Behavioural economics – the hot topic!

Integrating Choice Architecture into the Information Architecture!

Behavioural Economics is the hot topic of conversation within agencies specialising in above the line and below the line activities for both public and private sector clients. Cass Sunstein and Richard Thaler’s best selling book “Nudge” has been at the centre of conversations within agencies with strategists asking the question – “how can I integrate this into my work”.

Sunstein & Thaler provided the Obama campaign team with white papers on messaging, fundraising and rumour control which were ultimately used to mobilise the huge groundswell of support that carried Obama past the post and into history as the first African American president.

So what exactly is Behavioural Economics? As a theory, Behavioural Economics blends insights from psychology with classic economic theory to better understand consumers’ economic decisions. By understanding this it becomes possible to create the right environment or choice architecture in which to persuade consumers into making favourable choices.

What is really clear is that there are a huge range of factors that influence human behaviour.
Stop and think for a second! Have you ever wondered what really influenced your decision to purchase something on a website over a different item, what influenced you to buy a product instead of different one in a supermarket or even what influenced you to choose your meal in a restaurant? It could well be that choice architecture has been considered at the design stage in order to nudge you into making your choice selection!

This of course happens outside of our conscious awareness.When asked, most people believe that the choices they make are influenced, in simplistic terms, by their own sense of what they “feel” is right for them. However, in the recent paper on communications & behaviour change published by the COI, research clearly shows that ‘Individual behaviours are deeply embedded in social and institutional contexts. We are guided as much by what others around us say and do, and by the “rules of the game” as we are by personal choice.’

Up to now it does seem to be that Behavioural Economics has been adopted more en masse within the energy debate as part of the ever expanding search to affect attitudinal change with regards to energy consumption.

Some common examples of Behavioural Economics and how these are used to “nudge” are listed below:

Scarcity value

When we perceive something to be scarce, it tends to hold a greater value in our eyes. Conversely, when we perceive it to be plentiful, its perceived value falls. By ensuring that this principle is implicitly embedded within a marketing message can act as a nudge to encourage take up.

We are currently integrating this into communications on behalf of our client. They have to recruit a certain number of professionals each year and the window for recruitment is only open for about 4 months. By using time released content we are able to adjust the message the closer we get to the recruitment window closing to communicate that there are only a limited amount of spaces available. When customers feel that there are only a certain amount of places they are more open to a nudge to apply before the spaces run out!

Loss aversion

People will work harder to avoid losing something than they will to gain it.

Behavioural Economics tells us that it can be twice as painful to lose a fiver as it was enjoyable to acquire it in the first place.

An energy company in the US found that when they communicated to their customers that if they switched to energy saving mode they would save (and therefore gain) $200 a year it had very low take up. However, when they changed the message to show that by not switching to energy saving mode they would lose $200 there was an extremely positive response. People are motivated to act when they feel there is a threat of losing something!

Matt Leeburn in his article on an Australian website http://anthillonline.com/saving-the-world-with-behavioural-economics/ refers to a recent study showing that by putting a happy smiley icon or an unhappy icon on a person’s energy bill can have a dramatic effect on energy consumption. This is what Sunstein & Thaler refer to in Nudge when they talk about the fact that people respond to feedback!

Price perception

In theory, price should be a result of the value that people attach to something. We should be willing to pay what we think something is worth. In practice, this causality runs backwards. The price that is demanded for something seems to make us value it more.

Chunking

The way a task is presented affects people's willingness to take it on and complete it. Something presented, as one long task to be conducted in a single act will be less likely to attract people than something "chunked up" into bite-sized stages.

A form that runs to several pages will probably produce higher conversion rates if it is broken up into more digestible chunks with clear information that shows where people are in the process – users don’t like to be fooled!

The principle of chunking is most commonly noticed when purchasing a car, washing machine etc – “only 36 monthly payments” etc. Humans tend to perceive the lower value which tends to be in big bold writing (the monthly payment) rather than the whole payment which is usually sub dominant and less noticeable!

Social herding

People tend to be influenced by the social norms or of what they perceive other people are doing. Communicating on a website what your customers have done en masse can act as a nudge to an undecided customer.

Behavioural Economist, Hunt Allcot describes a brilliant example of this in his article for MIT. http://web.mit.edu/newsoffice/2010/3q-alcott-0305.html An American energy called OPOWER found that energy bills were reduced by 2% by providing their consumers with user-friendly energy bills showing comparisons between them and their neighbor’s, or people living in the same street. This approach combined with tips of how they can reduce their energy consumption has affected the behaviour and gone some way to reshape the inherent attitude towards energy………..after all everybody likes to keep up with the Jones’s!

The Status Quo bias

We like to keep things the way they are – we don’t like change! People tend not to change an established behaviour unless the incentive to change is compelling.

Framing

Framing is a cognitive heuristic in which people tend to reach conclusions based on the 'framework' within which a situation is presented. People like to be presented with a simple choice and so providing users with several items together with a whole list of ‘product specific’ information will do more to confuse and deter people than it will to encourage them to make a choice.

By integrating key principles of Behavioural Economics at the design stage we are able to ensure that we create the optimum choice architecture in which to nudge people into making choices that YOU want THEM to make!

Relating this back to the work I am involved in as an agency professional, I am currently working with a client to look at ways in which we can integrate principles of Behavioural Economics to improve on goal conversion and take up on services. What is really interesting is that simple changes can often be made with low cost implications that bring significant results. We are simply examining alternative ways of framing choices with a combination of content, such as text, imagery, signposting and calls to action in a way that is more in line with typical human behavioural instincts.

The fundamental principles behind Behavioural Economics are not new. Advertisers have been using them to try and persuade consumers to purchase their products for some time now.

Perhaps, more interesting than its ultimate application though, is the role the discipline can play in the marketing and advertising realm by providing a common, agency and discipline-agnostic model for human persuasion? Rory Sutherland, President of the Institute of Practitioners in Advertising (IPA) in the UK (and Vice Chairman of Ogilvy Group UK in the piece he writes for campaign live states that Behavioural Economics provides us with an intellectual framework, which allows us to better justify (and charge for) the ideas we already generate as well as generate new and better ones.

I think that the scalability provided by digital media combined with Behavioural Economics and the ‘intellectual framework’ it provides us with, to coin a phrase by Rory Sutherland, means that there are exciting times ahead! After all, if Behavioural Economics can be used to help elect the first African American president in the United States the possibilities are endless!