Nudges

Jay Arthur
888-468-1537
303-756-9144
KnowWare International, Inc.
DBA LifeStar
2253 S. Oneida
Ste 3D
Denver, CO 80224

We work with companies
that want to fire up their profits using
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Copyright © 2011

The other morning, my wife and I had breakfast at a local restaurant. I went to grab a packet of sugar for my coffee, but I realized that I had to scan past the non-sugar sweeteners to find the sugar. Accidently or on purpose, the restaurant was giving me a nudge to consider alternative sweeteners. If the sugar packets were at the front of the tray, I'd never even see the alternatives. This is the essence of a nudge.

I just finished a book, Nudge, by Richard Thaler and Cass Sunstein about how we make and don't make decisions.

Two Minds

Thaler and Sunstein suggest that we have two minds: a "Just do it" mind that is automatic and a "Let's think about it" mind that reflects before taking action. Both have biases and can make blunders. People will follow the herd, even when it's going over a cliff. People tend to like the familiar rather than the unfamiliar. When deciding how to nudge people, you want to consider how best to design the nudge to make the best use of both systems.

If you look at any supermarket checkout stand, you'll see a wide variety of last minute nudges: gum, batteries, candy, and magazines. It doesn't matter if it's a butterfly ballot or web page, once you put on your nudge detecting filters, you'll find them everywhere.

The authors argue that every system or situation is set up to nudge people, so, like it or not, we need to design systems to optimize the outcomes.

Nudge Design

Expect Error. First, you have to expect that people will make mistakes. How can you design your nudge to prevent mistakes?

Opt-in vs Opt-out. Americans aren't saving enough money. Should 401k retirement plans be opt-in or opt-out? If you've never saved, it's unfamiliar, so you are less likely to opt-in, but if you have to opt-out, you are more likely to stay enrolled. In my business, once employees have met the minimum requirements, they are automatically enrolled in the retirement plan.

Should organ donation be opt-in or opt-out? Aside from all of the moral, religious and other issues around organ donation, Opt-out would save more lives.

Choice vs Default. Once an employee is automatically enrolled in a 401k plan, should they be given a choice or enrolled in a diversified default portfolio? I remember when I first enrolled back in the 1970s, there were three choices: company stock, money market or stocks. I didn't know what to do, so I put it mainly in company stock (not a very diversified choice). While I left the company in 1995, many of my friends had made the same choice. They suffered through the stock falling from $60 to $1 a share in 2002. It was Qwest, not Enron, but the problem was still the same. A diversified index or balanced fund would have protected employees from management blunders.

Again, if investing is new territory, a default plan is more likely to lead to better investing.

Feedback - Products and systems that provide feedback (e.g., gas tank indicators on your dashboard) help make the right choice easier.

Mapping - Is it possible to make a map that will make it easier to make a decision. The authors mention new car mileage as an example. If a car gets 21 MPG, what is the annual fuel cost? Mapping MPG into fuel costs might be a great idea for the fuel efficient, but not so for the Humvee.

Structuring complex choices is a way to simplify decision making. In my business, for example, rather than charge for training, travel and materials separately, I offer a fixed fee that includes all materials and travel in the U.S. It simplifies the choice.

In statistical process control, we used to make people learn how to use a decision tree to choose the right control chart. Then I realized that the QI Macros could analyze the data and choose the right chart 99% of the time. The Control Chart Wizard in the QI Macros simplifies this complex choice into a single click.

I recently decided to add health insurance for my staff. If I'd have known how hard it was going to be, I might have put it off a while longer. There were dozens of choices and they were all laid out in the same format on two big sheets of paper. There wasn't any map or decision tree to guide me. I had to sit down with my employees and cross off the ones that weren't right for us. We finally narrowed the choices to three. Then, like Goldilocks, we picked the one in the middle.

Is there a way to simplify the complex choices that your customers face so that they won't be tempted to put off the decision a little while longer?

Incentives - Ever seen a new car offer that includes "cash back"? It's an incentive.

Here's My Point

No matter what you're selling or who you're trying to motivate, there's always a nudge built into the process. Are you going to design the nudge or succumb to the bias and blunders of the accidental nudge? If it will help people make better decisions, why not take a little extra time to craft the nudge for best results?

© 2008 Jay Arthur, the KnowWare® Man, works with companies who want to plug the leaks in their cash flow and people who want to master the mysteries of the mind..

To have Jay Arthur to train your staff, contact Jay at (888) 468-1537, support@qimacros.com.

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