The Nudge is Not Enough! The Love Story Between Behavioral Science and Practical Applications

A couple of weeks ago I published this post on BehavioralEconomics.com 

Thank you Alain Samson for the invitation.

A romantic relationship goes through various stages from early dating to marriage and, in about half of all cases, divorce. It begins with flirting and continues with that essential first date. If that goes well, it is followed by more dates. If things go OK and the chemistry is good, the relationship will go to the next level: one partner offering the other a shelf in their closet. Sooner than many realize, this leads to the natural question of Why pay two rents? followed by a de-facto living together. After a while, one of the partners pops the BIG question: Will you marry me?

The relationship between academic or theoretical behavioral science (let’s call him THEORY) and applied behavioral science (let’s call her PRACTICE) is not much different from a romantic relationship.

It was quite hard for THEORY to get that first date with PRACTICE, but luckily it happened.

In hindsight, the seminal papers of Kahneman and Tversky on heuristics and biases and on prospect theory published in mid and late 1970s were not enough, at the time, to get PRACTICE to accept the first date.

Fortunately, after about 20 years of flirtation, that first date happened. It was in mid and late 1990s, when Thaler and Benartzi developed and analyzed early implementations of the Save More Tomorrow program which helped (American) employees to save more for retirement by bridging the intention-action gap. In very brief, at every pay raise a person’s savings rate automatically increased (e.g. from 3% to 4%). The automated escalation of savings rates helped most people keep their commitment to save more, while the coupling with pay raises eluded the miserable feeling of losing money out of one’s current paycheck (i.e. loss aversion identified by Tversky and Kahneman).

Occasional dates happened between THEORY and PRACTICE after that, but neither side was taking the relationship too seriously.

The book Nudge (2008) by Cass Sunstein and Richard Thaler showed that THEORY and PRACTICE have a shot at a serious relationship. The establishment of the Behavioral Insights Team (UK Nudge Unit) in 2010 was equivalent to PRACTICE offeringa shelf in its closet to THEORY. As in any romantic relationship, THEORY brought in more and more of its things into PRACTICE’s apartment. Now in 2015, they have (almost) de-facto moved in together.

Throughout their relationship, THEORY and PRACTICE have enjoyed making nudges… those small, relatively inexpensive, supposedly irrelevant changes in choice architecture that lead to potentially large changes in behavior – tax collection, college enrollment rate, savings rate, sales etc. Simply put, nudges are small changes that have a large impact on behavior. The result of THEORY and PRACTICE’s union.

However, the Nudge is Not Enough!

Indeed nudges or behaviorally informed interventions have (considerably) improved several areas of public and private services. Most of the time, these small interventions are more than welcomed. Simplifying and structuring choice related information is great simply because everyone hates filling in endless forms and making complicated choices between things they are clueless about (such as Ethiopian food).

Nudges are, most often, great! Nonetheless they are not enough.

The shortcoming of nudges is that most often they are simply tweaks augmenting a pre-existing service or policy.

While they can be beautiful, intriguing and occasionally elegant, nudges are just augmenting (improving) an existing service / policy regardless of that service’s (policy’s) quality, appropriateness or fitness.

For example, an education institution optimizes the choice architecture of its forms in order to smooth the actual application and enrollment processes, resulting in more students joining the institution’s programs. This nudge does not change the service provided. The additional students will attend the exact same courses, go through the exact same stages (from enrollment to graduation) as before the nudge was applied. While for the additional students who joined because of the improved choice architecture attending more education might be beneficial, it is possible for them to be rather unhappy since the courses might be boring and irrelevant.

Getting more people into schools or other forms of (adult) education is generally beneficial for everyone involved. We can use behavioral science insights to increase enrollment and decrease drop-out rates. But what if we could use the same knowledge to design better education services?

For example, night-school or other forms of evening-learning are rather popular among adults. However, after a full day at work, System 2 is fatigued and self-control resources are almost depleted. Therefore, it might be a good idea to adapt both the content and teaching methodology to this cognitive reality.

Applying nudges to traffic tickets in order to increase payment compliance (i.e. voluntarily paying the fine) will not solve the issue of traffic safety. If anything, it will continue to feed a carrots-and-sticks approach to influencing human behavior. What if we could use existing knowledge in behavioral science to design safer roads? OK. That would cost a lot of money and will take a lot of time. But what if we could (re-)design insurance services that encourage safer driving behavior?

It is time for THEORY and PRACTICE to take their relationship to the next level: from Nudging to Behavioral Design.

In his book “Slim by Design” Brian Wansink says: it is better to work with human nature than against it. The main thesis of his book is that instead of emphasizing on counting calories and self-control reliant diets, it is much better to (re-)design eating spaces, homes and shops. This way, eating better (healthier) is the natural thing to do and not an eternal fight between temptation and self-control.

In the same line of thought, we can design public policies and (private) services that work with human nature and not against it. While nudges add a (thin) layer of human-friendliness, these behaviorally designed policies and services incorporate behavioral science knowledge in their very core.

Car Insurance

Insurance companies truly and deeply hate when their clients have car accidents, leading to expensive repairs, because insurers have to pay the bills. Although this is the very nature of the insurance business, your insurer would love to take your risk of minor accident from 2% to 1.9% and/or have to cover the damage of a broken bumper than that of a full-frontal collision, while at the same time keep on charging you the same $400 / 6 months.

To some extent, behavioral design can create a car-insurance service that promotes safe(r) driving behavior. Part of the risk is purely random, while another part is (to some extent) related to behavior. Behavioral design can address the latter. Car manufacturers are already doing a lot to prevent drivers from not wearing a seat-belt or driving way above the speed limit. Insurance companies, too, can contribute to encouraging preventive behavior.

For example, in Europe cars need to go through regular maintenance and mandatory checks. An insurance company has the possibility of sending out customized reminders (nudges) when the check date is near. Such an approach will decrease the risks associated with unfit vehicles on the roads. Similarly, insurance companies can provide as a default option tracking devices that monitor driving behavior, provide real-time feedback, implement social-benchmarking on risky driving (e.g. 63% of drivers drive safer than you) and offer financial incentives (i.e. lower rates) for safe driving behavior. Moreover, the device can locate the car if it is stolen.

Health and Well-being

Health is a broad area in which nudges are popular — and for very good reasons. There are many examples of nudges for hand-washing, treatment adherence, in-store interventions for purchasing vegetables etc. The major challenge is to design health insurance and health-care services that incorporate behavioral science knowledge in a systemic manner.

As in the car-insurance situation, health-insurance companies (public authorities) hate having to pay large bills on treatments for conditions that could have been prevented or are delivered in a sub-optimal manner (e.g. emergency rooms overcrowded by non-emergencies).

For example, the treatment for diabetes is quite expensive and has to occur for a lifetime. Promoting more appropriate eating behaviors in order to prevent the disease actually makes (economic) sense for health-insurance companies (authorities). Nudges can be useful and are welcomed. However, things are a bit more complicated; simple augmentations of pre-existing frameworks might not do. Rather complex preventive programs that have behavioral science at their core are needed. Texting individuals in high-risk (of diabetes) populations reminding them to eat more fruits might be useful. However, a more direct approach such as fruits for junk-food exchange program might do more. Services that provide regular home-delivery of easy to prepare (eat) healthier food already exist (e.g. Hello Fresh) and can be an inspiration for preventive health services provided by insurance companies.

Another behavioral design approach to decreasing health-related expenses and increasing health well-being is to improve the financial well-being of the most vulnerable population groups. It may seem a bit awkward for a health insurance company (authority) to care about the financial well-being of the poor. However, health and financial wellbeing are inter-related to some extent. Moreover, a critical situation in one will lead (sooner or later) to serious problems in the other.

Unlike middle class or more affluent people, the (very) poor cannot absorb financial shocks such as car-repairs, replacing a broken fridge etc. Short-term money lenders are eager to offer loans for such emergencies, but the interest rates are skyrocketing (e.g. 500% per year). Since most of these individuals live from one pay-check to another it is virtually impossible to repay the loan, leading to a vicious cycle of debt and misery. When caught in such a debt-trap, it is very likely that some will neglect their health, eat cheaper and less healthy food, work 16 hours a day etc. All of these behaviors will, ultimately, result in health problems and high healthcare bills.

Offering financial safety-nets for vulnerable categories might be a good idea for preventing serious health-problems and subsequent large medical bills.  One solution would be to offer emergency small loans (e.g. up to $1000) with zero interest that would be repaid throughout one year in the health-insurance bill.

Applying nudges – augmenting existing service or policy frameworks – constitutes considerable progress similar to that of going from dating to de-facto living together in a romantic relationship.

Since the relationship looks and feels good, there is no reason for not taking it further. Behavioral science is so rich in potential applications that we should not restrict ourselves to highly effective, yet superficial, applications.

Soon the time will come to ask the BIG question:

Will you do Behavioral Design with me?

Check out my new website www.naumof.com 

The Short Bucket List: A tool for making memorable gifts

This week I attended a Design Thinking workshop in Washington DC. The aim was to improve the gift giving experience. As I am quite bad with picking gifts, I had a chance to work on a tool that would help me and others who face the same challenge.

 While gifts are usually material objects, probably the most memorable gifts are the experience ones such as learning to fly an airplane, parachute jump etc.

Many people have “Bucket Lists” – things to do before they die.

So, I created this prototype of a tool for making memorable experience gifts.

The gift giver asks the future recipient of the gift to fill in this short bucket list with up to 5 things they would like to do before passing away. (Each item on the list is written on a post it)

Subsequently, the items on the list are removed from the piece of paper and put into the “Randomizer”

After mixing the options, one is picked at random and that is the gift:

Now the gift giver knows what to offer as a gift, the gift receiver doesn’t know what she will get – surprise element, but she will get for sure something she wants because she picked the options.

The gift giver has the option of sharing the experience with the receiver (e.g. do a parachute jump together).

Of course, the gift giver can cheat and draw again if she doesn’t like what was randomly selected.

Naturally, everything could be done digitally. 

Explicit and Implicit Physical Cues for Social Norms

In many models describing human behaviour, including my own 4D model, social influences and the physical environment are seen distinctly. However, there are situations in which there are physical cues of social norms.

Sometimes these cues can be explicit and prescriptive. They are physical objects that clearly state what the (formal) norm is. In this example, the signs clearly means: 

Your dog shouldn’t poop in my front yard.

Other times, elements of the physical environment represent cues of descriptive social norms. If there’s trash on the street, then it is socially acceptable to throw some more trash. 

The presence of lots of cigarettes buds suggests that

 it is OK to smoke here.

Which one do you think is stronger? The Explicit Prescriptive norm or the Implicit Descriptive Norm?

How Should Be People Riding the Metro Be Called? - On Primed Identities in Washington DC Metro System

While choosing the place where we live in the Washington DC Metro Area one of the must-have criterions was to be on the metro (subway) lines. Apart from being city-people Europeans who actually prefer public transport to driving, there were some very pragmatic reasons behind our decision.

One thing that surprised me while riding the Washington DC Metro was that people who are using the subway system are referred to as “Customers”. In Europe people using any type of public transportation (e.g. subways, trains, airplanes etc.) are referred to as “passengers”.

In the beginning I was very puzzled about calling metro-riders customers instead of passengers. Slowly I got used to it, but then I started to wonder what the implications are.

What you call someone has an impact on how that person thinks and behaves. We all have multiple identities in the sense of different roles we play. We are professionals, voters, parents etc. Calling someone a parent primes (makes it salient in the mind) the individual’s prototypical parent identity.

The same happens when calling someone a passenger or a customer. As I see things a passenger is primarily someone who travels by train, metro etc. On the other hand, a customer is primarily someone who buys something or pays for a service.  

Indirectly reminding people (passengers) that they are paying for the transport service might have some positive implications in the sense of steering them to be a bit more demanding on the quality of the service they receive.

In the case of the Washington DC Metro, however, I think it is a bit unfortunate to refer travellers as customers instead of passengers. This is because the main quality of the DC Metro System is that it exists. Beyond that, I can’t really say that it is a good service. Trains are a bit old, uncomfortable and noisy. The subway stops are depressingly grey. Most importantly service interruptions, delays and incidents are not exactly uncommon. In the two and a half months I have been occasionally using the Metro there were one derailment, one power outage, one train malfunction and lots of delays.

You might think that such issues are not uncommon in a large Metro system, but Washington DC’s Metro is not all that big. It way smaller than Metro systems in London, Paris and New York.

http://www.wmata.com/rail/maps/map.cfm

In conclusion, it is not necessarily a good idea to remind me how that I am paying (quite a lot) for a service that is OK-ish. Please call me a passenger and not a customer. 

Is it Wrong to Take the Elevator to the Gym?

When I go to the gym, unconsciously (habitually) I take the elevator. My usual work-out is around 35 minutes (+/- 5) and the main purpose is to burn some calories (I’m not into body building).

Quite recently I realized that my habitual / mindless behaviour is, in a way, awkward. I live on the 10^th floor and the gym is in the opposite building (just across an alley) on the 12^th floor.

If I would be a perfectly (economically) rational  creature, I would go down the stairs from the 10^th floor to the ground floor, go out of the building and then go up the stairs 12 floors.

Since I am going to burn calories by means of making physical effort, subsequently sweating, several potential reasons for taking the elevator are automatically excluded. I’m taking the elevator not because I want to preserve energy – avoid effort. For sure I’m not trying to preserve my good looks (i.e. avoid sweating) since I am going to sweat at the gym.

Saving time could be a plausible explanation for my irrational behaviour, but I seriously doubt it. I could simply take the stairs (both down and up) and cut my gym work-out time by 10 minutes. I assume the overall calorie burn-out would be similar. Moreover, I don’t count (monitor) burned calories, so, for sure, this is not the reason.

The more realistic reason for me taking the elevator to the gym is that I formed a habit: go out of the apartment to the elevators. This is because of convenience – going with the elevator is easy and rather fast.

Moreover, the elevators in the building are very salient: there are four of them positioned in the very centre of the building, in a spacious hall. On the other hand, the stairwells are almost hidden and the doors are grey – taking the stairs is clearly not the natural thing to do.

Beyond the habit explanation, there is, I believe, a more profound explanation.

In psychology of money there is the phenomenon of mental accounting – discovered by Richard Thaler. In a nutshell, mental accounting means that we associate different amounts of money with various expenses and we label “this” money for “this expense”… we have “holiday money”, “retirement fund”, “beer money” etc.

Moreover, it is very hard for us humans to shift money from one account to another, or to integrate accounts. If you want to learn more on mental account check out this post: 

I believe that we think using mental accounting when it comes to any type of fungible resource. In my case of taking the elevator to the gym, I do not find it natural to use my energy (effort) to get to the gym, but I have no problem in spending lots of effort in pointless weight-lifting and pedalling on a fixed bike.

In other words, I find it difficult to spend the gym effort on climbing stairs.

This type of automatic thinking goes beyond awkward getting to the gym behaviour.

I remember that a few years ago, I asked someone for a favour that would have taken about 20-30 minutes of work. As a reply I received a long email telling me how he was too busy to make the effort. The answer (probably) took at least 15 minutes to write…

Psychology of Money at Action Design Meetup

On the evening of July 15 I gave a talk on psychology of money. It was a brief summary of the Thinking Money (2 days) training I give.

We talked about relativity, loss aversion and mental accounting and why they make sense from an evolutionary psychology point of view. We also talked about how these effects manifest themselves in real-life and how they could be used to design better services.

Here are some pics I got via twitter from some participants:

Here's a tweet from Tina Safaie:

Loved "The Psychology of Money" with @NicholasNaumof @ActionDesignDC! I'll never think the same way about my money...

For me it was a pleasure and Thank you to everyone who showed up. 

Special thanks to Kate and Zarak who organized this very nice event!

Looking forwards to the next Action Design Meetups.

Why our Judgment Shortcomings about Money Aren’t Irrational

The field of Behavioral Economics / science pointed out how much of human judgment and decision making does not conform to models of economic rationality.

Oversimplifying, we could say that behavioral science gathered mountains of evidence on our own irrational thinking and behavior.

Many introductory materials such as lectures or presentations use a very popular illustration:

We like to think that we are like Mr. Spok, but in reality we are more like Homer Simpson.

This is a very catchy illustration, but it is utterly wrong because in order to understand human judgment and decision making we shouldn’t use fictional characters as references.

In order to deeply understand how Homo Sapiens thinks, we need to look back to our very distant evolutionary ancestors (early Homo Sapiens and pre-Homo Sapiens species).

Simply put, in order to understand how modern humans think, we need to look back at cave-people.

Loss aversion is probably the best known psychological effect (some would call it a judgment bias) when it comes to thinking and decision-making about money.

From a normative economics point of view, the fact that we hate losses roughly twice as much as we enjoy equivalent gains makes no sense – is irrational. We should be willing to put in the same amount of effort for both avoiding a loss of 100 dollars (euros) and gaining 100 dollars (euros). Yet, we know that things do not happen like this… people put in more effort to avoid a loss than they do to achieve an equivalent gain (i.e. 100 dollars).

However, this phenomenon – this way of thinking – made perfect sense for our evolutionary ancestors. In other words, it was (is) evolutionary rational to hate losing what you have more than you enjoy gaining some more.

By evolutionary rational I mean anything that enhances an individual’s chances of survival till reproductive maturity, achieving reproductive success (having offspring) and investing in heirs till they reach reproductive age.

To oversimplify, anything that allows an organism (person) to become a grand-parent can be seen as evolutionary rational.

Just as a note: evolution favors “metabolically cheap” solutions. Anything that brings a cost without providing an advantage in sending one’s genes into future generation(s) will be eliminated in the evolutionary process.

Let’s return to why loss aversion was, in fact, very (evolutionary) rational for our very distant ancestors.

These individuals lived in resource scarce environments. This is not to say that they were starving on a permanent basis, rather it is to say that the available (and accessible) resources were matching the minimal needs of our very distant ancestors.

In such an environment, it is more important to not lose the resources one has than to acquire additional resources. This is from an evolutionary point of view.

Putting things differently, holding on to the few resources one had offered evolutionary benefits (sending one’s genes into future generations) that were higher than the evolutionary benefits of acquiring additional (new) resources.

I am aware that I have simplified things quite a bit, but I guess you get the main idea.

What some call judgment biases such as loss aversion, mental accounting, relativity (contrast effect) etc. might very well be part of what made our generations’ existence possible.

Next week I will present (live) the three major psychological effects on thinking about money and their evolutionary explanations. Most importantly we will explore how Loss aversion, Mental accounting and Relativity influence our decision making about money in real-life situations.

Moreover, I will present some illustrations on how these so called judgment biases can be harnessed for designing better services that improve people’s lives.

The talk we be on July 15^th in Washington DC and it is part of the Action Design Meetup events. 

If you are in the area, join themeetup.