Choice Architecture is an important topic within the discipline of Behavioural Economics. Studies in human behaviour have given us insight into decision making. With the advent of technology, we can monitor brain functions through benign probes and scanning devices.
The basic tenet of Choice Architecture has embodied in the idea that the environment influences human decisions. Experiments done in cafeterias have shown that dishes that are placed earlier in the queue are chosen over the items that are later in the line, such studies in choice architecture were used to improve dietary habits in students.
Why does our brain functions in this fashion, well the proposed and largely accepted answer is as follows.
When we are trying to answer the great mysteries of the world or when Einstein figured relativity, this sort of thinking is called ‘higher-order thinking’. Our Prefrontal Cortex is responsible for this activity. However, higher-order thinking is a major fuel burner and requires a lot of energy. Therefore such a system cannot be used all the time. To save energy routine thinking activities are delegated to the ‘Limbic System’. One could think of this system as an autopilot. The Limbic System largely depends on memory and emotions to make decisions. Driving, for example, is largely managed by such a system where you do not have to consciously make decisions of pressing the clutch while changing gears. Plenty of choices that we make are also influenced by this system. We can assume that reason is not always leading our decisions.
So what are the important tools that we can use to build a system of choice architecture. How can we communicate productively with the limbic brain. Below we will discuss a few important ones.
This is driven by inertia. People like to maintain the position they are in unless there is an acute discomfort warranting action. Opt in – Opt out are great examples of Default at work. Let us understand this with the help of an example.
In certain countries when a candidate qualifies to get a driving license, her license comes with a default yes in the organ donor checkbox. In such cases, the total percentage of donors is much higher compared to countries where the default option to organ donation is set on no.
And this has nothing to do with a particular culture it is not that one set is more compassionate compared to the other. The tendency to go with the default option is the reason for the high number of donors.
Framing is all about the presentation of choices. Saying 90% fat-free over 10% fat makes a big difference in perception. Framing has various approaches such as – risky choice framing, where you can compare the risk of losing 10 out of 100 lives or the opportunity of saving 90 out of a hundred. Goal framing, where you have to choose to what is effective motivation by giving reward or penalty. The above example with fat is called attribute framing.
Tversky and Kahneman leading behavioural scientists have been known to apply Framing in their study of Prospect theory, a Nobel price winning effort.
The idea of feedback is about generating self-awareness, especially post behaviour self-awareness. If you approach a person with concrete feedback after he has acted there is a much higher possibility of a behaviour change.
Comparative feedback seems to work the best. For example, a program in Paolo Alto was sending an energy bill that would let you know how much more or less electricity are you consuming compared to your neighbours.
Although some were not happy about this the majority found a comparison report to be helpful. Over some time a clear reduction in energy consumption was noticed.
One should be careful while devising such a system and ensure that the feedback is productive and constructive.
Incentives give better results if they the benefit is short term. When you place short term rewards the point of reference changes. For example, monthly incentives may work better compared to an annual program. The cash-based incentive seems to work but the social incentive is equally effective. Facebook Likes making us happy are a good example of social incentive.
When devising an incentive framework it is critical to have an understanding of Who Uses, Who Chooses, Who Pays and Who Profits. By incentivising the wrong leverage point you may get an undesirable outcome.