Behavioral Economics

Choice Architecture – Designing for Better Results

‘Game-changing’ ‘Provocative’ ‘Useful’

This is the feedback we hear when introducing the concept of behavioral economics (BE) to strategic leaders around the US.  They realize their organizations don’t really understand how consumers analyze choices and make decisions. Our discussions then uncover missed opportunities, both with engagement and performance. The idea they can use BE to create environments that nudge individuals to make smarter decisions seems surprising to many.  

But why?

Classic economics, the stuff we all learned in school, suggests we act rationally, have stable preferences and are not influenced by insignificant factors.  Behavioral economics paints a different picture of human behavior. Richard Thaler, the 2017 Nobel Prize Winner in Economics, talks about supposedly irrelevant factors that potentially have a huge impact on the way humans analyze choices and make decisions.  He championed the concept of choice architecture and being a choice architect; the role that uses knowledge of those factors to design an environment that allows for consumer choice while encouraging smarter decisions.

An important underpinning of choice architecture is NO design is neutral; every design, and just about every detail of that design, sends subtle and not-so-subtle clues for the preferred or suggested course of action.

Don’t believe that no design is neutral?  Consider these factors:

  • the order in which you provide your audience with product choices
  • the number of choices you offer
  • the defaults you establish to make customer implementation easier
  • business processes that make it easier for customers to execute one transaction over another
  • pricing structures and presentations

These supposedly irrelevant factors exert a powerful influence on the decision-making process.

We also heard from some that BE is big-brotherish.  We disagree. The difference is your approach and intended connection to your audience.

Thaler coined the phrase libertarian paternalism, which is the idea that it is both possible and legitimate for institutions to affect behavior while also respecting freedom of choice.   Respecting choice is key; it’s the difference between influencing and manipulation; the difference between free will and coercion.  If indeed no design is neutral, then design in a way that encourages smart behaviors without removing choices.  

Be thoughtful about what smarter choices means for your audience.  Remember, every detail in the environment you create for your customers or employees, sends messages about how you think they should act.   

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