The year is 2066, and organizations have now been granted access to engage in business on a distant planet. Two distinct types of individuals inhabit this planet: Spocks and Kirks — genetically-identical descendants of Mr. Spock and Captain Kirk of Star Trek fame.
(For those unfamiliar with the reference, Spock was half-Vulcan, an attribute which made him a logically-superior decision-maker and problem-solver to the purely human Kirk, whose bounds of rationality were limited as a product of him being "just a human." Stay with me, I promise this is where the Star Trek trivia ends.)
In the distant future, on this distant planet, how would your organization fare? Would it be more successful engaging with one type of inhabitant as opposed to the other? It's an interesting hypothetical, but what many organizations fail to recognize is that in 2016, on this planet, they're dealing with a very similar dilemma.
Traditional economic theory is designed to account for the behavior of Spocks. Decades of economists have operated under the assumption that humans are hyper-logical agents who engage in meticulous cost-benefit analyses, objective calculations, and who always pursue self-interest regardless of circumstance. However, time and time again findings from psychology and neuroscience have overturned this optimistic conceptualization. Far from being rational agents, humans are imperfect decision-makers, and predictably so. They are driven by emotion, influenced by situational characteristics, and they rarely adhere to the axiom of self-interest that has served as the cornerstone of economic theory for generations.
Why Classical Economics Gets It Wrong
Perhaps an example would help. There is an experimental paradigm in psychology known as "The Dictator Game." The game is simple: one partner is assigned the role of dictator while the other is assigned the role of recipient. The dictator is given a certain amount of money (let's say $10) and it is their job to decide how much they would like to allocate to the lowly recipient, who has absolutely no say in the matter. A second, related game is called "The Ultimatum Game." Here, the once-dictator still decides how much money to allocate, but now the recipient can decide to accept or reject the offer. If an offer is rejected, both parties receive nothing. If the picture painted by classical economics were true, dictators would always offer nothing in The Dictator Game, and recipients would never reject an offer of any kind in The Ultimatum Game; to do anything else would not make sense from a (financial) utility-maximizing perspective. However, contrary to predictions made by classical economics, people regularly give whilst occupying the role of dictator in The Dictator Game, and regularly reject offers as a recipient in The Ultimatum Game that are technically advantageous (as they are receiving something) because they deem them unfair.
So what's the problem (or opportunity, depending on your perspective)? In short, people are not perfectly-calibrated utility-maximizers, and wise organizations can harness this knowledge to gain a competitive advantage. Chances are, your organization has developed marketing strategies and business policies designed to influence the decision-making of Spocks, but your success actually hinges on how well-equipped you are to sway Kirks.
The incongruence between what classical economic theories purport humans to be and what science continues to prove they actually are has spawned the discipline now referred to as behavioral economics. Behavioral economics reconsiders traditional economic theories in light of scientific findings on human nature. By marrying the two disciplines, we're able to create more accurate theories of human economic behavior. If your organization is unfamiliar with behavioral economics, it's about time it became acquainted.
Nudge Units And The Attitude-Behavior Gap
The governments of the United States and the United Kingdom are well aware of the persuasive potential that exists in capitalizing on the imperfection of human decision-making. To pursue this end, they have invested massive sums of money into what are often referred to as "nudge units." These are teams of highly-educated behavioral scientists whose purpose is to figure out ways to influence people — or "nudge" them — into making better choices.
Now obviously this notion of "better choices" is problematic. Better for whom? And who decides? Critics of nudging claim it's a brand of libertarian paternalism, or a state where an individual is technically permitted to make his or her own decisions, but where they are being strongly guided toward a particular direction. Proponents of nudging, however, claim it is a way to bridge what psychologists refer to as the attitude-behavior gap.
What is the attitude-behavior gap? For the sake of brevity, suffice it to say that there is often a glaring disconnect between what people want to do and what they actually end up doing. Dieting is a great example. People want to diet, they want to lose weight, they want to exercise and make healthier decisions, but despite these desires and intentions, many end up sitting on the couch, shame-eating a gallon of ice cream and watching nine consecutive hours of The Office (don't judge me). Those who support nudging see it as a way of helping people make the decisions they actually want to make rather than the ones they often succumb to.
Your organization has probably developed strategies designed to influence Spocks. But your success actually hinges on how well-equipped you are to sway Kirks.
How Choice Architecture Works
Nudging is typically operationalized as a sub-category of what is known as "choice architecture." One of the central tenets of choice architecture is that you are not necessarily changing the content of the offering, but rather the manner in which the content is being presented.
Again, perhaps an example would help. A famous one is from Dan Ariely's brilliant book Predictably Irrational. In it, Dr. Ariely references an encounter he had when he was considering online subscription options for the publication The Economist. There were three options: an online-only subscription for $59, a print-only subscription for $125, and an online-and-print combination subscription for $125. Which would you choose? For most of us, including 84% of the MBA students from MIT's prestigious Sloan School of Business polled by Dr. Ariely, the choice is clear: the online-and-print combination (only 16 chose the internet-only and zero chose the print-only). I mean, you're paying the same amount as you would for the print only to get both, so you'd be foolish not to choose this option, right? You're practically stealing from them! In fact, maybe they've made a mistake and they haven't realized yet?
Well, not quite.
You see, the adroit minds over at The Economist know that, if choosing in isolation, most people would typically prefer the internet-only option. And in fact, when we remove the print-only subscription from the choices, this preference reemerges. When the two choices are only internet-only for $59 and internet-and-print for $125, preferences among these 100 MIT students drastically shift — or, perhaps more accurately, reverse — with 68 now choosing the cheaper internet-only option and only 32 opting for the more expensive internet-and-print bundle. Why?
The answer lies in the way we make decisions. Namely, all of our choices rely on relativity. We do not choose anything without comparing it to other options within that category. We compare cereals with other cereals, apartments with other apartments, and yes, subscription options with other subscription options. So what has happened in the example above? In the simplest sense, the print-only option is utilized as a decoy. The sole reason for its inclusion is to make the internet-and-print subscription seem more appealing by comparison. Thus, by simply including the additional print-only option — an option which nobody even wanted when it was available, by the way — you can influence individuals purchasing preferences and behavior, and ultimately make more money.
The Ethics Of Nudging
For some, much of what has been presented might cast choice architecture and techniques like nudging in an unflattering, almost Machiavellian light, but that isn't necessarily the case. Sure, nudging is certainly capable of persuading people to buy more of your product or invest more readily in your services, but it can also be utilized to achieve pro-social ends. Nudging has been shown capable of accomplishing feats which include helping employees better save and prepare for their retirement, helping people make healthier diet and exercise choices, and helping governments to drastically shift previously apathetic participation rates in life-saving programs like organ donation.
The organizations that ignore the instrumentality of behavioral science will be surpassed as their strategic plans become obsolete. Individuals who fail to develop an awareness of these techniques will surely fall victim to them.
What Organizations Should Do
When I teach people about techniques like nudging, I often feel like a hammer salesman: some people will use it as a tool, some will use it as a weapon. I hope more will choose the former, but despite whether you believe nudging is more dangerous than useful or more useful than dangerous, the fact of the matter is that it's not going anywhere. As scientists begin to slowly unravel the mysteries behind human cognition and behavior, both savvy organizations and savvy individuals ought to take notice. The organizations that ignore the instrumentality of such findings will be surpassed as their strategic plans become obsolete, and individuals who fail to develop an awareness of such techniques will surely fall victim to them.