friends. It is not that people don't know what they should be doing, they simply behave in a seemingly irrational manner when faced with tempting consumption opportunities. The authors introduce the Theory of Decision Points, which suggests that external interventions can help individuals curb excessive consumption by providing them with an opportunity to pause and think about consumption. They show that in the case of individuals who are seeking to control consumption, decision points can snap them out of an automatic mode to a more deliberative decision-making mode.
The authors show that the evaluation of financial statements and the subsequent judgment of whether or not to invest in a company is fraught with emotions, heuristics and physiological responses. They describe three particular aspects of financial statements that have been proven to affect the reader's view of a firm, and show that the judgment of whether or not to invest in a firm is far from the cold-and-calculated process that it has always been imagined (and taught) to be.
The authors describe their research, which found that when a quantity of a given resource - such as food, money, or cigarettes - is physically divided into smaller quantities, it reduces both the total quantity consumed and the speed of consumption. For marketers, these results suggest that simple forms of packaging have the ability to create dramatic variations in consumption. For consumers, the message is simple - for consumption that you want to control (but that is tempting), the simple act of partitioning the resource will help curb consumption.
For years, companies have expanded their product lines in an attempt to better meet the needs of diverse customers. Typically, they do so by adding new flavors, package sizes, formulations, features, and options. As a result, whereas The Coca-Cola Company once sold a single formulation of cola, it now sells more than ten. It has long been believed that product variety is beneficial to consumers, and that a wider assortment will logically better-meet their varied preferences than a narrower assortment. However, the authors call this 'variety-is-good' belief into question, showing that in cases where 'choice deferral' is an option, adding a second attractive alternative to what had been a one-alternative consideration set increases the frequency of not making a choice. The results they present speak to the potential negative impact of product assortment on consumer choice - an effect they refer to as 'overchoice'. Four strategies are described that confront the negative effects of overchoice.
Most executives know how pricing influences the demand for a product, but few of them realize how it affects the consumption of a product. In this article, the authors argue that the relationship between pricing and consumption lies at the core of customer strategy. The extent to which a customer uses a product during a certain time period often determines whether he or she will buy the product again. So pricing tactics that encourage people to use the products they've paid for help companies build long-term relationships with customers. The link between pricing and consumption is clear: People are more likely to consume a product when they are aware of its cost. But for many executives, the idea that they should draw consumers' attention to the price that was paid for a product or service is counterintuitive. Companies have long sought to mask the costs of their goods and services to boost sales. And rightly so--if a company fails to make the initial sale, it won't have to worry about consumption. The problem is that masking how much a buyer has spent on a given product decreases the likelihood that the buyer will actually use it.