How Free is Free Choice?

Free choice is one of the foundation stones of capitalism and democracy, two philosophies that dominate life in today’s world. The freedom to choose is supposed to do two major things. First it is supposed to ensure the maximization of benefit (or utility as economists call it) for the individual. By being free to choose whatever the individual wishes and assuming that the individual knows best what he wants and what is best for him, a person will maximize their benefit and overall well-being.

Second, free choice is supposed to power the free market mechanism. Because the individuals are free to choose whatever they want, the suppliers who provide the products and services best suited to clients’ needs are going to be favored, while the suppliers who provide unsuitable products and services will be eliminated from the market.

In theory, free choice sounds like the best possible thing that can exist in the world. It helps people maximize their well-being and at the same time rewards the companies which sell the best products while at the same time punishing the companies which sell the worst ones. Isn’t it great?

As you may know already, free markets and maximization of well-being are more theoretical concepts than real life. This is not to say that somehow-free markets and increasing well-being do not exist in real life, but rather it is to say that there are no absolutely free markets and no real maximization of well-being.

In the eyes of economics science the human is a near perfect reasoning machine, with established and stable preferences, who has full information (knows everything), who continuously makes cost-benefit analyses, who has absolute self-control and who lives with only one goal in mind, namely maximization of utility or self-benefit. In a nutshell, economics views man as homo economicus.

This view on human nature is not restricted to the field of economics. It is widespread in most aspects of social life, especially in the western world. Democracy functions on pretty much the same principles, but despite its shortcomings, up to now there is no better way to organize society.

The homo economicus view of human nature has spread even in areas of social life that until recently were more paternalistic.  Take for example medicine and health-care. Most of us are used to go to the doctor and say that we feel bad, then the doctor would do some tests, think a bit and come up with a diagnose. After this the doctor would tell us what to do. This is paternalism. In some parts of the world, now, doctors give patients the choice between two or more treatments. In other words, there is a shift from paternalism (the doctor telling you what to do) to libertarianism where the patient is free to choose between treatments. Is this the way it should be? It is up to each and every one of us to give the answer.

Apart from the more philosophical question in the paragraph above, I believe there are more significant questions to be answered. First, we should see if man is actually homo economicus. Are we really those rational agents that we are believed by economists to be? The answer is quite simple and it is “No”. This is not to say that humans are perfectly irrational, but rather to say that the assumptions of all the characteristics of homo economicus are not fully met.

For example, it is impossible for someone to hold complete information. This may be due to the abundance of information and to the fact that our minds have limited capacity; or it can be due to the fact that in many cases we do not make the extra effort to search for all the information on a certain topic. Imagine that you want to buy shoe polish. Would you go to all shops in the city to search for shoe polish, collect all the information on quality, price and quantity, then make a thorough cost-benefit analysis, choose one option and then go back to the shop and buy it?

Unlimited self-control is another thing that people do not have. We can exhibit self-control, but by far we do not have an unlimited supply of it. We, quite often, yield to temptation and to impulse when our self-control resources are low.

Homo economicus is assumed to have one goal in mind namely maximization of self-benefit. But, does this really happen? Sometimes it does sometimes it doesn’t, but this is not to say that people do not want to have as much self-benefit as possible. Rather it is to say that we quite often settle for good enough solutions and not go for the best solution. It is a difference between maximizing and sufficing and most of the time we are happy with sufficing.  

The second question we should answer is how free is free choice? Are we actually free to choose anything? The answer to this question is both “yes” and “no”. Freedom of choice in itself is usually not restricted in many countries, so in principle we are free to choose anything. At the same time what we choose is very much influenced by factors other than our own free will.

Let me give you a simple example. If you go out for dinner at an Italian restaurant, you will end up eating some kind of Italian food and for sure you will not have Chinese food. The mere existence of a choice set, in this case the restaurant menu, limits one’s free choice.

If you believe that the idea of not having Chinese food in an Italian restaurant is silly, consider the following example. In school cafeterias in the UK fried potatoes are not any longer on display, but are available if someone asks for them. To put things simply, the option of eating chips is available but not salient. The result of this change was the decrease of consumption of chips.

In the aforementioned examples, free choice is not so free because some options are not in the choice set one is presented with. At the same time, (free) choice is influenced by the composition of the choice set beyond not choosing what is not in the choice set; it is influenced by how the choices are presented.

Learn Choice Architecture: How to Design
Choice Environments that Influence Choice

Join me in Designing Decisions - Training on Choice Architecture.

We Are Willing to do the Right Thing, but Only in the Future - NOW Vs. LATER Effect

The “NOW vs. LATER” effect (or simple time discounting) is quite simple and it can be illustrated with the following pair of choices:

Choice: What do you choose between?

A. 100 Euros Now and

B. 110 Euros in two weeks.

Most people choose “A” and forgo the extra 10 euros for not waiting.

Now, consider the following choice:

C. 100 Euros in three months from now and

D. 110 Euros in three months and two weeks from now.

In this case, most people choose “D”. 

If we take a look at the two options from the rationality perspective we see that the options are in essence identical. In each case there is a 10 Euro premium for waiting another two weeks.

The fact that preferences changed from one pair to another is a violation of rationality and is extremely useful for understanding human nature. In other words it is the “NOW vs. LATER” effect. 

When we have to choose between a smaller positive outcome now and another bigger positive outcome later, we take the small one right now. However, when we have to choose between two future outcomes – one smaller and sooner and one larger and later – we tend to go for the larger one. 

This is because we think something like this “if I have to wait for three months to get the smaller reward, then I can also wait for another two more weeks to get the extra reward.”

The implications of the “Now vs. Later” effect are quite significant. I would say that the most important thing is that people are willing to do “the right thing” in the future and experience difficulties for doing so in the present. In other words some actions are better to be delayed. 

A very nice example comes from Shlomo Benartzi and Richard H. Thaler with the “Save more tomorrow” program. In short, people were asked to save more money for retirement (in the US), but starting at their next pay-raise. By delaying the moment of the actual saving more money, more people were willing to sing the contract, than if they would be starting right now.

 For more on how the design of the choice environment influences our choices and decisions and for learning about the tools used in Choice Architecture

Join me in Designing Decisions - Training on Choice Architecture.

See Human Behavior in 4D – Webinar Recording

On 27^th of August 2013 I gave this webinar on what drives and influences human behavior.

Here’s what Rashid Chohan from Neuro Business Consulting (US) who attended the webinar said in the feed-back quiz:

The insights about behaviors was summarized very succinctly and presented in a very "logical" way. This made is easy to understand, which is remarkable for such a complex (and emotional) topic!

Thank you.

Enjoy the video!

Don’t forget to visit my website www.naumof.com

 Join me for the full training See Human Behavior in 4D.

Sneak Preview on Designing Decisions – Training on Choice Architecture

Earlier this year I gave demo of the Training on ChoiceArchitecture – Designing Decisions.

Here are two sneak previews from the presentation…

The filming is not professional, so please excuse the experimentation with the camera :)

Here's the first sneak preview video on
What is Choice Architecture:

Here's the second sneak preview video on
how and why Choice Architecture works:

Learn Choice Architecture: How to Design
Choice Environments that Influence Choice

Join me in Designing Decisions - Training on Choice Architecture.

Case Study on Choice Architecture Applied in a Real-Life Business Setting (video)

This is a case study on the application of Choice Architecture in a real life business setting. 

See how an on-line service provider uses elements of Choice Architecture to guide the choices of their users.

The following video is a a small piece of the Designing Decisions Training program from Pikant & Naumof. 

Do you want to learn to design choice environments? 

Learn Choice Architecture: How to Design
Choice Environments that Influence Choice

Join me in Designing Decisions - Training on Choice Architecture.

Take Nudging Seriously! Think Twice Before Starting to Nudge

The past five years have seen a boom in media coverage and application in practice of insights from behavioral sciences, particularly from behavioral economics. Books such as Nudge: Improving Decisions About Health, Wealth and Happiness by Richard H Thaler and Cass R Sunstein, Predictably Irrational: The Hidden Forces that Shape Our Decisions by Dan Ariely and Thinking, Fast and Slow by Daniel Kahneman have contributed significantly to the popularization of behavioral sciences and their application in practice.

The UK government has established a “Nudge unit” which has the task of applying insights from behavioral sciences into public policies. Apparently the US government is on the path of creating a similar unit.

Businesses, particularly marketing departments, are stepping up the application of this knowledge with the aim of increasing sales and profits. NGOs use the findings in behavioral sciences to increase the amounts collected in fundraising endeavors.

The truth is that applying knowledge from behavioral sciences or nudging is highly attractive and appealing. One reason for this is that nudging promises large outcomes with small inputs (changes, investments etc.). The second and most important reason is that Nudging is simply cool.

Let’s focus a bit on what makes nudging so cool. My best (educated) guess is that coolness is the result of the surprise we experience when learning about findings in behavioral sciences. When we learn that simply changing the default option in a form leads to huge differences in behaviors such as enrollment in different programs we are amazed. This is because this finding goes against the popular intuitions we hold. When we learn that diffusing a certain smell in a shop leads to increase in sales and in the customers’ evaluations of the service and the merchandise we experience the same high level of surprise; again because we don’t consider that what we smell should make any difference in our decisions and evaluations.

Knowledge from behavioral sciences is appealing and surprising because we couldn’t think it was possible that a small change in the context to make such a big difference in the behavior (outcome).

Knowledge from behavioral and decision sciences is so cool that we all want to use it, we want to be in the shoes of those researchers and after all, who wouldn’t want to increase sales, donations or make their job easier by applying some cool tricks?

Nudging Seems Easy

Because small changes in the environment can lead to huge changes in the behavior, nudging seams easy. Although you couldn’t think that changing the structure of a form can have huge impact in the number of people enrolling in a program, now that you know, it makes all the sense in the world. Moreover, it seems so easy to do… after all, how hard can it be to change a form?

It goes similar with using scent in a shop. Once you know that diffusing the scent of chocolate in a book store leads to an increase in sales of romantic books, it seems so easy to just place some chocolates near the counter or buy some aerosols with chocolate smell and place them around your shop.

After reading one of the books I mentioned earlier or after viewing some interesting videos with behavioral economics specialists we are aware of many “tricks” or tools that can be used and there is a huge temptation to start applying them. However, the question is which one? Should we simply pick up the one we found the most interesting? Should we just do anything that comes to mind?

The main reason why Nudging seems easy is because individuals are exposed to information on what works. People who want to start nudging often discard the context in which it worked – such as book store – and most of the times the wannabe nudger knows close to zero on the psychological mechanisms that underlie the alteration of behavior. Simply put, one knows that something works, but doesn’t really understand why and often discards the differences between the contexts in which the finding was made and the one in which (s)he has to apply the finding.

Nudging seems easy ONLY POST FACTUM  

Once you know it works it looks easy, but it is damn hard to think of what would work before the fact and before testing. Most researchers publish scientific papers on what works. Books and mass-media give attention to what works. But behind all these things that work, there are many more things that didn’t work. A researcher can’t publish in a respectable scientific journal a paper which includes five failed experiments, even if she spent half a year on a project that proved to give insignificant results.

Remember that the surprise we experience when hearing about the effectiveness of behavioral interventions (nudges) comes from the fact that we couldn’t think it was possible! Now that you want to design such nudges, you have to think of something that previously was unthinkable. That’s not so easy, is it?

If you want, things are similar with the difference between explaining and predicting. Explaining why something happened is infinitely easier than predicting the same event. Think for a few seconds about the recession and banking crisis of 2008-2009. There were countless people who showed up on TV or in the newspapers explaining in detail how and why it happened. At the same time, very few of these people were able to predict the same events.

Let me give you an example from my own backyard. In October I’ll give a training session on choice architecture and during the first day the ten participants will learn about the established psychological effects on choice such as the compromise effect, loss aversion, the status-quo bias etc. They will also see illustrations of these effects put in practice. In the second day, during the first hour the participants will see three case studies on how these effects are used. Probably the most appealing case study will be the one on how Linked In structured its offer for paid accounts.

I’m sure that these case studies will be very interesting and things will make all the sense in the world. However, after this first hour, participants will get to work on, first, analyzing a choice set used by an on-line service provider. This I expect to go quite smooth since they will only have to recognize the effects described in the first day and presented at work in the first hour… But the fun begins only when the participants will have to construct from scratch choice environments aimed at increasing donations for a charity, increasing sales of high margin products for a company that sells through a catalog and to help a museum increase its ticket sales for tours outside the main exhibition.

Applying choice architecture in an effective manner is far more difficult than seeing it already applied. It will be a bit tough, but so is the work of creating behavioral interventions (nudges) from scratch.

How to make the creation of nudges easier?

I have to be honest with you and say that there aren’t five easy steps to success. Creating behavioral interventions or nudges is hard and requires a lot of knowledge, work and testing.  

What will help for sure is to understand how and why these nudges work. Behind the examples you see published in academic journals or in mass media there are some rules. Learn and get an in depth understanding of these rules.  My advice is to ask at least twice: why?

If you know that playing classical music in a restaurant leads to an increase in sales in value, but not in volume – people go more for the premium products, ask WHY?

The answer is that mental constructs associated with high-class become more salient. After getting this answer, you should ask again WHY? And then you should get the answer that people associate classical music with high-class and that the music acts as prime (priming tool).

This is only one illustration of getting an in depth understanding on how nudges work.

Don’t go head on

Even if nudging seems easy and effective, you should think hard and look for the right intervention to use. The kind of in depth knowledge I’ve illustrated above is needed to create effective interventions. If you go head on and apply something that you find cool, there is a big chance that it will not work. 

Behavioral interventions are science, not magic!

After you have designed one or two carefully selected nudges, you should test if they work and my advice is to run experiments. This is not easy and requires accuracy and patience. Don’t make comparisons between before and after. There can be many reasons for why before was different than after and some of them are unrelated to the nudge.

Should you not apply knowledge from behavioral sciences?

I believe that businesses, governments and NGOs should apply knowledge from behavioral sciences. However, my main argument is that in order to create effective interventions one needs to work professionally. There is a high risk of “nudge” becoming just another buzz word used by people who don’t really understand its meaning.

Work with real professionals who understand in depth how behavioral interventions work. Stay away from people who promise fast miracles. Work with specialists who can give you pertinent answers to at least two “Why” questions. Work with those who do / advise experimentation in the sense of running controlled randomized experiments to measure the effectiveness of the intervention.

Take Nudging Seriously!

Get the 60 min Talk on Behavioral Science for Service Design 

Are You a Jerk? Of Course Not … Character and Situations | What Drives Human Behavior (webinar)

If you have a driver’s license and drive on public roads for sure you have encountered at least one situation when someone cut you off. Similarly while shopping in a supermarket when approaching slowly the cash register at least once it has happened to you that someone came in a hurry and just went in front of you just as you approached the cue. If these things have never happened to you (which makes you an outlier) for sure you were in a situation in which a complete stranger had done something that has mildly affected you in a negative way. Someone cutting you off on a street or getting in front of you in line at a supermarket are annoying things, but not really bad.

Most likely your reaction towards the person who caused you this discomfort was something like “this guy is a jerk” or “he’s an idiot”. Your natural reaction is to attribute the (bad) behavior on the person’s character or, how psychologists like to call it, personality.

Now let’s make a thought exercise. Imagine that you are on your lunch break and right after it you have a very important meeting with your boss (or a client) and it is absolutely vital that you are on time in the office. At the same time you need to get something from the supermarket for your sick spouse and you went during the lunch break to buy it. You have 5 minutes to go through the cash register cue and get back to your office. You see that the cue is not long and you are happy that you’ll make it in time. As you approach the cash register you see a middle aged lady approaching the line with a shopping cart full of stuff. Naturally you step your pace and get in line just in front of her. Does this sound plausible? Most likely it does.

Did you do anything wrong? Of course not! The lady throws you an angry look and says simply “JERK”. Now you are surprised because (in your mind) you did nothing wrong. You were in a hurry to get to your very important meeting in time. Plus you know that the lady would have needed at least 15 minutes to place all her stuff on the counter, to complain to the cashier that prices have gone up, to search for her wallet, count the money, count the change twice and so on.

Taking a step back and looking to both situations – someone getting in front of YOU in the line and YOU getting in front of the lady with a lot of stuff in her shopping cart, we realize that they are extremely similar.  The only real difference is the perspective. In the first situation you would call the person who got in front of you a “jerk” but when you are called a “jerk” you are at least surprised. Are you really a “jerk”? For sure you don’t consider yourself a “jerk”…

What is happening is that when you are the one doing the unpleasant deed, you become aware of other factors that have influenced your behavior apart from your personality. You KNOW that you are in a hurry. The lady in front of whom you got in line DOESN'T KNOW that you are in a hurry.

When judging someone else’s actions (or behaviors as psychologists like to say) humans infer that the action is a product of the personality (character) and ONLY of the personality of the person who does the action.

When judging our own actions, we become aware of other forces that have influenced our behavior such as contextual factors. The key learning is that someone’s behavior is the product of more factors than just personality (or character). 

What are the other forces that drive human behavior?

Join Me at the Webinar: See Human Behavior in 4D and Get the Gist of the Drivers of Human Behavior

During the webinar See Human Behavior in 4D by Pikant & Naumof you will Learn about the forces that influence human behavior, may it be related to purchases, work, social life etc.

You will be introduced to the Four Dimensions Model of Human Behavior and you will be acquainted with examples of how factors other than personality influence human behavior. In addition you will learn the role of personality in behavior. 

Watch the The Pikant &Naumof webinar See Human Behavior in 4D recording  ​