It was fun speaking on applying Behavioural Design to improve employee engagement at Nasscom Technology & Leadership Forum on 21st Feb 2019 at Grand Hyatt, Mumbai. I spoke about few high-impact low-cost Behavioural Design nudges, based on experiments in behavioural science, that demonstrate how employee engagement and experience can be improved at the workplace. Given that employee engagement is at abysmally low levels at a lot of companies, it’s high time to apply behavioural science to transform processes like appraisals, feedback, learning, rewards, recognition, productivity, collaboration amongst other experiences to improve employees’ performance and happiness. The Behavioural Design nudges shared raised a good amount of smiles and curiosity. There were inquiries to deliver talks at different companies and do projects to change employee behaviour. Let’s see which of them happen. After all Behavioural Design is about improving conversions.
How often have we heard that we must take the stairs especially if we need to go to Floor nos. 1/2/3, yet how many times do we take it? It’s an exercise that can be so easily incorporated into everyday life, but awareness yet again doesn’t translate into action.
So a few behavioral scientists put a sign at the bottom of the stairs telling us that walking up the stairs burns about five times as many calories as taking the lift. Sixteen studies analyzed this intervention and found that on average, stair use increased by 50%. Sure this is from a low baseline, because not many people generally use the stairs in the first place, but it does demonstrate that a small nudge can do more than any big-budget-ad-campaign to change behavior. Few stations in Tokyo, Japan like Tamachi station have implemented it by mentioning the number calories burned with each step. And a friend of ours says he feels better while walking up the stairs because he can see how many calories he’s burning with each step.
Of course there’s a way of making climbing stairs fun like the Volkswagen piano staircase, but putting signs is probably a thousand times cheaper.
Source: R.E. Soler, K.D. Leeks, L.R. Buchanan, R.C. Brownson, G.W. Heath and D.H. Hopkins – Point-of-decision prompts to increase stair use: A systematic review update – American Journal of Preventive Medicine 38, no.2 (2010): S 292 – S 300
Continuing the series of ‘Psychology and Physiology are deeply connected’, this is the final one.
This experiment is popularly known amongst psychologists as ‘The Love Bridge’ study, named after the bridge in Capilano Canyon, Vancouver where the experiment took place. The suspension bridge spans 450 feet and hovers 230 feet above the ground, causing it to sway as the wind blows. There was another bridge in the area that was a small but sturdy wooden bridge bordered by guardrails, just ten feet off the ground.
At various times throughout the day, researchers Donald Dutton and Arthur Aron, had a young female assistant approach men between 18-35, as they stepped off the end of each bridge with a scripted story – that she was a psychology student conducting a study on the effects of exposure to scenic attractions on creative expression. The assistant would then ask each man to fill out a short survey. When done, she would offer to tell him about the study when she a little bit more time. Then she would write down her name and number and hand it over to the men. Most men happily accepted it and walked off.
As expected the female assistant started getting calls from the men. While only two of sixteen men who crossed the small sturdy wooden bridge called, half of the eighteen men who crossed the suspension bridge called. Why did she miraculously become more attractive to the men who crossed the suspension bridge than to the men who crossed the small sturdy wooden bridge?
Turns out that for the men who crossed the suspension bridge, anxiety and adrenaline translated into a heightened romantic interest in the assistant. Their physiological reactions affected their perceptions and behaviour.
But could the men who took the suspension bridge be more courageous and daring and therefore more likely to take a chance on calling the assistant?
To test the possibility, the researchers went back to Capilano to conduct a follow-up study. This time the female assistant was stationed only at the end of the suspension bridge. She approached some of the men right after they crossed and others, ten minutes after they had finished crossing.
More men who met the assistant just after they crossed called, than the ones who were approached ten minutes later. The latter’s anxiety had subsided and their adrenaline levels had gone down.
No wonder going for a roller-coaster ride on a date makes sense.
Source: Attraction under conditions of high anxiety – Donald Dutton and Arthur Aron – Journal of Personality and Social Psychology 30 (1974): 510-17.
We found the connection between Psychology and Physiology so intriguing that we did more research and found more studies done on it. Intuitively it makes sense – the mind affects the body and the body affects the mind, but chancing upon hard scientific evidence makes it even more convincing.
So Becca Levy and colleagues at Yale got senior citizens over the age of 70 to take a special hearing test. A sequence of three ascending pitches for each ear was played. Each time a senior citizen heard a tone, they were supposed to raise their hand. The average score was 3.53 out of 6.
Next the seniors were asked to write the first five words that came to mind when they thought of an old person. The researchers noted how each senior responded and categorized each answer. The first category was from very positive (e.g. compassionate) to very negative (e.g. feeble). The second category was from external (e.g. white hair) to internal (e.g. experienced). The researchers got two sets of data – hearing test and attitude profile of each senior.
Three years later, the same seniors were invited to take the same hearing test again. This time the average score dropped. But not all participants’ hearing deteriorated equally. Those seniors who used negative and external descriptors to describe old age were worse off. Even after isolating other factors that would diminish hearing e.g. medical condition, the researchers found that the negative and external descriptors were responsible for a 0.7-point drop in a senior’s score – amounting to eight years of normal aging – in just three years. Even participants who scored a full 6 in the first round, and had used negative and external descriptors, experienced worse off diminished hearing.
This proves that negative and external feelings about old age can actually make people physically age faster. The effect is not limited to hearing alone, but to memory loss, cardiovascular weakness and even a reduction in overall life expectancy by an average of 7.5 years.
Hearing decline predicted by Elders’ stereotypes – Becca Levy, Martin Slade, Thomas Gill – Journal of Gerontology: Psychological Sciences 61B (2006): 82-88
Longevity increased by positive self-perceptions of aging – Becca Levy, Martin Slade, Suzanne Kunkel and Stanislav Kasl – Journal of Personality and Social Psychology 83 (2002): 261-70
Longitudinal benefit of positive self-perceptions of aging on functional health – Becca Levy, Martin Slade and Stanislav Kasl – Journal of Gerontology: Psychological Sciences 56B (2002): 409-17
Improving memory in old age through implicit self-stereotypes – Becca Levy – Journal of Personality and Social Psychology 71 (1996): 1092-1107
How do you feel when someone tells you how beautiful/handsome you look? Doesn’t it change your self-perception even if for few minutes or hours? But guess what, it has effects beyond your imagination.
In one of the most fascinating studies we’ve read, fifty-one women were made to have a short conversation on the phone with randomly selected men, thanks to researchers Mark Snyder, Elizabeth Tank and Ellen Bercheid. The women chitchatted about ordinary things – what they did for a living, their background – things you’d normally chat with strangers. But unlike the women, each man had received a bio and a snapshot of her. The bio was accurate, but the photos were fake. Half were of very pretty women, and other half of less attractive women.
As expected the men glanced through the bios, but they gave a hard look at the photos. Before talking to the women, each man was asked to rate his expectations of her. First group of men who saw photos of pretty women expected to interact with sociable, poised, humorous and socially adept women. Second group of men who saw photos of less attractive women expected to interact with unsociable, awkward, serious and socially inept women.
This where the experiment really began. The researchers recorded the calls and created clips of the women’s voices only. These clips were played out to a third group of random men, who knew nothing about the experiment. Listening to just the women’s side of the conversations, this third group of men were asked to rate their expectation of the women. Guess what, they attributed the same traits to the women that men of the first and second group had attributed to them, based on their fake photos.
How did this happen? The researchers explained – Once the men of the first and second group, formed their opinion of the women, it affected every aspect of how they interacted with them. The men talking on the phone with someone who they believed to be pretty, listened more actively and were more engaged. These “pretty” women on the other end unconsciously picked up on cues the men were sending them and took on the characteristics that the men expected them to have. Being thought of as beautiful made the women actually think of themselves as beautiful and exhibit their ‘beauty’ in their conversations. The third group in turn picked up on the cues from the voices of the “pretty” women and rated them as sociable, poised, humorous and socially adept women! Similar was the outcome for women’s voices based on the second group of men’s opinions.
Source: ‘Social perception and Interpersonal behavior: On the Self-fulfilling nature of social stereotypes’ – Journal of Personality and Social Psychology 35 (1977): 656-66.
That’s what happened in South Africa when a bank wanted to push personal loans to fifty thousand of its customers. In a field experiment conducted by Bertrand, Karlan, Mullainathan, Shafir and Zinman, the bank crafted several variations of the loan offer letter.
They tested lots of variations in features of a direct mailer sent to 53,000 potential customers with formal jobs in urban and semi-urban parts of South Africa. Some of the features varied were proposing uses of the loan, presenting more examples of loans – like loan amount, tenure, rate, payable amount, etc.; displaying interest rates in different ways, showing competitors rates and showing a picture of a pretty woman.
The letters included different interest rates (ranging from 3.25% to 7.75% per month); some featured comparison to a competitor’s rate; others a lucky draw – ten cell phones up for grabs each month; still others a photo of either a man’s or a woman’s pleasant, smiling face. The versions were randomly assigned and mailed off.
To start with the obvious one – customers were significantly more likely to apply for low-rate loans. But two other factors were influential in getting customer response, though they had nothing to do with the terms of the loan. One – the number of loan examples. Mailers with four examples of loans attracted far fewer applicants than mailers with just one example. Presenting more options drove away customers. Showing one loan example instead of four attracted as many additional applicants as dropping the interest rate by about a third!
Second, adding a picture of a pleasant, smiling face of a woman had the same effect on men as lowering the loan’s interest rate by 25%. Surely no customer would say that his decision to borrow boiled down to the picture in the corner of the mailer, but the data was there to prove it. Having a picture of a pretty woman logically doesn’t make for a better financial offer, but what happened is that the men were attracted to the woman and therefore signed up for the loan. And interestingly customers (in South Africa) didn’t respond any differently when the race of the woman was varied. The effect of a woman’s photo on women didn’t make much of a difference as it did on men.
No man would consciously sign up for a higher interest loan just because the offer letter had a picture of a woman on it, right? But male customers made errors in evaluating the attractiveness of the loan because they didn’t focus on the important data. Instinct took over. That’s why its best to A/B test Behavioural Design solutions to know which ones work. Without testing, you will never know what works, what doesn’t and which could be the best solution.
Source: Marianne Bertrand, Dean Karlan, Sendhil Mullainathan, Eldar Shafir and Jonathan Zinman – What’s advertising content worth? A field experiment in the consumer credit market – Quarterly Journal of Economics 125 (1), February 2010.
This article first appeared in afaqs, a leading Indian marketing and advertising publication. Afaqs shared it as a “mustread, brilliant article” on social media.
The mutual fund industry has been running an ambitious investor awareness campaign ‘mutual funds sahi hai’. At the same time, the AUM of the mutual fund industry touched a record level of Rs23 trillion by end of 2017—up from Rs16.46 trillion at the end of December 2016. But correlation does not mean causation. The main causes of the rise in mutual fund industry’s AUM is the combination of the effect of demonetization, decline in interest rate on fixed deposits, gold and real estate’s lackluster performance, flow of FII investment in Indian markets and the historical fact that retail investors are the last to jump into equity markets.
The ‘mutual fund sahi hai’ campaign has had messaging like ‘life mein risk, toh mutual funds mein kyon nahi’ (if there’s risk in life, then why not in mutual funds’), ‘thoda thoda karke bhi invest kiya ja sakta hai’ (one can invest small sums too), ‘planning long-term karni ho ya short-term’, ‘mutual funds mein patience rakhna zaroori hai (one needs patience in mutual funds). The campaign has poured crores of the industry’s money into such communication. However, the campaign reminds me of the story of the blind men and the elephant. According to the story, none of the blind men were aware of the shape and form of an elephant. So they inspected it by touching it. The blind man whose hand landed on the trunk, thought the elephant was like a thick snake. The one who touched its ear, thought it was like a fan. The one who touched its leg, thought it was like a tree-trunk. The one who touched its side thought it was like a wall. Another who felt its tail, described it as a rope. The last felt its tusk and described it as a spear. None of the blind men had the complete context.
Similarly, the ‘mutual fund sahi hai’ campaign creates limited perception by describing ‘stand-alone features’ of a mutual fund. It doesn’t describe what a mutual fund is. Without the complete context, each blind man saw the elephant as something other than what it was. Likewise, without explaining what a mutual fund really is, how would a first time investor understand the concept of a mutual fund? And without understanding the concept of a mutual fund, how would a first time investor trust it?
Most investor awareness campaigns include heavy doses of complicated financial jargons like power of compounding, equity, debt, hybrid, etc. But these words are alien for first time investors. Plus, campaigns include wishful thinking like be a disciplined investor and execute goal-based plans. A behavioural science study by Fernandes, Lynch, & Netemeyer – a meta-analysis of over 200 financial programs on educating investors – has found that the largest effect any of them had was a mere 0.1%. Research amongst first time investors by Briefcase shows that the only thing they recall about mutual funds is ‘mutual funds are subject to market risks, please read the scheme documents carefully before investing’, without even knowing what it really means. Leave alone the cognitive challenge of choosing a fund from over a thousand of them, they don’t even get the concept of a mutual fund. The ‘mutual fund sahi hai’ campaign doesn’t address this problem.
But behavioural science can help. Behavioural science involves using powerful principles to create intuitive communication. One example is the principle of familiarity. In an experiment by behavioural scientist Bornstein et al, faces of individuals were flashed on a screen so that quickly that participants couldn’t recall having seen those people. Yet, when these participants met those people, they liked them and were persuaded by them to a greater extent. So to get first time investors to adopt mutual funds faster, the communication needs to make the unfamiliar, familiar. Mutual funds need to draw heavily from what people are already familiar with – banks, savings, fixed deposits, recurring deposits, provident funds, etc. But the latest ‘mutual fund sahi hai’ campaign does exactly the opposite and talks about mutual funds being a new way of investing.
The behavioural science principle of cognitive overload shows that too much choice and information results in indecision and lower sales. Behavioural scientists 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. In an experiment on retirement funds, behavioural scientists Sheena Iyengar, Huberman and Jiang analyzed retirement programs of 8,00,000 workers in the US and 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%. Likewise, the concept of mutual funds needs to be made simple and easy to understand, without any jargons, ensuring there’s no cognitive overload for first time investors.
In our research with first time investors, when we asked them to illustrate ‘income’, they drew cash and cheque. When asked to illustrate ‘savings’, they drew a bank branch with its signage. But when they were asked to illustrate a ‘mutual fund’, they drew a blank. But the powerful principles of behavioural science can help create that image for a mutual fund – intuitive and persuasive. Because only if the first time investor gets what a mutual fund is, will she/he trust it and invest in it.
We spoke on ‘Overcoming behavioural biases in investing’ at CafeMutual’s conference for financial advisors in Mumbai on 23rd Feb, 2018. We first introduced Behavioural Design and then followed it up with few examples of behavioural biases in investing, along with possible Behavioural Design solutions to overcome them. The feedback we got from the audience and co-speaker CEOs ranged from ‘thumbs up’ to ‘fantastic insights’ to ‘rocking presentation’. Honestly it was business as usual, but the feedback was great probably because behavioural science is relatively new for people and Behavioural Design nudges are simple, low cost, practical and effective at changing investor behaviour. While we’ve come up with few Behavioural Design nudges to manage our own investing behaviour, we’ve not even scratched the surface in coming up with Behavioural Design solutions for changing investor behaviour for clients. The journey has just begun. Looks like we’ll be creating lots of Behavioural Design nudges for changing investor behaviour – at communication level and product level – for both first-time and evolved investors. Fun.
Imagine you have units of ABC mutual fund. You consider switching to XYZ mutual fund, but don’t. One year passes and you find that you would have made Rs1 lakh more if you had switched to XYZ mutual fund. How would you feel? Now imagine another scenario where you have units of ABC mutual fund, and during the year you switched to XYZ mutual fund. One year passes and you find that you would have made Rs1 lakh more had you kept ABC mutual fund. How would you feel? Which condition would make you feel worse?
Studies by Nobel-winning behavioural scientist Daniel Kahneman and his colleague Amos Tversky have found that 92% of people find the second condition worse. The mistake of an action seems worse than a mistake from inaction. It generates more regret because the first condition is like an opportunity lost whereas the second condition is an actual loss. The second condition translates to seeing oneself as a loser, but not the first. The monetary loss is followed by a psychological loss from admitting you made a mistake. That’s why losses cause a lot of pain.
The region of the brain associated with evaluating negative emotions like pain and disgust is called ‘insula’. When people smell vomit or see a cockroach, the insula bursts into action. The insula also lights up when we lose money. In a study by M.P. Paulus et al, the insula was roughly three times as active after people lost money as it was after they won money. The more intensely the insula fired, the more likely the person was to pick a lower-risk option the next time.
Losing money on an investment is like smelling rotten food, it’s disgusting. We try to move away from it, wipe it off our memory and want to wash our hands off it. That explains why investors, including me, find it difficult to sell an investment when its price is down, since the notional loss will now get converted into actual loss. That makes most people like to believe that the price of the loser investment will go up one day and that’s when we’ll sell it. The thinking goes, ‘If we sell it now and it bounces back, we would have made two mistakes —one buying high and two selling low. If we hold on and it bounces back, we will feel much better.’ However, if we hold on and it doesn’t bounce back, it will be a bigger loss than had we sold it. Hanging on makes sense only if we believe that the investment has value and that value is more than the existing low price of the investment. However, that’s a tough decision which leaves most investors paralytic.
An analysis of 2 million transactions of Finnish investors by behavioural scientists Hersh Shefrin and Meir Statman, found that they are 32% less likely to sell a stock after a sharp fall in price. Professional money managers in Israel cling to their losing stocks for an average of 55 days—more than twice as long as they hold winners. A study by David Harless and Steven Peterson that looked at 97,000 trades, found that investors cashed in on 51% more of their gains than their losses, even they could have raised their average annual returns though by 3.4% points if they had held on to winners and dumped the losers. The study by Martin Weber and Colin Camerer found that among 450,000 trades in 8,000 accounts at a brokerage firm, 21.5% of clients never sold a single stock that had dropped in price. Researchers Zur Shapira and Itzhak Venezia found that new mutual fund managers sold 100% of the stocks ranked at the bottom, implying that their predecessors would have been paralyzed by their own mistakes that only a new person could clean the portfolio. Karl Case and Robert Shiller find that people trying to sell their house hold out longer when they are facing a loss, and will often take the house off the market and not sell, rather than lose money on it.
Dealing with losses is painful, but thinking about the loss differently could help. One behavioural design solution could be to find another investment that you would like to put money into. Think of the proceeds as funding the new investment by selling the loser investment. It will help you generate cash for buying the new investment and you can write off the loss to offset your capital gains and reduce your taxable income. Moreover, the learning of what went wrong should be undertaken by introspecting why the loser investment was originally bought and why its value had changed over time. If the investment still has value and potential, then holding on would make sense. If not, the faster you can sell, the lesser will be your loss.