The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

This is the start of a new series on cognitive biases. To present the series in an organized fashion I found around 200 biases and then categorized them in a way that would be relevant to what we do here on The Brainy Business. I came up with eight categories, and I will go over each bias in the category in a pretty quick succession. A cognitive bias is an error in the way humans think. It's a way that is often not in our best interest. These biases aren't random. They are predictable and that is the basis for behavioral economics. This week we are talking about those personal biases that lead us all to believe we are uniquely talented and awesome…and generally better than everyone else. As you listen to the list, think about yourself – how have you experienced this in your own life? And also think about other people – have you seen this in others? How could you use that bias in the way you message to customers or attract people to your business? Show Notes [10:48] EVERYONE IS UNIQUELY TALENTED Optimism bias: Humans assume they are more likely to have a positive outcome in life compared to other people. [11:28] You want to look at ways you can use optimism bias to your advantage when setting big goals, but your day to day tasks should be more realistic and less than you think you can accomplish. [11:32] Planning fallacy is the tendency to underestimate how long it will take us to complete a task. [12:30] Do you ever find yourself with a list of 10 things you “need to do” today and you only end up getting through two? Understanding planning fallacy can help you do better in setting more realistic tasks (and therefore being happier - and more productive). [12:48] Naive realism is the belief that unlike other people, we see reality exactly as it is. [14:21] Try to be open to the perspectives of others. Your curse of knowledge will make this hard because you know a lot about your area of expertise. [15:01] In order to be successful in life and business, you need to be able to understand the perspectives of other people and how they differ from yours. [16:09] The false consensus effect is our tendency to overestimate how much other people agree with us. [17:41] Illusion of asymmetric insight this is when people think they understand their peers better than those same people understand them. [18:15] If you assume that everyone thinks you don’t understand them as well as they understand you, it could be beneficial to ask them questions that help them explain more about themselves to you. [18:49] Illusion of transparency: people also overestimate their ability to know others, and the ability for others to know them. [19:56] False uniqueness bias is when everybody thinks of themselves and their business as a special snowflake with unique problems unlike anyone else's. [21:17] When you are communicating what you offer, use the Forer effect (also known as the Barnum effect) to your advantage. This could also be seen as the astrology effect or the fortune telling phenomenon: people tend to think statements that are vague and general enough to relate to a large group of people are highly accurate and “exactly them!” [22:42] Generalities can inspire people to take action, so keep that in mind when creating your messaging. [22:57] Illusion of control, which is your tendency to overestimate the influence you have over external events. [25:33] Egocentric bias is when you feel like you do more than the other person and because of our naive cynicism, we also expect other people to have this bias more than ourselves. [26:47] It's important to praise others for their contributions without diminishing your own efforts. [27:28] Social comparison bias: Because of self-preservation and wanting to stand out and be the best, we tend to favor potential candidates whose strengths are not in direct competition with our own. [27:50] Self serving bias, where we want to claim more responsibility for successes than the things we might have failed on. We want all the glory and none of the blame. [28:23] The spotlight effect is the tendency to overestimate the amount that others are focused on our appearance or the things we say or do. [28:53] Because everyone else is the center of their own universe as well, you can relax a little. [30:07] Because of the 3rd person effect everyone believes they're less likely to be influenced by mass marketing than other people. [30:40] A bias blind spot is where we see ourselves as less biased than others and tend to be better at spotting these cognitive biases in others than in ourselves. [31:23] Illusory superiority is where we overestimate our own desirable qualities and underestimate our undesirable qualities. [32:14] Restraint bias: We all think we have more restraint than others and generally overestimating our ability to resist temptations. [32:53] Trait ascription bias: We think others have very predictable personalities, moods and behaviors (that they are more one dimensional) and that we personally are much more dynamic. [35:14] The overconfidence effect: for certain types of questions, people will say they are 99% certain in their answers…but they are actually wrong 40% of the time. [36:24] Pro innovation bias, which is essentially having massive optimism about an invention or innovation. [37:48] REVISING IN HINDSIGHT [38:06] Post purchase rationalization is when people buy on emotion and then persuade themselves it was the right decision. [38:55] Choice supportive bias is where we say retroactively are choices were more informed than they actually were. [39:22] Illusion of external agency, which means we think our personal preferences are based on insightful influences and benevolence. [40:21] Illusion of validity, where we believe our judgments and choices were accurate. [40:43] Conservatism belief revision you would not sufficiently revise your belief. [41:13] Continued influence effect, where you continue to believe misinformation even after it has been corrected. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: The Brainy Business on YouTube Torcom Talk on YouTube @ser_technology on Twitter Ser Tech Webinar Blowing Consumers Minds Using Behavioral Economics Episode 16. Behavioral Economics Foundations: Framing Ser Tech Webcasts Ser Tech Open Lending @thebrainybiz on Twitter @HBLtamu on Twitter Predictably Irrational Episode 9. Behavioral Economics Foundations: Loss Aversion Episode 15: Behavioral Economics Foundations: Availability Episode 34. Behavioral Economics Foundations: Optimism Bias Exploring the "Planning Fallacy": Why People Underestimate Their Task Completion Times Episode 11. Behavioral Economics Foundations: Anchoring and Adjustment Episode 14. Behavioral Economics Foundations: Scarcity Five Most Daunting NFL Stadiums for Visiting Teams Scarlett Johansson & Brie Larson Play ‘Who Saves the World? Girls!’ Episode 32. The Overwhelmed Brain and Its Impact on Decision Making The Trouble With Overconfidence Episode 5. The Truth About Pricing

How do you know when it is time to rebrand? I’ve been getting this question a lot by clients and listeners on social media. This inspired me to do this episode on deciding whether to rebrand, refresh or reinforce. Last week, I launched into branding by discussing what makes a brainy brand and how you can use behavioral economics to help make your brand as strong as possible Now it’s time to talk about rebranding, refreshing or reinforcing your brand (including when and why you would do each one). During this episode I am going to talk about the difference between rebranding, a brand refresh and what it means to reinforce your brand…as well as examples of each one with advice to help you decide when you should do each in your own business. CLICK HERE FOR YOUR FREE DOWNLOAD! Show Notes   [05:32] Questions like “Why did you start your business?” and “What is the dream?” are so important for overall brand conversations in companies of any size…but they can be particularly meaningful for small businesses. [06:07] The most common thing I find when I go through this process with clients is that they are not thinking out far enough into the future. They plan what they need to do to make money today instead of planning out a sustainable business for 5, 10 or 20 years in the future. [06:32] When I ask people what the ideal business would look like…they are usually building a completely different business today than what they want to have in 5 years. This is a recipe for being stuck in a business that runs you instead of creating a business and life you love. [08:37] When something is off, customers can feel it and it impacts everything. It could also make business owners who could have been really successful get resentful and not love their business. [09:15] When you get to a point where you need to rethink things many start to ask if they should rebrand. [09:34] When you have a brand that fits your company…one that resonates with customers…everything just clicks. [11:38] REBRANDING means you are changing everything: new name, new logo, new colors, maybe a new target demographic and new focus entirely. [12:36] REFRESH means you are planning to keep a lot of the central pieces of the brand – the name, basic logo and colors, but you are making some tweaks to tighten the message, shift the demographic, or maybe enter a new space. [13:18] REINFORCE is when you still take the time to (hopefully proactively) look at your brand and determine what is working and what isn’t. [14:12] The goal of rebrands and refreshes is to get to a point where you can reinforce. You want a brand that everyone gets and knows and loves. [16:05] New Coke triggered loss aversion in customers with nostalgia and an emotional tie to the brand, which resulted in hoarding, angry phone calls/letters, and fear. [17:38] The rebrand actually made people think of Coke differently and inadvertently put it on a pedestal. Coke now knows that they are solidly in reinforce mode. [20:50] Being too literal is one of the top 5 wording mistakes businesses make. [23:28] Verity Credit Union went through a rebrand 10 years before I led the refresh, where we needed to realign with the values that mattered to the target market. [24:07] Local artists were contracted to show what truth meant to them in whatever medium they used. [26:02] We had an all-staff event where we talked about the research, unveiled the new logo, showed the first four commercials and talked about the future. People were so excited to be part of it. Brand awareness nearly tripled in less than two years. [28:41] When you find a brand that works down to the core and is authentically tied to the vision and goals of the company, you get into a state of flow and that's how you know that you found "it" and can move into the reinforce phase. [30:11] When deciding to rebrand, refresh or reinforce consider 1) everything matters, 2) think bigger, 3) are we asking the right question? and 4) always be thoughtful and strategic. [32:21] Whatever brings you to the “is it time for a rebrand?” question…it is a key moment in time to stop, breathe, take a step back…and think about the bigger picture. [32:48] Too many companies ask “Who are our current customers and what do they want?” Instead, ask this question... [36:32] The next question people tend to ask when looking at a rebrand is, “What can we salvage?” It should not be the goal to keep as much of the old stuff as you can to save money. Instead you should... [41:25] The main thing I want you to remember and think of in your own rebranding is that strong brands, the best ones that get seen and make a difference and stand out from the competition…had to step away from the herding mentality of what “everyone else does” to get there. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Episode 43. A Guide for You to Create a Brainy Brand Dani McDonough Photography Artwork By Dani Episode 4. Questions or Answers Episode 32. The Overwhelmed Brain and Its Impact on Decision Making Post-it Super Sticky Easel Pad The Real Story of New Coke Episode 9. Behavioral Economics Foundations: Loss Aversion Episode 19. Behavioral Economics Foundations: Herding Episode 14. Behavioral Economics Foundations: Scarcity Episode 15: Behavioral Economics Foundations: Availability Episode 41. Behavioral Economics Foundations: The S in NUDGES – Structuring Complex Choices Episode 2. The Top 5 Wording Mistakes Businesses Make Verity Credit Union Boom Creative Verity CU YouTube His Voice Is So Emotional That Even Simon Started To Cry! Real Beauty Productions Cadbury's Gorilla Advert Aug 31st 2007 The Fun Theory 1 – Piano Staircase Initiative | Volkswagen Kristen Bell and Her Cofounders Built a Company to Save Lives. But Growing It Wasn't So Simple The Brainy Business on Facebook

Branding is one of my all time favorite topics. If you are new to the show (in which case, welcome) you may not know that I have an extensive background in this area. I obtained my undergraduate degree in marketing before working at an advertising agency, then started a credit union marketing consultancy and then ran a marketing department at a financial institution for 6 years. While there, I led a brand refresh that nearly tripled awareness in less than two years. This background in branding and marketing has led to the way I implement behavioral economics for my clients and here on the podcast. Recently, I have received a lot of questions about branding – what matters, what is included, and how behavioral economics ties into that…and that’s what we’ll dig into today. CLICK HERE FOR YOUR FREE DOWNLOAD! Show Notes [04:55] A brand is “a type of product made by a particular company under a particular name” or the way ranchers mark their cattle. [05:31] You put your stamp on something to show it is yours (and many people wear those same brands with pride to show they are part of the herd). [05:52] People pay more for brand name items and they even get more value out of them because of expectations and conditioning. [06:56] Marketing and branding are not the same thing. Marketing is all the one-off stuff you do to get your name out there – radio ads, website work, flyers, brochures, and sponsorships. Marketing is reactive. It isn't building something bigger. [07:49] When you create a brand, you have a strategic center everything can relate back to – a touchstone for your company. Any opportunity or new request can be brought back to this foundation to see if it is in alignment. [08:53] Marketing research has long struggled to be considered true research in the same way the sciences are. [09:07] A brainy brand knows what it is trying to achieve and builds quantitative and qualitative research projects to test, learn and grow. [11:19] Examples from Jonah Berger's amazing book Contagious. Such as people wanting Mars bars after hearing about the Mars Rover and being more likely to choose Sprite after writing with a green pen. [13:13] The concept of priming was used when shoppers were shown pictures of dogs that helped prime them to choose Puma shoes. [13:23] Think about the messaging that's coming right before your advertisement. It's important to think about the context of your ads. Priming is really relevant. Make sure that you are associating your brand properly with the right things. [15:47] When creating the brainy brand it was important to me to choose things that were fun but intelligent to draw people in. It's my responsibility to make sure that the messaging is consistent. [16:27] It's important to be strategic and thoughtful about what it is that you are doing for your company. [17:35] There is cookie dough next to the milk, because simple associations win the day. The product is placed where it is more likely to trigger the buyer’s brain. [19:01] Availability is the weight our brains place on one thing based on how easy the item comes to mind. [20:02] A brainy brand knows that everything matters. This is why I truly believe behavioral economics is the future of marketing and branding. [20:18] When you understand how the brain works and all the bazaar ways it makes decisions, it unlocks a powerful space where you can see what a certain word choice or ad placement could do that another would not. [21:12] Brands have personalities just like people…and for good reason. Known personalities create expectation in our brains. [22:18] When you expect someone to act one way and they act completely differently…like their personality has been surgically replaced with that of their opposite…it is unnerving. [22:52] There is always another competitor, a new medium to look into, a new product entering the market. [23:36] A truly brainy brand, one that is laying the foundation of their messaging and who knows who they are and how they would respond…who has a brand personality so well known that it is like a real person…they can react properly to change – and create some of it themselves. [25:32] Method acting is a lot like business branding because they both require a lot of preparation and understanding of things that may never be brought up. [26:39] The best brands – brainy brands – know everything about who their brand is as if it were a person. [27:17] When brands have great personalities, it ties into the associations people have about them. [28:54] Brainy brands need to have everyone on board, rowing the boat in the right direction. [30:03] Behavioral economics and other studies of the brain look into why people do the things they do, and how to use that insight to predict what they might do in the future. I'm so excited to be a part of it. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Episode 19. Behavioral Economics Foundations: Herding Predictably Irrational How Brands Grow Unconventional Wisdom Contagious: Why Things Catch On How to Make Your Content Go Viral Dogs on the Street, Pumas on Your Feet: How Cues in the Environment Influence Product Evaluation and Choice Episode 18. Behavioral Economics Foundations: Priming Episode 15: Behavioral Economics Foundations: Availability Episode 22. The Power of Habit 15 Actors Who Went to Seriously Extreme Measures for a Role HR and Marketing: A Natural Partnership Delivering Happiness

We are digging into Apple’s recent announcements today, with a heavy focus on Apple Card. When Apple made its announcements and Apple Card was included…I knew I needed to create an episode on this topic. Apple made a series of star-studded announcements about their new offerings, which included the announcement of Apple TV+, Apple Arcade, Apple News+ and, of course, Apple Card. An interesting aspect of these announcements is that they didn’t talk about anything that is available yet, and didn’t include any pricing information. In this behavioral economics podcast, I’ll tell you why this was their true genius. It’s different from previous announcements, but they are also taking a huge turn by switching from products to services. As we dig in, I’ll explain where Apple did some really smart things and took a strategic approach to these announcements and their shift in offerings. Plus, tips for you to take away and apply in your own business. Disclosure: Specific details were accurate at time of recording. Policies are subject to change. Find the most current details at Apple.com. CLICK HERE FOR YOUR FREE DOWNLOAD! Show Notes [03:02] When Apple made its announcement, I knew I needed to talk about the Apple Card. In last week's Facebook Live I also let talk of the Apple Card run the discussion a bit. I did tie it back to the topic of loss of version and anchoring and adjustment, though. [04:21] Last week, Apple made a series of star-studded announcements about their new offerings, which included the announcement of Apple TV+, Apple Arcade, Apple News+ and, of course, Apple Card. [04:43] People think it's weird that Apple didn't talk about anything available and didn't disclose any pricing. In reality, this is the true genius behind the announcement. [05:09] It's justified for Apple to make a shift, because they are changing their offerings from products to services. [05:30] People aren't logical. People say they think and will do one thing…but their subconscious will often think different (Apple ad throwback alert!). [06:15] When we look at the announcement from a behavioral economics point of view, we'll see a lot of smart things that your business can use or learn. [07:03] In the episode I will talk about building anticipation and expectations, the delayed pricing strategy, subscription models, framing, herding, how familiarity breeds liking, and the value of celebrities. [07:20] BUILDING ANTICIPATION AND EXPECTATIONS While it has generated a lot of complaints from our logical brains, I would argue one of the smartest things Apple has done is announced all the greatness of the services before they are actually available. [10:39] We thrive on the excitement of anticipation. [11:23] BUT having anticipation creates loss aversion and perceived ownership, which also means you are much more likely to feel the need to experience the treat at the end or to at least test it out and see how it meets or exceeds your expectations. [11:51] Being top of mind is key in influencing buying behavior. [13:06] Far too many organizations wait to announce a launch until it is actually launching. In reality, people need time to get really excited about things. [13:41] High expectations are okay (as long as the actual release isn’t a total fail), because studies show that the brain gets what it expects. [14:44] Building expectations of greatness means people will expect this thing to be good – and we expect it to be really REALLY good if they went out of their normal strategy to announce it before it was ready. [15:12] THE DELAYED PRICING STRATEGY The truth about pricing is price never about the price.  Everything that comes before the price matters much more. [15:36] Creating value is about framing and anticipation…which Apple is taking time to let ruminate before the pricing is announced. [16:27] HERDING This also allows for herding behavior to be triggered earlier than it would otherwise as people start talking about the products. [18:30] HOW FAMILIARITY BREEDS LIKING Speaking of herding behavior…our brains don’t just herd behind others…we also do a sort of self-herding, and “get in line behind ourselves.” [20:46] THE VALUE OF CELEBRITY Our brains love celebrities and we associate all their qualities with the brand of Apple directly now. [21:44] HABITS AND SUBSCRIPTIONS Apple is jumping on the subscription train. [24:57] Apple Arcade is an aggregator of games: all you can play, across all your Apple devices, with NO ads and a commitment to privacy. [25:21] FRAMING People have said what they want. Apple is framing their new offerings with the things that people have said they want. [25:38] Apple Card is a framing story more than anything. [25:57] A lot of the functions and features being touted in Apple Card already exist. [26:12] Apple asked a better question to uncover what people care about, and then (here’s the kicker) they found a way to frame the product and message so it is within those parameters. [28:12] Why haven't other banking institutions offered "no fees ever"? They are too close to the situation. [29:48] The rates on Apple Card (13.24% - 24.24%) are reasonable for a rewards card. [30:47] There is no fee for late payments, but late payments accrue additional interest. [32:31] Apple was able to look at a product with fresh eyes and shape their offering in a way that gives people what they want. [33:57] Look at framing your products to be most appealing – and then look at how you are framing the message of communicating that across the organization and to customers. [34:34] INCENTIVES Another thing Apple Card is doing really, really well is their cash back offering. [36:07] The most important thing they have done from a behavioral economics sense is bringing the reward as close to the trigger as possible. [36:29] Instant payouts mean lots and lots of positive associations with the card. [37:36] If you give benefits of any kind back to your customers, how can you make it real, tangible, and as close to the behavior you want repeated as possible? [40:23] Framing matters – how the product is framed and the message around that product. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Episode 35. Behavioral Economics Foundations: Nudges and Choice Architecture Episode 36. Behavioral Economics Foundations: The N in NUDGES – iNcentives Episode 37. Behavioral Economics Foundations: the U in NUDGES – Understanding Mapping Episode 38. Behavioral Economics Foundations: The D in NUDGES – Defaults Episode 39. Behavioral Economics Foundations: The E in NUDGES – Expect Error Episode 40. Behavioral Economics Foundations: The G in NUDGES – Giving Feedback Episode 41. Behavioral Economics Foundations: The S in NUDGES – Structuring Complex Choices Episode 9. Behavioral Economics Foundations: Loss Aversion Episode 11. Behavioral Economics Foundations: Anchoring and Adjustment Shopping, Dopamine, and Anticipation Sapolsky on Dopamine: Not About Pleasure, But Its Anticipation Steve Jobs Introducing The iPhone At MacWorld 2007 Apple's 'Show Time' Event Was Really Weird – Here's Why Introducing Apple News+ Everything you love about News. Plus. Introducing Apple TV+ Episode 2. The Top 5 Wording Mistakes Businesses Make Episode 20. Behavioral Economics Foundations: Defaults Episode 21. Behavioral Economics Foundations: Habits How Brands Grow: What Marketers Don't Know Episode 15: Behavioral Economics Foundations: Availability Dogs on the Street, Pumas on Your Feet: How Cues in the Environment Influence Product Evaluation and Choice Episode 18. Behavioral Economics Foundations: Priming Episode 5. The Truth About Pricing Episode 8. What is Value? Episode 19. Behavioral Economics Foundations: Herding Episode 14. Behavioral Economics Foundations: Scarcity Predictably Irrational Episode 32. The Overwhelmed Brain and Its Impact on Decision Making ‘Subscription Fatigue’: Nearly Half of U.S. Consumers Frustrated by Streaming Explosion, Study Finds Apple Arcade Episode 16. Behavioral Economics Foundations: Framing Apple Card Episode 4. Questions or Answers How Payday Loans Work

This is the end of our series on nudges and choice architecture – we started with an introduction to the concept in episode 35 and have worked our way through all the aspects of the NUDGES acronym: incentives, understanding mapping, defaults, giving feedback, expecting error and now wrapping it up with structuring complex choices. Be sure and download your free worksheets on all of the aspects of nudges by becoming a subscriber. In this behavioral economics podcast, I talk about structuring complex choices. I also revisit mapping and the five steps to understanding mapping, because it is the foundation of complex choices. This episode is also our final application of the air conditioning example. I also dig into several other examples to illustrate this concept and how it all ties into ways to make your business better. Show Notes [02:41] Mapping is the foundation for complex choices. Thaler and Sunstein describe a mapping as “the relation between choice and welfare” and use a simple example of choosing a flavor of ice cream. [03:16] Some tasks like choosing an ice cream flavor are easy. Others are more difficult. The path from the choice to the outcome is called a mapping. [04:25] The task of the choice architect (that’s you) is to set up a system that helps make the map as clear and easy to use as possible. [04:37] The five steps I created and identified in understanding mapping were: 1) encourage thoughtful review and open-mindedness, 2) break it down, 3) make it relatable, 4) help them get there and 5) call to action. [05:12] When you get into a more complex choice, there is a need for filtering and removing options. [07:12] The compensatory strategy works for easier choices or choices with less options, but not with more complex choices. Instead, you need what is called elimination by aspects. [07:32] By choosing a few aspects that matter, you use those to narrow the field. [08:47] When you eliminate everything over a certain arbitrary line, you could miss something that is just outside the parameters. This is the risk we take with elimination by aspects and the constant battle of complex choices. [09:25] The internet has given us tons of resources to help simplify our complex choices. [09:57] A presort can help us when looking at a menu. This way we can eliminate the options that we don't care about. [11:20] When people are presented with too many options they don't buy. We get overwhelmed with too many choices. [14:16] We only see a lot of choices as a benefit when they are properly handled such as going to a toast restaurant with all of the spreads and toppings categorized. [14:52] Cold Stone Creamery uses a form of anchoring and adjustment to help with their complex choice options. [15:41] Showing how aspects can come together can help people make a more complex choice. It can help them eliminate things they know they don’t want when they are properly categorized. When looking at your own business, it is important to recognize if you have an inherently complex choice or if you are needlessly creating a complex choice. [15:50] The final air conditioning example. Complex choices can be made unnecessarily complex. Our AC choice became more complex because we needed to upgrade the heater. [18:34] It's important to present the options in a way that doesn't talk you or your customer out of business. [19:06] Don't be afraid of silence with complex choices, because people need time to process. [19:25] Using behavioral economics in business is much more than messaging, branding, sales, or any single aspect. To incorporate it properly, it's important to know all of the concepts and how they work together. [21:40] A paint color example where using swatches makes the color choice much easier than names or numbers. [23:50] A fun exercise where I give names of companies and how their methods could be applied to your business. [24:03] This technique will help you shake things up and get out of your comfort zone. [25:09] An example using The Knotted Wood. [25:48] Try to look at the cursory decision and ask if you are trying to solve the problem in the right way. [26:00] Companies that do a great job structuring complex choices. [30:17] Remember to think about ways you can reduce complexity as well as how you might add complexity to your business. [30:41] Seven episodes felt like a TON to put into a series, so thank you for those of you who have tuned in for the whole thing - and for letting me know how much you enjoyed it. [31:08] All businesses are based on choice. It's your job to structure those choices in the best way possible, using a map so the customers know what is in their best interest, aligning the incentives to set up a default – and give feedback along the way for all those errors you expect people to make. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Nudge: Improving Decisions About Health, Wealth, and Happiness Choice Architecture Episode 35. Behavioral Economics Foundations: Nudges and Choice Architecture Episode 36. Behavioral Economics Foundations: The N in NUDGES – iNcentives Episode 37. Behavioral Economics Foundations: the U in NUDGES – Understanding Mapping Episode 38. Behavioral Economics Foundations: The D in NUDGES – Defaults Episode 39. Behavioral Economics Foundations: The E in NUDGES – Expect Error Episode 40. Behavioral Economics Foundations: The G in NUDGES – Giving Feedback Elimination by Aspects: A Theory of Choice Episode 32. The Overwhelmed Brain and Its Impact on Decision Making Episode 12. Behavioral Economics Foundations: Relativity Episode 11. Behavioral Economics Foundations: Anchoring and Adjustment Episode 4. Questions or Answers The Knotted Wood Coca-Cola Freestyle

We are getting close to wrapping up our series on NUDGES today – and if you have been following along each week you know we went a little out of order and did the E in nudges last week – expecting error, and are now coming back to G for giving feedback. This combines with incentives, understanding mapping and defaults (which we have covered already starting off the series in episode with an introduction to nudges in episode 35. Next week will wrap it all up with structuring complex choices…and then we will move on to our next topic (and it is one I am really excited about – you are going to love episode 42 to be sure). In this behavioral economics podcast, I talk about the importance of feedback, and why it lets us know if we are doing a good or a bad job. I give several real life examples involving cars, banking, our continued HVAC example, and some fun gadgets that help us conserve energy or be better weekend painters. I talk about the importance of visual cues and incorporating all of the senses and how the concepts in this series can be used to improve your business.   Show Notes [03:19] Last week I talked about errors people make on things like getting their oil changed or replacing the filter on the refrigerator. The light that comes on to alert you it is time to take care of this task, is essentially the feedback mechanism or the little nudge. [03:51] Choose your feedback wisely, when there is too much people start to ignore the alerts. [04:48] This is where understanding mapping is really important. When you understand the best outcome for the chooser you can properly structure the choice architecture. [06:24] There are a combination of concepts at play along with the nudges and choice architecture, including optimism bias, and time discounting. [09:33] A speed sign with flashing lights is feedback from an expected error. Something that has been created based on the way the brain actually makes decisions to help make the roads a little safer. [11:27] Remember, vision takes place in the brain. Our brains take in all those pieces of data and put them together with alerts and tasks based on rules of thumb. [13:03] The HVAC company could have a system that would notify customers when it’s time to schedule their maintenance. And, because it has smart technology, it could be created to do the work for them. [15:57] The nudge the company could put in place (which is using a combination of feedback and loss aversion) is to strategically create their sales process to encourage the person to make their decision that day. [17:34] Like the wedding dress store, the HVAC company could give discounts if the customer purchases on the same day of the sales call. [19:48] Simple things can make a big difference. Examples are our phone cameras clicking, and website links changing color. [22:29] I think it is important to note here that a lack of a negative does not necessarily lead to a positive feeling. [24:07] Feedback allows people to know they are doing a good job – or where they are going astray. [26:12] Wouldn’t it have been nice if you had a little feedback during the process? This is exactly why the geniuses at Glidden created a ceiling paint that goes on pink and dries white. [28:22] Color coding is really helpful for our visual brains. The episode on color theory is coming soon – I promise, but know that our subconscious picks up on the colors and knows what it should be striving for (green is good, red is bad). An example on helping people use less energy. [28:46] How can your business incorporate the senses – color, pressure, scent, or sound to provide feedback to your customers to nudge them into better behavior? [29:16] Feedback can also be useful when things take a while and there are a lot of steps happening behind the scenes. Domino's Pizza Tracker gives helpful feedback. [31:01] Feedback is appreciated and can help your customers to quell an anxiety they may not be able to articulate beforehand. [31:45] Timers without a tracker make people wonder if they did something wrong. [32:12] If someone is stressing about all that stuff, they are not paying attention or retaining anything from your advertisement, so you should provide that little bit of feedback. [33:19] Using feedback with credit cards. Is there a way to provide feedback and a nudge for those who would have issues without inconveniencing those who do not need the nudge? [34:43] The point of feedback is to get as close to the action as possible. [37:24] Using money in a jar as feedback of progress and an incentive to keep moving forward. Also using loss aversion by losing that money if you miss a day. [37:33] You can use this trick for any goal. How could you use a tactic like this with your employees or customers? [38:29] Take a look at your company, customers, and the products or services you offer for opportunities to provide feedback. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Nudge: Improving Decisions About Health, Wealth, and Happiness Choice Architecture Episode 35. Behavioral Economics Foundations: Nudges and Choice Architecture Episode 36. Behavioral Economics Foundations: The N in NUDGES – iNcentives Episode 37. Behavioral Economics Foundations: the U in NUDGES – Understanding Mapping Episode 38. Behavioral Economics Foundations: The D in NUDGES – Defaults Episode 39. Behavioral Economics Foundations: The E in NUDGES – Expect Error Episode 34. Behavioral Economics Foundations: Optimism Bias Episode 15: Behavioral Economics Foundations: Availability Measuring the LSD Effect: 36 Percent Improvement Episode 24. Behavioral Economics Foundations: Sense of Sight Episode 9. Behavioral Economics Foundations: Loss Aversion Episode 25. Behavioral Economics Foundations: The Sense of Smell Glidden® Pink to White Ceiling Paint Nissan ECO-Pedal THE ENERGY ORB: Visualize Electricity Consumption! Episode 26. Behavioral Economics Foundations: The Sense of Taste Episode 27. Behavioral Economics Foundations: The Sense of Hearing and Sound Episode 28. Behavioral Economics Foundations: The Sense of Touch Domino’s Track Your Order stickK

This behavioral economics podcast is another foundations episode where we discuss the E in NUDGES: expect error. I think this might be my favorite of all the types of nudges. This is really the reason we need nudges at all – and why choice architecture even exists. Choice architecture takes a lot of time, effort and strategy to do well and having a background in nudging is essential to helping your customers and employees make good choices. If we humans did not make errors, we would not need help in making decisions. We would be able to evaluate all the possible options and make an informed decision every time. Because we don’t and can’t…we need choice architecture. And it is all built on expecting those errors to properly build in nudges. In this episode, I talk about different types of errors with real life examples and how to apply this information to your life and business. CLICK HERE FOR YOUR FREE DOWNLOAD! Show Notes [05:02] If humans didn't make errors, then we wouldn't need help making decisions. [05:16] We need choice architecture, because we don't evaluate all of the possible options and make the most informed decision every time. [05:36] When it comes to errors – we can expect humans to err on nearly anything. No matter how brilliant someone is, they will still make errors throughout their lives. [06:01] Quote from Nudge: “Beethoven wrote his ninth symphony while he was deaf, yet he would frequently misplace his house keys. How can people be simultaneously so smart and so dumb?” This is what makes us human. [06:42] Errors come in many fashions – as I said it can be as simple as forgetting your keys or leaving the card in the ATM. These are actually part of a subcategory of error called postcompletion error. [06:57] Postcompletion errors occur whenever we have a task to do, and once it is partially done, we mentally check it off the to do list. [08:41] The list of potential errors is truly endless. [08:59] The dinging noise your car makes when you don't have your seat belt on is a nudge, because manufacturers expect you to make an error at some point. [09:24] Check engine and filter lights are also nudges. [10:31] Try to incorporate all of the senses when creating a nudge. [10:52] Any time something is not consistent enough to become a habit (check out episodes 21 and 22 if you need a refresher) it is a prime candidate for error. [11:15] Consistency is key in business. [11:35] A good example of this is taking medicine every day at a consistent time. [13:06] Subscription models are really useful when an error is expected. They help the customer do what they are supposed to do, and it gives the business a built in reason to follow up and stay top-of-mind. [13:33] In the case of an air conditioning unit…it is important to have the ducts cleaned on a regular maintenance schedule. [14:16] I would recommend regular check ins with their customers – on more than just maintenance tips. That way, you can check in more than just once every three years (which is longer than you want to go if you want to remain top of mind). [15:24] People want heat when it is cold and AC when it is hot (this is availability bias – episode 15). [15:33] Send an annual check in or reminder in the fall and spring. The AC company could also create some type of certification program to prove that the unit has received recommended maintenance. This could help when selling a home and realtors could also be partners. [16:42] You get all this benefit from a little strategic foresight and understanding of when people will make errors, so you can step in and be the solution. [16:56] In any company, there are bound to be tons of places where people will make errors – both employees and customers. Dig deeper and look for more opportunities to solve errors before they happen. [18:28] Staff at the Ritz-Carlton have the ability to make things right for customers without having to ask for permission. [20:06] When you are trying to anticipate errors to nudge, you should be looking all over the company – not just at customers, but employee processes as well. [21:39] Busy or overwhelmed brain, which we talked about in episode 32. This is where postcompletion error comes in. [22:21] Our conscious brain can only focus on so much and the subconscious is making the vast majority of our decisions using rules of thumb (as you know – this is the basis for behavioral economics). When we get busy, we become overwhelmed and have more errors than usual. [22:34] Things that aren't habits are easily forgotten, but habits also get forgotten. Try to be present in the moment or nudge your team or employees to remember. [23:19] Too many nudges can become one more thing to not pay attention to. Try to get into the mindset of your customer or staff. [24:10] Things like auto-pay and subscriptions can be helpful nudges. [24:51] Stop trying to change the behavioral errors and force people into a system that doesn’t work. Instead look at what you can be adding into the process to make it easier. [26:15] Changing the nozzles for different drugs and anesthesia helped reduce common errors. Checklists in hospitals are also good reminders. [27:06] A busy brain and commonly repeated tasks are a breeding ground for errors. [28:37] Any time you say someone “should” be able to do this or “they know better” or if you have multitasking staffers…they are prime candidates for nudges. [29:09] Products to solve a problem. Customers are willing to pay for a solution to a problem that helps them avoid making an error. [32:59] Gmail has come up with some clever nudges such as asking if you have an attachment if you write the word “attachment” in the text of your message and there is nothing attached, and putting ignored emails back at the top of the inbox. [33:32] The next category involves understanding a hot state and a cold state. When someone is in a cold state, it is easy to say they will do something (or not do something) but then when they are in their hot state…it is a lot harder to stick to the commitment. [34:10] Find things that can be done in a cold state to prevent behaviors from happening in a hot state. [35:32] Programs like Save More Tomorrow have been used to increase the amount someone will pay into to their retirement using a precommitment. [36:30] Staying top-of-mind and why consistency is key in business. [37:13] It's important to stay consistent with your business and have regular touch points with your potential customers. Put your customers in a drip campaign and send out your newsletter on a regular basis so it becomes part of their routine. [38:12] Remember, people make mistakes and it is your company’s job to find a way to make it easier for them to use your product or service. You cannot expect your customer to do that for you. [38:54] Follow your customers to see how they interact with the product provided. [39:59] Pourable laundry soap spouts are a result of observational research. [40:31] Look at your company or product for errors that take place and ways to place a nudge as a reminder. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Nudge: Improving Decisions About Health, Wealth, and Happiness Choice & Architecture The Chicago School of Professional Psychology Behavioral Economics Postgraduate Degree Programs Episode 21. Behavioral Economics Foundations: Habits Episode 22. The Power of Habit Episode 34. Behavioral Economics Foundations: Optimism Bias Episode 23. Behavioral Economics Foundations: Reciprocity Episode 15: Behavioral Economics Foundations: Availability The Ritz-Carlton Leadership Center Episode 4. Questions or Answers Episode 32. The Overwhelmed Brain and Its Impact on Decision Making Silpat Macaron Baking Mat Clocky Episode 34. Behavioral Economics Foundations: Optimism Bias Be on time with the Procrastinator’s Clock Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving Episode 3. Do Lead Magnets Work and Do You Need One? RecurPost  

This week marks the halfway point in our episodes on the types of NUDGES. We have already covered incentives and understanding mapping. Today, is all about defaults within choice architecture. When you think about choice and defaults, you may think it only applies when there is a preselected option on a list, but this is not the case. In every choice there is always a default. In many cases, the default is to do nothing…and that is still a choice, which is important for many choice architects to remember. I won’t be talking too much about what a default is, but I will talk about how what I’m calling “implied defaults” can be incredibly helpful when they are used strategically. I’ll also talk about how customers appreciate them and how they can benefit the company using them. In this behavioral economics podcast, I also go over how defaults can apply to the air conditioning example I have been using and how this concept can be applied to your company or service and how it can even help you save money. CLICK HERE FOR YOUR FREE DOWNLOAD Show Notes [03:03] In every choice there is always a default. In many cases, the default is to do nothing…and that is still a choice, which is important for many choice architects to remember. [03:32] When you are constructing a choice for someone, it is important to remember what their default is and how status quo bias will influence the default. [04:19] Air conditioning example. The default is to do nothing. [05:09] The company should make it easier for their customer to overcome this default hurdle. [07:34] The unit size we need is based on things that are already known…but they choose not to mention any numbers at all until you are deep into the process. [07:43] This is a mistake because first, there is no anchor. When there isn't an anchor the anchor is zero. This is a terrible place to start. [08:12] Sticker shock is created when people actually hear the cost. [09:24] When thinking about defaults in choices, it is important to realize that each complete choice can be broken down into a bunch of mini choices, and each one has its own default. [09:58] When the choice is presented, it can be properly worded to help nudge to a different default than nothing. [10:50] The default when quoting pricing for AC could and should be for the monthly payment of a loan instead of the bulk cost. [12:05] I give an example of where I move the default option in the offer from “not getting air conditioning” (the true default) to getting AC on a 24 month loan (the implied default). This is the power of framing. [13:09] How does a company choose and understand what they should use as their default? [13:28] Understanding incentives and how they impact the business is very important when choosing a default. [16:55] Carrie Clarke of Next Level Coaching does a great job framing with, “The ROI on coaching is 700% and you will reach your goals 9 times faster than trying to do it alone.” [18:28] Printing receipts is an example where defaults can cost a business money. [19:52] The city of Tulsa, Oklahoma reportedly switched all their printers to default to double-sided printing, which they estimated saved them more than $41,000 a year in unnecessary expense. [20:39] Our default as humans is often to eat food in front of us and mindless eating can be a problem. If the default plate is smaller, you will put less on the plate and often realize you are full earlier. [21:51] Not defaulting to adding straws and napkins to orders can reduce waste. [22:24] An Amazon subscription example, which used a default. [26:01] Think about your business. Do you have a product or service that people buy regularly? [26:38] An opt in versus opt out can have a huge impact on choice. [28:05] Where do you have opt ins versus opt outs in your business? Are there any features people have to opt in for that would actually be best for them and increase your profitability? [30:13] Think about what your customers want and what will benefit them and what's going to benefit the business before you set up that default. [31:03] GAP insurance is usually an add on which is a hard sell. The advice I would give is to bundle it with the initial quote and clients can opt out if they want. [33:46] Defaults are a powerful and very simple nudge to apply. When used responsibly, defaults are great and often appreciated by customers. [36:27] Implied defaults can be incredibly helpful when they are used strategically. Customers appreciate them and they can benefit the company using them. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Nudge: Improving Decisions About Health, Wealth, and Happiness Episode 36. Behavioral Economics Foundations: The N in NUDGES – iNcentives Episode 37. Behavioral Economics Foundations: the U in NUDGES – Understanding Mapping Episode 35. Behavioral Economics Foundations: Nudges and Choice Architecture Episode 20. Behavioral Economics Foundations: Defaults Episode 16. Behavioral Economics Foundations: Framing Episode 11. Behavioral Economics Foundations: Anchoring and Adjustment Only 39% of Americans Have Enough Savings to Cover a $1,000 Emergency Episode 19. Behavioral Economics Foundations: Herding Next Level Coaching Consulting Episode 18. Behavioral Economics Foundations: Priming Seattle Becomes First U.s. City to Ban Plastic Utensils and Straws License Fees Raise $1.4m for Parks Episode 9. Behavioral Economics Foundations: Loss Aversion

Last week, I kicked off the different types of nudges and how they apply to choice architecture with incentives. The word NUDGES is an acronym for the categories of nudging, and we are breaking those down episode by episode over six weeks to showcase different aspects of choice architecture and nudging. Now that we tackled incentives last week, we will jump into understanding mapping – both what in the world that means...and how to use it to your best advantage in your business. In this behavioral economics podcast, I share how nudges and my 5 Steps for Mapping can be used in your business to encourage the buying process. CLICK HERE FOR YOUR FREE DOWNLOAD! Show Notes [02:56] Thaler and Sunstein describe a mapping as “the relation between choice and welfare” and use a simple example of choosing a flavor of ice cream in one of their papers on choice architecture. [03:30] At its core, the path from the choice and its outcome is called a mapping. [03:50] For ice cream, you have some mapping in your brain that let you know which flavors you would enjoy the most. [04:20] It's more difficult to see the mapping with more complex choices. [04:49] Their paper uses the options of surgery, radiation, or watchful waiting with a cancer diagnosis. Comparing the options weighs a longer life against negative side effects. [05:45] In spite of this, most patients decide which course to choose at the very first meeting when they are given the diagnosis. The option they choose also depends strongly on the type of doctor they see. [06:44] My five steps for a choice architect to make the mapping as clear as possible: 1) encourage thoughtful review and open-mindedness, 2) break it down, 3) make it relatable, 4) help them get there, and 5) call to action. [07:25] With big decisions it's important to understand your biases. [08:21] It's important for doctors as the choice architects to understand the way they are framing the options. [09:29] Our brains put more weight on the default or what we hear about first. [10:02] The best choice architect should know that a person shouldn't make a decision when they are highly emotional. [11:06] Breaking it down. If you want to make a map, it's important understand all of the options available. [12:41] That way you can anticipate the questions a potential customer (or patient or client) will have, the things they need to know, and guide them to the right recommendation. [13:11] Make it relatable using simple rules of thumb. [13:56] Use the customer's language and an example that they can relate back to. [15:16] Find the thing that customers care the most about. [15:50] The way you build your choice architecture is to think about how your customers will determine what to buy. What is the primary reason they are buying? [16:06] What do your customers need to know or hear, and what rule of thumb will make the choice simple and easy to make? [16:51] Once you know what your customers need, they still may require a little sample to get there. Incorporating the senses can help them make a decision. [17:44] Your call-to-action is the final step - it is important because it helps the chooser realize it is an appropriate time to stop analyzing and consider making a choice. [18:41] It's also important to prime all throughout the interaction. [19:15] To encourage thoughtful review, an air conditioning company should know that the customer has other options. [20:11] Frame the cost in a relatable way. [21:49] Relating their mindset to the right point is your “taste test” when they can’t have a physical sample. [22:23] Ask for the sale...and then stop and wait. [23:52] If you use a script, understand the intent behind the script and know the content by heart in order to have a true conversation. [24:12] Price is never about price. It's about all of the things leading up to the price. [25:42] Here are some basic mapping examples (because the final installment of the series – the “S” in nudges – is for structuring complex choices). [26:29] Using a menu to break options down into manageable chunks. Well worded descriptions help you evaluate if the item is something that you would like. [28:10] One well chosen word can make your brain want to read the description. [30:00] Our subconscious brain can take in a lot of information and glosses over a lot of things. [31:03] These menu descriptions include some taste words as well as relativity, anchoring and adjustment, and framing. [31:55] A nail salon example. [33:47] Adding more may seem like a benefit, but when it doesn’t have a useful map so the chooser can compare, adding more options can cause a lot more harm than good. [34:47] When creating a product website, consider what you present from the mind of the customer (think back to the menu example). [36:30] With a service website keep in mind the concept of incentives. [38:00] How our brain sees miles per gallon wrong, and why gallons per mile is better (yes, they are different). [39:54] How can you put numbers out there that are easier for people to understand and see the value? [40:05] Thaler and Sunstein recommend a system called “RECAP” which stands for Record, Evaluate, Compare Alternative Prices. [41:24] What if movies did not have trailers or descriptions? Trailers help you map the available movies and decide what you want to see. [42:45] Commercials take advantage of mirror neurons in the customer’s brain by showing someone else using the product, tasting it, picking it out from a menu or off a shelf. [44:54] The visual is best for the subconscious. [45:09] Any type of company – whether you sell physical products or a service – can use a guarantee of some kind. [45:58] Simple Tip You Can Use Immediately: use a call out or title like “Most popular” or “top choice” or “best value” – know, of course, that you are responsible in your business to ensure that it true. [46:45] Remember, the intent of a nudge is to help people make the best decision, but they must maintain free choice. Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Nudge: Improving Decisions About Health, Wealth, and Happiness Episode 35. Behavioral Economics Foundations: Nudges and Choice Architecture Episode 36. Behavioral Economics Foundations: The N in NUDGES – iNcentives Choice Architecture Episode 32. The Overwhelmed Brain and Its Impact on Decision Making Episode 19. Behavioral Economics Foundations: Herding Episode 9. Behavioral Economics Foundations: Loss Aversion Episode 16. Behavioral Economics Foundations: Framing Episode 24. Behavioral Economics Foundations: Sense of Sight Episode 25. Behavioral Economics Foundations: The Sense of Smell Episode 26. Behavioral Economics Foundations: The Sense of Taste Episode 27. Behavioral Economics Foundations: The Sense of Hearing and Sound Episode 28. Behavioral Economics Foundations: The Sense of Touch Episode 18. Behavioral Economics Foundations: Priming Nikki Rausch of Sales Maven Episode 5. The Truth About Pricing Ruth’s Chris Dinner Menu Episode 12. Behavioral Economics Foundations: Relativity Episode 11. Behavioral Economics Foundations: Anchoring and Adjustment Episode 2. The Top 5 Wording Mistakes Businesses Make Nudges Episode 31. Mirror Neurons 1995 Breyer's Ice Cream Commercial

The word NUDGES is an acronym for the categories of nudging, and we are breaking those down episode by episode over the next six weeks to showcase different aspects of choice architecture and nudging. Today, we are starting with the N of nudges…which is for innnnnnncentives. This episode will explain what iNcentives mean when it comes to nudges, I will reference some excerpts from Nudge by Richard Thaler and Cass Sunstein, as well as some of their research papers. The goal of this behavioral economics podcast will be to help you think about how to offer incentives and nudge your clients to look at things differently while using nudges in your business.   CLICK HERE FOR YOUR FREE DOWNLOAD! Show Notes [03:21] You are a choice architect if you present options to people and indirectly influence their choices – this is everything from where you place food in the line in the cafeteria to an opt in form on a website to doctors presenting treatment options. [04:23] A nudge is something that helps someone make a choice. This is everything from the order things are on a list of choices to the wording used to them, and yes, incentives. [04:51] Supply and demand fluctuate in predictable ways and are like two opposing forces in an intricate dance. [05:12] Proper incentives can help to encourage sales when you understand how they work. [05:14] The tricky thing about incentives is that they are never one sided and our lazy brains don’t tend to think about all the proper aspects of the choice presented. [05:51] Good choice architects understand how to structure the nudges and architecture to do what is best for their business. [06:02] Ask these questions to figure out what all the incentives are and how they work together: Who uses? Who chooses?  Who pays? Who profits? [07:17] I am going to use the example of air conditioning as a constant throughout the series. [08:36] My husband and I bought a house that didn't have air conditioning installed. The builder gave us the option of adding air conditioning whenever we wanted. We decided to test out a Seattle summer and see if it was really needed. [09:08] After one super hot summer, we decided to get the air conditioning. [09:19] We had someone come to the house and do the evaluation for air conditioning. I learned the standard formula based on the square footage of the house, the number of vents, etc. [09:52] You think the choice is, “Do you want air conditioning or not?” Yes or no. Of course…it’s not really that simple, which is why this air conditioning example will be featured throughout the series. [10:28] For the air conditioning example, the person who uses is me/my husband. [10:57] Who chooses is my husband and I, but the choice is much more complex than meets the eye... [11:31] When cooling our home, we actually have many options such as using fans, staying in hotels, or filling our bathtubs with ice. There are also multiple companies to choose from once we decide we want air conditioning. [12:16] Who pays is my husband and I (note, payment is not always monetary). [12:45] The company that sells the air conditioning units (and their employee making the sale) are the ones who profit (as well as their manufacturers). There are different levels of profit. [13:57] I know there is markup on the items and I am paying for the convenience of not having to invent and build air conditioning. [14:42] What happens when there are conflicting incentives? [15:57] After we agreed to purchase the air conditioning, we were asked if we wanted a wifi enabled unit. [16:31] Wifi enabled allows you to adjust the temperature using your phone. [17:42] When finding this out my main question was, “Why would anyone NOT want this?” [17:55] It's also the same price as the unit without wifi. This got me thinking about what I would advise this company if they were a client of mine. [18:07] Why is it the same cost to the consumer? And why wasn’t that choice communicated better? Where was the nudge? [19:32] Do I want my choice made by a guy who was influenced by his commission? (NO) [19:44] This happens all the time because of conflicting incentives. [19:53] The advice I would give this company is to align the incentives to find the win-win-win scenario. [21:13] If it was necessary to increase the price for the wifi enabled model, it should be the default option (the price you start with) and then let the person take away wifi if they don’t want it. This is your choice architecture. [21:37] Now the question becomes, “Do you want the wifi enabled unit or not?” versus “Do you want AC or not?” This simple nudge and shift in the architecture completely changes the question in the mind of the consumer (for a way that is favorable for the business). [22:18] Sometimes as a company, you need to take a step back to understand what is worth paying for. [24:18] Salience, or saying something is salient, is the way an item “stands out” from other items. [24:44] The consequences of a choice are salient means that the chooser is aware of the consequences of each choice. [25:06] It's important to always ask and try to understand if the person making the choice is aware of all the incentives, consequences, and dynamics of that choice. [27:08] How can you make the choice and its repercussions more salient for the chooser? [30:07] It's an easier choice to make when things are broken down in a way that your brain can understand. [30:30] Being in sales is being a full-time choice architect. [30:41] Understanding all the incentives involved and how they interact with each other can help ensure the choice that is best for everyone gets nudged. [31:12] An example of incentives and salience when buying a car. [33:43] The way a choice feels can impact the choice a human makes. [34:43] Think about what you want to bring your customers attention to. Examples for gyms, soda, television and more. [40:28] Surge pricing and energy usage. This may teach people to use less energy, but it's not as salient as it could be. [42:58] US Healthcare example. The way the information is presented affects the choice, and it may be too complex for anyone to choose correctly (stay tuned for this to come up again in our episode on structuring complex choices - the S in nudges). [46:42] Think about your own business and what you are selling to your customers – whether it is a product or a service. What do they need to know and have salient to make a good choice? Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. Links and Resources: Episode 35. Behavioral Economics Foundations: Nudges and Choice Architecture Nudge: Improving Decisions About Health, Wealth, and Happiness Choice Architecture Episode 9. Behavioral Economics Foundations: Loss Aversion Episode 14. Behavioral Economics Foundations: Scarcity What is Capitalism? Episode 12. Behavioral Economics Foundations: Relativity Episode 11. Behavioral Economics Foundations: Anchoring and Adjustment Episode 5. The Truth About Pricing Episode 17. Unlocking the Power of Numbers Episode 32. The Overwhelmed Brain and Its Impact on Decision Making Episode 8. What is Value? Episode 16. Behavioral Economics Foundations: Framing The Brainy Business on Facebook