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.

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