How (Not) To Design a Lottery

Early this year, the Romanian Government, through the Finance Ministry, decided to organize a lottery of receipts. The aim was to encourage Romanians to ask for the receipt at (small) shops, restaurants etc. The goal was to tackle tax evading done by small businesses.

Naturally, the rules of the lottery couldn’t focus only on small shops and restaurants (equal opportunity), therefore all receipts were accepted in the lottery.

About two weeks ago there was the first draw of the lottery… and here’s where things started to go bad.

As in any lottery there are two components: (1) the prize and (2) the probability of winning.

The prize of the lottery is 1.000.000 lei (local currency) which is approximately 220.000 Euros. That’s not bad, all in all.

The probability of winning is rather difficult to understand, but, in this case is rather simple. The lottery is organized each month and the random algorithm determines: (1) a day and (2) an amount. For example, the winning receipts are all receipts from February N^th that are of X lei (the decimals don’t count). X can be between 1 and 999 lei.

Applying a simplistic computation, the probability of winning the lottery is 30 (number of days in a month) * 1000 (approximation of the number of possible amounts on a receipt). This means that the chance of winning the lottery is 1 in 30.000.

This might look like a small chance, but in reality it isn’t (at least when it comes to lotteries). In a country of about 18.000.000 people it is very likely that there will be lots of winners… at there were… between 8 and 9 thousands people who registered with the tax authority to claim their prize in the two weeks after the first draw.

Just as a note, in this first draw receipts from 50 days were able to win, thus the chance of winning the lottery was 1 in 50.000.

Assuming that there will be a total of approx. 10.000 winners, this means that each of them will receive a prize of 100 Lei on which the state will take 16% tax, leaving each winner with 84 Lei (less than 20 Euros).

Personally, I don’t have any kind of (positive) expectations from governmental officials. However, I would have expected from people with an Economics degree (they work in the Ministry of Finance) to know how to compute probabilities and to know the Expected Utility Model. Moreover, the (former) Minister of Finance who promoted this lottery has a PhD. from Harvard University.

Here’s how a lottery should be organized:

You need a very large prize that comes with an extremely low (e.g. 1 in 20.000.000) probability of winning. The very large prize with a very low chance of winning creates appeal – it has a magnetic effect that draws people into the lottery in the illusory hope of having a life-changing sky-fallen amount of money.

You need a large number of small prizes with small (e.g. 1 in 10.000) probability of winning. These small, but rather likely wins create availability – hey, my cousin’s neighbour wan 200 Lei last month at the lottery. They also keep alive the hope of winning the large, but highly unlikely prize.

 Details matter much more than many of us think…

To Be Clear on Ambiguity

One recent trend in writing on applied behavioural science focuses on exceptions on the findings of behavioural science. Simply put, when what we know on Behavioural Science doesn’t work at all or as expected.

Here are some nice illustrations of this trend.

BE careful - A littleknowledge can be a dangerous thing By Crawford Hollingworth

Beyond WEIRD: Investigating Cultural Biases inBehavioural Science – webinar by Brainjuicer.

(Please Open them in new tabs and continue reading ;) )

                                                         

In a nutshell, the idea is that sometimes the effects discovered by behavioural science are very small or non-existent.

This, however, is not a surprise if one knows the fundamentals of behavioural science, namely the role of ambiguity (fuzziness).

Most of the times, people rely on contextual cues only if there isn’t clarity regarding the issue at hand. For example, anchoring works because people don’t know the exact value that has to be estimated. If I ask you what the number of cat breeds is, I bet none of you know the exact answer and this is only natural. In this case presenting anchors such as 30 or 3000 will influence your estimation simply because there is incredible fuzziness regarding how many breeds of man-exploiting cute furry creatures (cats) are out there.

Remaining in the area of anchoring: if we ask an illiterate five-year-old child from East Africa in what year did WWII end, then providing anchors will strongly influence the child’s answer (that is unless he simply says “I don’t know”). However, if we ask WWII veterans the same question, then providing anchors will have zero effect. Moreover, the veterans will be offended by the lack of knowledge of the people asking the question.

Similarly to anchoring, other contextual influences work ONLY (mostly) when there is ambiguity. For example, using mental accounting and default opt-ins for re-routing some of the tax return money into savings (mentioned in the article BE careful - A little knowledge can be a dangerous thing By Crawford Hollingworth) did not work because for the ones most in need (low income – less than 50.000 USD/year/household) there wasn’t any fuzziness on what to do with the money. Low income people are very well skilled in managing tight budgets and any sum of money is allocated (budgeted) well in advance.

I believe that if households with a larger income would get some money back and not expect it, the default opt in on savings would work quite well simply because there is some ambiguity on what to do with the (sky fallen) money.

On the social influences avenue, the most powerful social influence works because there is ambiguity. Social Proof (which is distinct from Social Pressure – what Solomon Asch investigated) works because we infer that others know something we don’t know. If we choose to buy the most popular internet subscription plan, we do so simply because we don’t know which plan best fits our needs.

On the other side of things, I know what shoe size I have (43) and I will never buy shoes of a different size (e.g. 42) regardless of how many other people buy 42 size shoes.

Here’s a wonderful illustration of how the context strongly influences judgment. It works because there is ambiguity… lots of it.  

Showing IKEA print to Art experts by lifehunterstv

Behavioural science is a gold mine for service design and customer experience – Interview with Nicolae Naumof on Adrian Swinscoe’s blog

Two weeks ago I gave this interview for Adrian Swinscoe’s blog. In it I explain my view on applying behavioural science in service design.

Naturally, I speak on what is behavioural science, what drives human behaviour and plead for a simple, two steps approach on applying behavioural science in service design: (1) Use the scientific literature on human behaviour to come up with behaviourally informed interventions and (2) test them, because no one knows the (absolutely) correct answer.

Interview can be listened here (30 mins or so): - open in new tab ;)

Interview and full transcript on: Adrian Swinscoe’s blog 

In a gold mine, you will not find gold bars …

More on applying behavioural science in service design www.Naumof.com

Goodbye My Love, Goodbye!

My dear,

We spent four and a half years together. With good times and bad ones. We shared joys and sorrows.

I came to you with great enthusiasm and high expectations. Some were fulfilled, others not.

The beginning of our relationship was both exciting and a bit difficult. Then, after about two years, I came to love you. I even wanted to make you (a small piece of you) my own. I actually thought that we could have a very long term relationship.

Yet, things didn’t work all that well between us. Maybe you didn’t love me (enough)? Maybe it simply wasn’t meant to be? Who knows?!

None of these matters now…

It’s time to say: “Goodbye!”

I will move on, not without a heavy heart. You will be (stay) the same and, I truly hope you will find others to love you, at least as much as I did.

Thank you for the times we had together!

I hope we will get to see each-other again, and, maybe, we will be together again, at least for some time…

Thank you, my dear The Netherlands! You were, for some years, My Home.

My dear readers,

I haven’t written personal posts on this blog for almost three years. I break this self-imposed rule to mark a rather painful moment in my life: Moving from the country in which I lived for almost five years and I called home for more than three years – The Netherlands.

In a few months my wife and I will move to the USA (Washington DC area).

                                                                                                                

What the future will bring, I am not sure. What I am sure of is that The Netherlands is a great country to live in, with great people (both literally and metaphorically) and living here was a life-changing experience for me.

I’ll be back (sooner or later). 

Behavioural (Service) Design Is About Technology as Much as Rembrandt’s Paintings Are About Canvases and Paints

We are going to make / made a great app that does this and that.

We are building a website that will help people with….

Our new device will enable people to….

These are phrases that are encountered at many conferences, meetings, tradeshows, get-togethers on service design.

A huge proportion of people who (claim to) do service design or customer experience focus their work and their speech on the technology they are working on and how great and mesmerizing it will be for their consumers / users.

Naturally, the ground-breaking, paradigm-shifting technology will enable organizations to be consumer / customer centric…

Although I am allergic to buzz-words, I think that the big issue is not the use of fluffy words that everyone pretends to understand.

The big issue is the over-emphasis on technology.

Good (profitable) service and great experience are as much about technology as Rembrandt’s paintings are about the canvases and paints.  

Source of picture  

It’s obvious that without paints and canvases any painter, including the great Rembrandt, would not be able to create a masterpiece. Nonetheless, good painters draw very beautiful sketches with just a piece of paper and a pencil. It's the same with technology and great service. One can have good service without too much technology being involved.

Even in the case of Service Masterpieces, technology is simply a tool.

It’s about giving a good feeling not about how you do it.

For example, a restaurant stores the phone numbers of frequent (loyal?) clients and when one of them calls to make a reservation, the receptionist answers with “Good day Mr. X, how many will you be this evening?” instead of the typical “Good day, restaurant R, how may I help you?”.

The increase in customer satisfaction with the experience of making a restaurant reservation is not due to some fancy technology (caller ID to be precise). Rather it is because someone (apparently) knows him and (apparently) cares about who he is.

Technology is, not seldom, overused while disregarding the human component.

For example, there are some elevators which have the control buttons on the outside.

Source of picture

Basically, when you call the elevator, you have to type the number of the floor you are going to. The elevator arrives and you enter into it. The doors close and it takes you to where you commanded it when you were on the outside.

I am sure that there is a good reason for this; it might be energy use optimisation.

However, the designers forgot to take into account a very basic human feeling and need.

Once you enter the elevator, you are in a closed small metal box without any control.

That’s pretty freaking, right?

Where the buttons are placed might not influence too much the technology part, but having the buttons on the inside gives you a sense of control. It’s the person who controls the machine and not the machine controlling the person.

We see the technology, but we don’t see the fundamental human truth.

More than 80% of information acquired by humans is received through the visual sense. Our vision is pretty amazing and we rely on it.

There is a draw-back of human vision:

Human vision is great at seeing what is in front of our eyes, but it is horrible at seeing what is behind the salient (shiny) object.

Several years ago, a technology company (with a fruit name) began selling mobile technology devices. There was and still is a lot of buzz around this company and its products. Recently, this company reported the highest profit for a quarter in corporate history… and that amount is in the same league with the GDP of small countries.

Hundreds of business and technology analysts commented on the success of the company and its products. The emphasis, naturally, was on technology and the products’ features: touch screens, apps, memory capacity etc.

Yet, I haven’t heard anyone speaking about the fundamental reason behind this company’s tremendous success. This reason is not technology; rather it is a fundamental human truth.

Without going too much in the depths of evolutionary psychology, the fundamental truth is that all humans have a need to communicate (advertise) themselves on the social and mating market(s).

This is true for other creatures as well, but there is an essential difference between humans and other creatures. Whereas many animals advertise their mating value through conspicuous and costly features such as the peacock’s tail, humans advertise their mating (and social) value through behaviours and ornaments.

In a nutshell, the company mentioned above managed to create and sell peacock tails… It was not the first one to do so, but it managed to become an icon of self-advertising. The most interesting thing is that this company manages to create (and sell) peacock tails that are self-degradable, thus creating the conditions for re-purchase every (other) year.

Whenever a new generation of the product is launched, both the company and its clients talk about the technology progress and the new features, but this is only the surface…

The fundamental truth is that

An “i Peacock’s Tail 5” is sexier than an “i Peacock’s Tail 4”

Happier Customers & Higher Profitability through

Behavioural Science Applied in Service Design

www.naumof.com

When Home Delivery Meets Self Service

Home delivery and Self Service definitely are trends in retail.

(Some) The Dutch managed to combine them wonderfully...

Yes, that is a shopping cart from Albert Heijn conveniently "parked" in front of a door on the second (or third) floor...

Salt & Pepper Choice Architecture

Last year (2014) I had the largest number of flights in my life. Alongside the convenience of fast traveling, flights come with several inconveniences, one of them being in-flight food.

In-flight food can range from (almost) terrible – KLM – to quite good – Tarom – to surprisingly good (for flight food) – Turkish Airlines.

One of the reasons for in-flight food being not exactly a treat is the airlines’ need to cut costs. And this post is a free advice on how airlines can cut costs when it comes to food without damaging the clients’ experience.

Usually, the in-flight food comes with Salt and Pepper in small envelop-like packaging as in the picture below.

While, in our minds, salt and pepper go together very well and are seen more or less as equals, there are some serious differences between them when it comes to prices and use.

You might not realize, but (black, grinded) pepper is more than 79 times more expensive than (white, regular) salt.

According to prices in Albert Heijn (the largest supermarkets chain in The Netherlands), a kilogram of black grinded pepper of the cheapest kind is € 23.80, while a kilogram of regular table salt of the cheapest kind is  € 0.30.

  

When it comes to using salt and pepper, I believe there is a considerable difference. There are a lot more people adding salt to their food than are people who add pepper. It might be just my biased view, but I believe a lot (the huge majority) of the pepper packs are never opened and end up in the trash.

At first glance, this might not look like an issue, but every 200 packs of 5g of pepper thrown in the garbage, are equivalent to throwing 23 euros in the trash. Scale this to millions of passengers each year and things will look very different.  

Just as a note, it would be nice to have some garbology data on this – looking in airplane trash bags and see exactly how much of the pepper ends up unopened in the garbage.

In this light, airlines could simply eliminate pepper from their meals, thus avoiding unwanted waste. But this would damage the experience for the passengers who want pepper in their food.

The solution comes from Choice Architecture.

Instead of providing pepper by default, airlines could make pepper a (free) additional option.  

Here’s a rough prototype on how I see things being solved.

The envelope-like pack of pepper can be replaced by a small piece of paper with the message:

Please ask a flight attendant for pepper.

This change would bring some considerable cost cuts to airlines.

Of course, it would bring some headaches to pepper producers… more on the side-effects of applied behavioural science in a future post.

If you’re curious on how choice architecture can help improve your business, take a look at Designing Decisions.