26 November 2014

Nudge for Good - Sharing the BIG Chocolate Cake

Nudge for Good is written by Richard Thaler on the copies of Nudge that are signed by him.

I wonder to what extent this advice is followed. When it comes to NGOs and even governmental organizations, we know – more or less – that behind nudging endeavours there is a good intention. Implementation might not be great, but the intention is good.

In the commercial arena, however, I have serious doubts. This isn’t because I see corporations as evil. It’s just that sometimes (often) we have to choose… and the choice is not between chocolate cake and fruit (the traditional self-control / short-long term balance task).

The choice (decision makers in) companies face is between a LARGE chocolate cake and a smaller chocolate cake.

Nudging for good does not directly imply the lack of profitability. On the contrary! However, nudging for good involves settling for a smaller profit for the sake of the good.

I could talk about the long term gains that come with not milking (or bull-shit-ing) a customer, but that would be futile since we all are present biased. We all want the BIG chocolate cake. Moreover, most incentive (and penalties) schemes are focused around results now.

The metaphor that I believe best describes nudging for good in commercial settings is sharing the BIG chocolate cake with your customers and / or stakeholders.

Sharing and more specifically sharing food is, for most humans, something that brings pleasure.

Earlier this year, I wrote a post on the Seven Ironies of applying Behavioural Science. One of these ironies sparked a debate between Pelle Hansen and myself on whether or not applying behavioural science in practice is the same thing as manipulation. I said it is, Pelle disagreed. 

Since then, I have to admit that I have nuanced my position: Applying behavioural science is not necessarily the same thing as manipulation, but it can very well be. Most nudges (and other applications of behavioural science) that are communicated in the public space are not manipulations and, indeed, there are protection mechanisms that allow the avoidance of manipulation. However, not all applications of BS are subject to these safe-guards against outright manipulation.

There are interventions based on behavioural science insights that steer behaviour and decisions towards the goal desired by the organization and are roughly undetectable and highly unlikely to be opposed. For most people, the shape of the chair they sit on while talking to a sales person / credit officer etc. is something entirely discarded. Yet, we know that the shape and texture of the chair influences decision making. Similarly, the scent present in shop, room etc. is, again, largely ignored. And, yet again, we know that various scents influence behaviour and decisions.

Let’s go back to sharing the BIG chocolate cake.

Mostly without my explicit intent, I came to know quite a lot on psychology of money – how we think, decide and behave when it comes to money.

One of the very cool concepts in this area is the pain of paying – the psychological discomfort of payments.

Intuitively we believe that pain is bad and lack of pain is good. Moreover, payments with a low level of pain lead to increased purchases, which are good for both retailers and financial companies (banks, credit-card companies, payment integrators etc.). Apparently, consumers too are happier because they spend will less friction (pain of paying).

However, Opening the gates to easy spending brings the joy of buying, but also brings the regret (& anger) of over-spending.

Is this what consumers really want?
Is making payments as least painful as possible the way to go?

I, personally, seriously doubt it. But what I think is less relevant. Businesses, may they be retail or financial services, want to maximize income, thus less painful payments is what they want.

The real question is if these businesses (particularly financial services) are willing to share the BIG chocolate cake with their clients?

People want to enjoy spending and at the same time they want to avoid the negative affect of over-spending.

In my view, there are ways in which financial services can be developed in such a way that both consumer goals are achieved. This will bring profits to financial businesses, but not as much as making spending easy. The BIG chocolate cake must be shared…

If a business wants to just increase sales, there are many ways to do so, some rooted in behavioural science. Though, this, in my view, is not the best application of this beautiful field of science.

Sharing the BIG chocolate cake will bring joy (and profits / value) to both businesses and their customers.

25 November 2014

Attitudes, Behaviour and Post-Rationalization

Earlier this year I wrote a blog post on the futility of focusing on attitudes: Screw the Attitudes! Go (directly) for Behaviour This post generated a lot of buzz and even some controversy.

This post provides a very illustrative example of the volatility of attitudes.

Less than two weeks ago, Romania elected a new President. You probably know (from this post) that the winner of the elections was the under-dog challenger.  

Yesterday, a sociological research group publicized some very interesting results on public opinion or attitudes.

Before round two of voting, the elected president, then a candidate with slim chances to win, had a confidence – trust level of 25%. Basically, a quarter of the population trusted the then (under-dog) candidate.

After the results of the elections were available and it was clear that the challenger had a surprizing, but clear victory (54.5% to 45.5%), the trust level of the same person skyrocketed. One week after the elections, 61% of the population reported that they trusted the former candidate, now winner.

The picture below shows a screen shot from a TV program that communicated the sociological research.

Picture from Digi24.ro

Not surprisingly, the loser of the elections lost some public confidence.

Before the second round of voting, the Prime-Minister in office who was the favourite candidate to win, had a trust level of 33% - one third of the population trusted him.

One week later after he lost the presidential elections, the trust decreased to 27%.

Picture from Digi24.ro

Another question that is omnipresent in such sociological research is
Is the country going in a good direction?

Before the second round of elections, 24% of people answered: yes.
After the elections, 55% of people answered yes.

Clearly, attitudes are not reliable indicators.  

20 November 2014

Can Banking Services Go from Utilitarian to (Truly) Useful?

Banking (consumer) services are, well, utilitarian.

For quite some time now, (some) banks tried to become more user-friendly, more humane and to focus a bit more on the people side of their business and less on the technicalities of numbers.

Despite, or maybe because of, these efforts, many bank customers have a difficult time understanding how (some) banking products and services actually work.

Moreover, some bank customers exhibit what seems like irrational behaviour such as having at the same time both savings and loans.

One might believe that such behaviours are caused by lack of knowledge, but, most often, this is not the case. Moreover, financial literacy has been proven to have a similar effect as holly water. It does not do any harm, but neither does it do any good.

Even financially literate people still show the same biases as naïve consumers.

The reality is that many (apparently) irrational behaviours related to money, including having simultaneously both savings and loans and paying very high interest rates for buying seemingly useless fancy products, are driven, in fact, by a form of profound rationality – evolutionary rationality.

Most learning programs, articles and books on behavioural science focus on presenting, (sometimes) explaining and giving insights on exploiting these deviations from economic rationality.    

The real challenge for banks (and other financial services) is to develop products/services that incorporate these behavioural science insights.

For example:
Up to now, some (many) banks developed payment tools that harness the cognitive shortcomings of people when considering money matters.

These payment tools make payments easy and with a low level of pain of paying.

At first glance this is great. People spend more easily, they enjoy shopping, the merchants are happy because they sell more, banks are happy because they earn money etc.

Things aren’t as straightforward as they seem at first glance. Indeed, people enjoy shopping and a lot of purchases would not have been made if the pain of paying was higher. However, many people would like to be more moderate on their shopping behaviour.

Opening the gates to easy spending brings the joy of buying, but it also brings the regret (and anger) of over-spending.

Apparently the goals of enjoying spending and avoiding over-spending are antagonistic. But there’s at least one way of conciliating the two goals and developing payment tools that fit what people want.

The main challenge banks and financial services, overall, face is to become truly useful and not just more utilitarian.

In order to avoid obsolesce,

 Truly Consumer-Centered Banking Services
Need to Incorporate these
Behavioural Science Insights.

Oh… almost forgot: It’s 2.5 hours long and very affordable, especially for banks ;)

18 November 2014

The (only) Question that Could Have Accurately Predicted the Winner in Recent Elections in Romania

I guess (some of) you know that, last Sunday, Romanians elected a new president. This is not news.

The news is that the under-dog challenger won against all odds and predictions.

All pre-election polls predicted that the favourite – the incumbent Prime Minister – will win and at a comfortable difference.

But, things didn’t happen as expected. The opposition’s candidate won at a very comfortable difference – 54.5% to 45.5% (roughly 9% of expressed votes) which in absolute numbers represents more than 1.100.000 votes.

Now, that the results are known, there are a lot of people explaining how it happened.

Yeah… Hindsight Bias!

There is, however, a question – methodology – that could have predicted the winner with accuracy.

Which of The Two Candidates Looks More Like a President?

Which of The Two Candidates Looks More Competent?

If you answered the one on the right-hand side, you were correct. He was the under-dog, but still won with 54.5% of votes.

The two questions above seem trivial and even irrelevant, but this is not exactly true. They are based on the Representativeness Heuristic

Basically, instead of answering the difficult question of 

“Is this guy competent” 

We answer the simpler one of 

“Does this guy look like a competent person”.

Todorov et. al. (2005) found that asking the questions of “who looks more competent?” gives accurate predictions on who will win the elections in 65% of cases.

A. Todorov, A. N. Mandisodza, A. Goren, C. C. Hall, (2005) Inferences of Competence from Faces Predict Election Outcomes, Science 308, 1623. 

17 November 2014

Airport Annoyance: the Small – Big Airport Paradox

Since I moved from Romania to The Netherlands I traveled several times between the two countries. Some trips were by car while the majority were by airplane.

The airport in Amsterdam (Schiphol actually) is BIG. Really big.
The airport in Bucharest (Otopeni actually) is rather small. Not tiny, but rather small.

Even when things go smoothly, there are two very annoying moments associated with air-travel. The first is the security check which, although I deeply dislike, I accept it as a necessity. After all, we all enjoy safe flights (at least in the EU).

The second annoying moment is the waiting at the luggage belt. After sitting in a small and usually uncomfortable (at least for me) chair for several hours and after traveling thousands of kilometers I feel that the wait for the luggage is an unnecessary delay.

Both small and big airports have their advantages and disadvantages. Small airports have the advantage of relatively little time needed in order to get to the airplane. In large airports one might need to walk for half an hour to get to the gate. God forbid for a Gate Change.
That’s at the departure airport.

At the arrival airport things are a bit different. If the airport is big, a traveler would still need to walk quite a lot to get out. If the airport is small the traveler needs to walk quite little.

But here’s the thing.

The waiting time at the luggage belt is different in small and big airports. Surprisingly or not, the waiting time is shorter at larger airports than it is at smaller ones.

From the airplane to the luggage hall people travel on foot while bags travel by (sort of) car. At a small airport people get to the baggage belt much faster than do bags. Hence the higher waiting time and subsequent higher level of annoyance.

At a large airport people need to walk for quite a lot and by the time they get to the luggage belt, the bags are almost there, hence the waiting time in the baggage hall is short(er).

This could be solved relatively easily. Either make the route people have to walk longer or make the waiting time more pleasant or useful.

Happy travel!

5 November 2014

Electoral Debates and Psychology of Choice and Decision Making

Free Elections are the foundation stone of democracy and, in a way, the only chance The People have to say – do something that truly matters.  

As you might know, there are elections for President in my country of birth – Romania. Last week there was the first round of voting and next week there’s the second and final round between the last two candidates. A particularity of these elections is the lack of debates between candidates. In the first round of voting several candidates refused to take part in such debates, while in the second round, the socialist prime-minister (who’s the candidate with the most votes in round one) avoids a one-to-one confrontation – debate with his opponent.

Apart from having my own political views, I am also a psychologist who knows (quite) a lot on the psychology of decision making and choice.

In elections there are several cognitive biases that occur and, whether we like it or not, voting and the choice voters make have a very strong emotional component. We like to see political programs and we like to believe what candidates promise during electoral campaigns, but when it comes to the act of voting, emotion is the main driver.

One particular cognitive bias that thrives during electoral campaigns is Confirmation Bias. Basically we tend to follow information that confirms our existing beliefs and discard information that goes against what we already believe. Moreover, we find confirmatory information to be truer and we find disconfirming information as less true.

People want confirmation and not information.      

People who like candidate A will follow his (her) campaign closely and will more or less ignore candidate’s B campaign. If the two candidates never meet in a one-to-one confrontation, A’s voters will not see too much of candidate B and vice-versa.

Even in the case of a one-to-one debate between candidates the chances that a voter will change her mind and vote for the other candidate are slim at best. People who like A will find that A did better in the debate and B was awful. Likewise for people who like B.

We see what we want to see.

Another interesting psychological effect that occurs in electoral campaigns is whether people evaluate candidates jointly or separately. We know from psychology of choice that preferences can change depending on how we evaluate items (products, candidates etc.).
In brief, if two items are evaluated separately, the focus will be on the easy to evaluate attributes such as aesthetics, brand etc.

If, however, items are evaluated jointly (in direct comparison) the focus tends to shift towards the harder to evaluate attributes such as Hard-Disk capacity or number of programs a washing machine has.  This is because we tend to apply the rule “the more, the better”.

This difference between separate and joint evaluation modes would be more or less irrelevant if consumption would match the evaluation mode. Basically when evaluating jointly two items, say in a consumer electronics shop, we make comparisons that we will never make again after purchasing.

In a classic example from a paper by prof. Cristopher Hsee and colleagues, in a shop one might choose the large ugly speakers that sound a bit better than the smaller, more elegant ones. However, after the purchase the comparison in sound quality will never be made again and our shopper might end up with some ugly things in her living-room.

As a tip for making choices, think about how you will consume the product. If you will never make comparisons between what you bought and other similar items, do not make comparisons when purchasing because you might be fooled by your own mind.

When it comes to voting for a candidate or another things are quite similar. If candidate A is elected as president, senator or mayor, we will never make the comparison between A and B again… at least till the next elections.

The correct question is not whether A is better than B for president.

The correct questions are:
How good is A for president?
How good is B for president?
Which score is higher: A’s or B’s?

Then, why all the fuss on the lack of one-to-one debates?

Well, one reason is that we think that making comparisons is good. We also like to believe that people make a rational well-informed choice between candidates, therefore a one-to-one confrontation is the best way to make that rational, well-informed decision.

But, we (those who know a thing or two about decision making psychology) know that voting doesn’t go like this.

There is, however, an upside to a one-to-one debate between candidates.

We know that people who like A will (most likely) not shift their vote to B and vice versa regardless of their performance in the confrontation.

There are, however, people who are undecided and by undecided I don’t mean people who are indifferent to voting for A or for B. Most undecided people have a preference or an inclination towards one of the candidates. Some of them somehow like A, while others kind-of like B. However, these people are not sure if to vote at all or not.

A one-to-one confrontation between candidates might make some of these undecided people, but who have a preference, to actually go and vote.

So in a one-to-one electoral debate, each candidate has to confirm to his (her) voters that they are right and to mobilize the undecided who kind-of prefer him/her.   

3 November 2014

The Evil Nudge of Romanian Government

Yesterday, November 2nd, there was the first round of voting for the new Romanian President. Nothing special for most European democracies. Yet, the Romanian Government managed to screw-up once more by using what I believe to be an Evil Nudge.

The particularity about Romania, though not only, is that after joining the EU in 2007 about 15% of the population moved abroad, mainly in other EU countries. 15% of the population is large in both percentage and absolute numbers: 3.000.000 (three millions). To get an order of magnitude, Bucharest, the capital city, has a population of about two millions. So the number of Romanians living abroad is 1.5 times larger than the population of the capital city.

Throughout the last few years, Romanians who live abroad were criticized for not being engaged enough in the country’s life and for not being aware of the Romanian reality. Apart from the fact that objectively this is crap, yesterday Romanians who live abroad went to vote in large numbers. So large that, once again, “authorities were caught by surprise”.

Pictures taken by Georgiana Socianu in London UK

What happened was that people cued up to seven hours to vote. Many didn’t get to vote because the elections schedule ended (by law at 9:00 PM). In Paris and London, the Romanian embassies called the French and British Police to “restore order” because there were hundreds or thousands of people who wanted to cast their vote and were turned away.

Apart from this being an utter insult to Democracy, it is another proof that Romanians who live abroad are feared. They can’t be bought and they can’t be fooled by populist measures.

The evil nudge that I was talking about was making voting more difficult. Although the act of voting is simple – one has to put a stamp on a piece of paper – the process was so slow that it took forever to do it. We had to fill in a form declaring that we have not and will not vote again. This is because in the age of technology and in a country with outstanding IT professionals, in 25 years the government didn’t manage to create an IT system that checks if someone voted only once. The number of voting locations, voting stamps, and voting booths was utterly insufficient.

So by making things more difficult and more bureaucratic, the Government managed to nudge people into not voting.

Surprisingly or not, the current prime-minister is a candidate in the elections for president. Surprisingly or not, usually Romanians who live abroad tend to not vote for the socialist party which is headed by the current prime-minister, candidate for president.

However, voting at the embassy in North Korea went smoothly. All FIVE votes were casted in order and discipline without any incidents. Three of the five votes were for the current prime-minister.

On November 16th there is the second round of voting. There are only two candidates left, including the current prime-minister. Let’s see if “it was an honest mistake” or if “winter is coming”.

The foreign affairs minister should get a copy of Nudge signed by R. Thaler with “Nudge for Good”