Behavioural Design interview on Radio One 94.3 – Part 1
Behavioural Design interview on Radio One 94.3 – Part 1
We did an interesting experiment in Mumbai some time back. We got 98 households across a few housing societies in Bandra and Khar to provide us with their electricity bills before the bills reached each member’s house. We then calculated the average bill amount in that particular society.
Let’s say the average was Rs 1,022. For all above-average users, we put a stamp stating that the average in that society is Rs 1,022. Next to their above average amount, we put a frownie indicating that they could do better.
The average number set the social norm and got the above average users to act like their neighbours and reduce their electricity consumption by 1.33 per cent. 1.33 per cent sounds small, but it can power 17,465 villages for one whole year. We called the experiment People Power because it gives people the power to make a difference at no cost.
Human behaviour is contagious. Our actions are often guided by how people around us are behaving. The information provided by the stamp let the above-average users know how much their neighbours were consuming.
That set the social norm and got them to reduce their power consumption. We do as others do. If people see other people littering, they litter too. If people see other people throwing waste in dustbins, they use dustbins too. If people see other people cheating, they cheat too. If people see other people being honest, they behave honestly too.
Behavioural science studies show that people dress in the same styles as their friends, pick dishes preferred by other diners, choose restaurants that are more crowded, are more likely to get fat if people around them become fat, are more likely to quit smoking if their friends quit, pay taxes if others are paying, vote if their spouse votes, and so on. A five-star review on Amazon leads to approximately 20 more books sold than one-star reviews.
This behavioural science principle of ‘social proof ‘ made a popular American infomercial for a home shopping channel change the all-toofamiliar call-to-action line at the end of the infomercial, “Operators are waiting, please call now” to “If operators are busy, please call again”. This simple change led to its sales skyrocketing.
On the face of it, the change seems foolhardy. After all, the message indicates that one may have to waste their time redialing till they reach a sales representative. Yet it worked so brilliantly.
Consider the kind of mental image that’s likely to get generated when you hear, ‘Operators are waiting, please call now’ — scores of bored phone representatives while they wait by their silent telephones — an image indicative of low demand and poor sales.
Consider how your perception of the popularity of the product would change when you hear, ‘If operators are busy, please call again’ — operators going from phone call to phone call without a break, right? That made people think: ‘If the phone lines are busy, then other people like me who are also watching this infomercial must be calling too.
Most people think they are different. But in reality most of us behave the way others do. So powerful is the effect of others on us that television executives love to fill comedy shows with canned laughter.
Experiments by lots of behavioural scientists have found that the use of canned laughter causes an audience to laugh longer and more often when humorous material is presented. People rate the material as funnier. In addition, evidence indicates that canned laughter is most effective for poor jokes.
In another experiment conducted by behavioural scientists Noah Goldstein, Robert Cialdini and Vladas Griskevicius (‘A Room with a Viewpoint: Using Social Norms to Motivate Environmental Conservation in Hotels’, goo.gl/OJT1pb), different kinds of signs were placed in hotel rooms. One of the signs asked guests to help save the environment by reusing their towels.
The second one informed them that the majority of guests at the hotel recycled their towels to help save the environment. The second sign had a success rate of 26 per cent more than the first sign.
A third sign informed guests that majority of people who had previously stayed in their particular room recycled their towels to help save the environment. The third sign had a success rate of 33 per cent more than the first sign.
Now only if hotels could apply the same principle to reducing theft of towels, shampoos, bedsheets, stationary and, yes, appliances too.
Sources: 1. Schultz, P. Wesley, Jessica M. Nolan, Robert B. Cialdini, Noah J. Goldstein and Vladas Griskevicius, “The Constructive, Destructive, and Reconstructive Power of Social Norms”, Psychological Science 18:429-34 (2007) 2. Kelman, H. C. (1 March 1958). “Compliance, identification, and internalization three processes of attitude change”. Journal of Conflict Resolution 2 (1): 51–60.) 3. Cai, Hongbi, Yuyu Chen and Hanming Fang – Observational Learning: Evidence from a randomised natural field experiment – American Economic Review 99, no.3: 864-82 (2009) 4. Noah J. Goldstein, Robert B. Cialdini and Vladas Griskevicius – A room with a viewpoint: Using social norms to motivate environmental conservation in hotels – Journal of Consumer Research 35:472-82 (2008) 5. David W. Nickerson – Is voting contagious? Evidence from two field experiments – American Political Science Review 102: 49-57 (2008) 6. Nicholas A. Christakis and James Fowler – Connected: The surprising power of our social networks and How they shape our lives (2009) 7. Behavioural Insights Team – erstwhile cabinet office of British Government 8. Gary S. Becker – A note on restaurant pricing and other examples of social influence on price – Journal of Political Economy 99, no. 3: 1109-16 (1991) 9. Chevalier, Judith and Dina Mayzlin – The effect of word of mouth on sales: Online book reviews – Journal of Marketing Research 43, no.3: 345-54 (2006) 10. Gregory S. Berns et al – Neurobiological correlates of social conformity and independence during mental rotation – Biological Psychiatry 58: 245-53 (2005) 11. M. M. Smith and R. G. C. Fuller – Effects of group laughter on responses to humorous materials – Psychological Reports 30:132-34 (1972) 12. R. G. C. Fuller and A. Sheehy-Skeffinton – Effects of group laughter on responses to humorous materials: A replication and extension – Psychological Reports 35:531-34 (1974) 13. T. A. Nosanchuk and J. Lightstone – Canned laughter and public and private conformity – Journal of Personality and Social Psychology 29:153-56 (1974)
Advertising is useful for creating awareness of the the brand and making the brand likable through a story. However its too much to expect that viewers would choose that same brand or product when they are actually in ‘buy’ mode. Because today consumers are subjected to thousands of associations everyday and the human brain cannot be expected to revive the desired brand connection at point of purchase or consumption. Behavioural Design, on the other hand, works at this moment of truth and is far more effective at making people act in the desired way. Let us give you an example.
Suppose we wanted to encourage students to drink alcohol in limits and not go overboard. And say we chose advertising as a way to influence them to reduce their drinking. And say we even use the proven persuasive technique of using social norms – people are motivated to behave in line with perceived social norms. So we advertise that 85% of students drink 2 or lesser than 2 drinks when they party. The thinking is that when students know that their peers don’t drink much, it will reduce the amount that they’ll want to drink when they party. And we advertise via posters in colleges in prominent places so that the students would surely notice them.
Though the technique of social norm is persuasive, by the time the students get to the pubs, clubs, parties, wherever drinking occurs, they forget about that piece of persuasive messaging. The disparity between where the students see the persuasive message and where they are when they drink means that the distant voice of the message is likely to be drowned by the here-and-now sounds of cheers, fast music, laughter and an ambience created to shed inhibitions.
It’s unlikely that the same message would work if placed inside the pubs or clubs, especially if students see other students drinking more than 2 drinks. But what if the pubs put playful ‘light cubes’ in students’ drinks. Light cubes that are LED lights enclosed in plastic, emitting flashes of blue and white light, making the drink look like it were flashing the police car lights (blue, white and red in US). That could subliminally remind the students of the presence of cops around and restrict them from going overboard and getting into trouble. That’s why Behavioural Design is more powerful at changing behaviour.
You may be saying to yourself ‘People follow what others do, but I’m different.’ Then again everyone feels like that. And that makes you no different than me.
Most of us learn by following what others do and that’s how societies develop. Also, if we care about what other people think about us, then we’ll go along with the crowd to avoid social exclusion (peer pressure), though we may not be aware of the degree to which we’re socially influenced. Here are few such interesting influences that make us behave in a particular way.
In a real-world experiment tax officials in Minnesota, US gave groups of taxpayers different kind of information. Some were told their tax was put to good use in education, etc. Some were threatened with punishments for noncompliance. Others were given helpful information like how to fill their tax forms, etc. Remaining were told that more than 90% of Minnesotans already complied, in full. This last intervention generated the most impact on tax compliance, proving that desirable behaviour can be increased, by drawing public attention to what others are doing.
In another study conducted by Schultz, 300 households in San Marcos, California were informed about how much energy they had used in previous weeks. They were also given average consumption of energy by households in the neighborhood. In the following weeks, the above-average users, reduced their energy consumption; but the below-average users, increased their energy consumption! If the current action is better than the social norm, then people should not be informed of the norm. An addition of a smiley, to indicate that below-average users’ consumption was socially favored, brought the consumption down again. Our experiment People Power was based on this experiment.
As Behavioural Designers, if we want to change people’s behaviour, we should let people know about what other people are doing. Though if people’s behaviour is undesirable then care must be taken to craft the intervention. The other day we saw an ad of Olay Total Effects anti-ageing cream in a women’s magazine. The headline read as ‘Does life really end at 30?’ while the copy went on to explain in bold letters that ‘82% of married women worry more about cooking the right food for their mothers in law than choosing the right cream for their skin.’ And ‘83% of women worry more about the marks their kids get in exams than the marks on their skin.’ ‘Your priorities may change but why let the skin suffer?’
The ad condemns women’s behaviour but also highlights that the undesired behaviour is common. Women will subconsciously interpret the message to be ‘Majority of women feel that way, so why not me?’ therefore it will be counterproductive for Olay and P&G. We may not admit it, but we do what others do.
Source: Schultz, P. Wesley, Jessica M. Nolan, Robert B. Cialdini, Noah J. Goldstein and Vladas Griskevicius, “The Constructive, Destructive, and Reconstructive Power of Social Norms”, Psychological Science 18 (2007): 429-34
(In the illustration did you first see a rabbit or a duck?)
Consider the following situation. Imagine that India is preparing for the outbreak of a disease, which is expected to kill 600 people. Two alternative treatments to combat the disease have been proposed.
If Treatment A is adopted, 200 people will be saved.
If Treatment B is adopted, there is a 1/3rd probability that 600 people will be saved and a 2/3rd probability that no people will be saved.
Which one do you prefer?
Most likely you prefer the certain option – Treatment A over the gamble – Treatment B.
Now lets consider a second version of the situation:
If Treatment A’ is adopted, 400 people will die.
If Treatment B’ is adopted, there is a 1/3rd probability that nobody will die and a 2/3rd probability that 600 people will die.
Which one do you prefer?
Most likely you prefer the gamble – Treatment B over the certain option – Treatment A.
Now look closely and compare the two versions: the consequences of Treatment A and A’ are identical and so are the consequences of Treatment B and B’. However, your options most probably differed. Did you choose to save 200 lives for sure in the first version and chose to gamble rather than accept 400 deaths in the other?
Embarrassed? So were we. Even when this test was shared with public health professionals in the US, they were swayed by this framing effect!
Daniel Kahneman, nobel-winning behavioural economist, explains the rationale behind our decisions. In his book ‘Thinking Fast and Slow’, he says “Decision makers tend to prefer the sure thing over the gamble, when the outcomes are good. They tend to reject the sure thing and accept the gamble, when both the outcomes are bad. Risk-averse and risk-seeking preferences are not reality-bound.”
This shows how a small manipulation can have drastic impact on decision-making. And if you still believe that we humans behave rationally, think again.
The tendency to be more sensitive to possible losses than to possible gains is one of the best-supported findings in behavioural science. Nobel laureate Daniel Kahneman and his colleague Amos Tversky were the first to test and document the notion of ‘loss aversion’ – the idea that we are more motivated to avoid losses than we are to acquire gains.
Loss aversion affects a lot of our decisions, in finance, negotiation, persuasion, etc. One consequence of loss aversion is that it makes inexperienced investors to prematurely sell stocks that have gained in value because they simply don’t want to lose what they’ve already gained. (We had also written about it in ‘Why we sell the wrong stocks’) Similarly, the desire to avoid any potential for a loss also makes investors to hold on to stocks that have lost value since the date of purchase. Because selling the stock would mean taking a loss on the investment, which most investors are reluctant to do, a decision that often precedes further stock price decline.
Another popular example of loss aversion is the debacle of New Coke. From 1981 to 1984, Coca-Cola company tested its new and old formulas in taste tests amongst two hundred thousand people across twenty-five cities. 55% of people preferred New Coke versus 45% who preferred the Old Coke. Though most of the tests were blind, in some of the tests people were told which was the New and Old Coke. Under those conditions, preference for New Coke increased by an additional 6%. Why did New Coke fail inspite of such extensive research?
Says Robert Cialdini, Professor of Psychology and Marketing at Arizona State University and advisor to Obama “During taste tests, it was New Coke that was unavailable to people for purchase, when they knew which sample was which. So they showed an especially strong preference for what they couldn’t purchase otherwise. People at the Coca-Cola company might have said, “Oh this means that when people know that they’re getting something new, their desire for it will shoot up.” But, in fact, what the 6% really meant was that when people know what it is they can’t buy, their desire for it will shoot up. Later when the company replaced Old Coke for New Coke, it was Old Coke that people couldn’t have, and it became the favorite.”
For people losing Old Coke was more valuable than gaining New Coke. What this means is that to make messages more persuasive they should be framed to avoid losses more than acquire gains. So a message like ‘Shop till you drop at 30% discount’ could be more persuasive if framed as, ‘Don’t miss the chance to shop at 30% discount’. The latter implies that the deal is scarce in some way (e.g. limited time) and that people could be losing the opportunity to get a good deal.
Sources: Daniel Kahneman and Nathan Novemsky – The Boundaries of Loss Aversion – Journal of Marketing Research 42:119-128 (2005)
Ziv Carmon and Dan Ariely – Focusing on the Forgone: How value can appear so different to buyers and sellers – Journal of Consumer Research (2000)
G.R. Shell – Bargaining for advantage (1999)
Most of us including women, stereotype genders. We tend to think women are better at home in the kitchen while men are better at earning money. While some stereotypes are true, this one about whose the better investor is a counter-intuitive one.
Terry Odean, a University of California professor, has studied stock picking by gender for more than two decades. A seven-year study found single female investors outperformed single men by 2.3 percent, investment groups with females outperformed male counterparts by 4.6 percent. Why? The short answer is overconfidence. Men have more knowledge about investment, but it makes them overconfident and take undue risks. Women on the other hand, take fewer undue risks, rely on simple heuristics such as ‘buy what you know’ and ‘diversify equally’, which have been tested to give better returns.
Additionally, men hold onto their losers a lot longer than women. They’re sure the stock will come roaring back — even as it sinks. Men with our macho-ness don’t want to admit we’re wrong. So we tend to hold on to loser stocks. Women are more loss averse than men, more emotionally unattached and are far quicker to unload losers.
Though science proves women make for better investors, men will likely continue to think otherwise. Men will be men.
Sources: B. M. Barber and T. Odean – Boys will be boys: Gender, overconfidence and common stock investment – The Quarterly Journal of Economics 1, 261-92 (2001)
Ortmann, G. Gigerenzer, B. Borges and D. G. Goldstein – The recognition heuristic: A fast and frugal way to investment choice? – C. R. Plott and V. L. Smith (Eds.) – Handbook of experimental economics results: Vol. 1 (pp. 993-1003): Amsterdam: North-Holland.
In 1997 the founding figures of behavioural economics – Daniel Kahneman, Amos Tversky, Richard Thaler and Ariel Schwartz did an interesting experiment. They got participants to manage a small portfolio by investing in two mutual funds over a simulated period of twenty-five years. One mutual fund had a low average return but was fairly safe, didn’t vary much month-to-month and rarely lost money much like a bond. The other had a higher rate of return but also high variance, so that it lost money about 40% of the months muck like a stock fund. They divided the participants into groups that received information about the stocks going up or down in value – monthly, yearly and every five years. They could also change their allocations monthly, yearly or every five years. Participants started with hundred shares and could allocate them to any of the two mutual funds in any proportion. At the end of the simulation, participants were paid an amount proportional to how well the shares performed.
Since it was a simulation of a length of twenty-five years, people in the five-year condition got feedback and could change their allocations only a few times, compared with hundreds of times for people in the monthly condition.
Intuition says that the group that received information about the stocks every month and could change the allocation should have performed the best right? You guessed it. It’s wrong.
Participants who got performance information once every five years earned more than twice as much as people who got monthly feedback.
In the long run, the best returns came from investing more money in the higher return-higher variance stock fund, since it made up for the short-term losses. Occasional monthly losses were canceled out by the gains. But in the monthly condition, when people saw losses in the stock fund, they tended to shift their money to the safer bond fund, thereby hurting their long-term performance. They got more feedback, more information, but it was short-term, which created an illusion of knowledge – that the stock fund was too risky. But people who received information every year or every five years didn’t see the difference in variability. They only saw the stock fund outperforming the bond fund.
The same thing happens in real life investing as well. Brad Barber and Terrance Odean studied six years of trading records of 60,000 accounts from a brokerage firm and compared returns of those who traded frequently and those who traded rarely. Frequent traders think they have lots of knowledge and that they can anticipate the market. But the most active traders earned one-third less per year than the least active ones.
Sources: R. Thaler, A. Tversky, D. Kahneman and A. Schwartz – The effect of Myopia and Loss Aversion on risk taking: an experimental test – Quarterly Journal of Economics 112:647-661 (1997)
Barber and T. Odean – Trading is hazardous to your wealth: The common stock investment performance of individual investors – Journal of Finance 55:773-806 (2000)
You may be thinking what a crazy thing to say. After all, which marketer doesn’t benefit from more choices? Take a look at ice-cream parlors. When we visit them we’re often faced with varieties of flavors from chocolates to mint to fruits to natural essences to dry fruits, with so many variants within each flavor depending on the parlor we visit. And the more extensive the varieties of flavors, the better publicity the parlor could generate and could even make it a unique feature of the brand. Moreover the consumers also get to enjoy sampling and choosing the flavors they would like to try. Offering such an extensive choice is helpful when consumers are likely to know exactly what they want and are simply looking for a store or business that supplies it.
But few product categories and companies find themselves in the position of having hordes of consumers salivating at the opportunity to choose from their wide selection of goods and services. More prevalent is the case, that consumers don’t know precisely what they want until they have surveyed what’s available. Take the example of mutual funds in India. There are more than 40 companies providing them with over 4000 schemes to choose from. Now imagine the error-laden short cuts that consumers must be taking to make their choice, if they haven’t already been overwhelmed in the first place.
Behavioural scientist Sheena Iyengar and colleagues Huberman and Jiang analyzed retirement programs of 8,00,000 workers in the US and found that the more choices that were offered, the less likely the employees were to enroll in the program at all. To mention one specific comparison, they found that when only 2 funds were offered, the rate of participation was around 75%, but when the 59 funds were offered, the participation rate dropped to about 60%.
When so many choices are made available, to consumers who don’t know exactly what they are looking for, they find decision-making frustrating due to the burden to having to differentiate so many options to be able to make the best decision. This results in disengagement from the task at hand, leading to an overall reduction in motivation and interest in the product.
In another experiment Sheena Iyengar and Mark Lepper set up a display at a supermarket in which passersby could sample a variety of jams that were made by a single manufacturer. Either 6 or 24 flavors were featured at the display at any given time. Results – only 3% of those who approached the 24-choice display actually purchased any jam. In comparison 30% bought when the choice was between 6 flavors.
If you are in a similar situation or sell many variations of your product, you may want to consider a reduction in the number of options provided by your business in order to increase your sales. Other healthy side-effects could also include reduction in marketing spends that support a smaller portfolio, reduced spending on raw materials, more storage space, etc.
Sources: S.S. Iyengar, G. Huberman and W. Jiang – How much choice is too much? Contributions to 401(k) retirement plans – Pension design and structure: New lessons from Behavioural Finance, Oxford University Press: 83-94 (2004)
S.S. Iyengar and M.R. Lepper – When choice is demotivating: Can one desire be too much of a good thing – Journal of Personality and Social Psychology, 79:995-1006 (2000)
We spoke on Investor Behaviour at Franklin Templeton’s Independent Financial Advisor convention in Bali on 12th December.
Our presentation was about investor’s biases, heuristics and rules of thumbs. We also conducted a live auction that brought alive our irrational behaviour amongst the audience who participated in it.
The rest again is confidential material. But we will be posting many articles on behaviour – consumer, employee, shopper, investor, public that we promise.
Have an awesome year.