The second day of USI 2017 is off to a strong start with a presentation by Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University. His studies have been inspired by the wish to understand the rationalities behind our decisions. This expert analyst of human behavior raises the question: how can we make the best decisions?
What informs our decisions?
If we were rational beings, it would be enough to have access to information to make the right decisions. But do we actually behave rationally? Taking a few simple examples, Ariely makes us realize that we all show a certain degree of irrational behavior. “Over the last month, how many of us have eaten more than we should? How many of us exercised enough? Have texted while driving (and this includes bicycles)?” We already have the information we need to make the right decisions, and yet this knowledge does not change our behavior.
Over the years, humanity has progressed in several regards: hygiene, wearing safety belts, less smoking. On this last point, it is not the awareness-raising campaigns which had an impact. The decrease in the number of smokers can be attributed to two factors: an increase in taxes on cigarettes to some degree, but especially the shame associated with passive smoking.
The architecture of choice, or how to orient our decisions
If one compares organ donor rates across Europe, one sees wide gaps. Why do some countries have a rate of nearly 100% and others barely more than 0%? Is this due to cultural differences? The answer must lie elsewhere: Sweden’s rate is 86% while Denmark’s barely reaches 4%. Is it due to marketing and communication efforts? In the Netherlands, the rate remains low despite massive mailing campaigns, television commercials and even the airing of a TV reality show, where a dying person could choose their organ recipient. So what explains it?
Ariely provides the answer: it is simply a question of formulation. In one case (countries with low donor rates), people have to tick a box if they wish to be organ donors (opt-in). In the other, people have to tick a box if they refuse to be organ donors (opt-out). As Ariely explains, the issue of organ donation is important and complex. “And when we are faced with an important and complex decision, we tend to do nothing.” Thus, in this example, most people will leave the box empty.
How a question is framed thus has an impact on decisions: this is the choice architecture principle. We let others make the decision for us, then our brains find arguments to rationalize the decision. We hide the reasons behind our decisions from ourselves.
The cost of change as a hurdle to making a (good) decision
Ariely gives the example of a pharmaceutical company struggling in vain to get patients to take generic rather than brand drugs. Even the offer to send drugs for free for a year only convinced 10% of their clients. Do people really dislike generic drugs that much? For Ariely, the problem lies in the effort it requires patients to give formal written consent to switch to generic drugs. He therefore suggested making all clients choose between brand and generic drugs, to remove the “cost” differential between the two choices. Result: a majority of patients chose generic drugs.
According to Ariely, “people don’t do what they want”, they do what’s easiest. Frictions are a barrier to obtaining what we want. “To go from an abstract idea to a concrete action plan, you have to be on people’s agenda”.
Social recognition, a motivating factor
Historically, money was tangible. In the rural world, people put their savings in cattle: having a large herd was thus both a way of showing professional success to the outside world and having a safety net for difficult times. Today, money is digital, it is no longer tangible. Social recognition needs to be based on something else: people compete on how they spend their money. To the extent that when someone wins the lottery, their neighbors automatically start spending more.
To convince people to save money, informing them is useless: you have to make it very easy to deposit money, usually much more complex than withdrawing money, and activate social recognition by publicly displaying the money saved – this was a project carried out with the Mpesa bank in Kenya.
Ariely concludes his presentation with some advice to help us make the best decisions. We tend to think that our objectives guide our actions but in fact the two are separate. Our actions are not always rational, they depend on our environment and hurdles to decisions. And to identify choice patterns there is no absolute answer: you have to experiment.