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Archive for August, 2012

Choice Architecture: Psychological ‘Judo’

Choice architecture is the organization of the context in which people make decisions. Because of recent  health care legislation, your health care choices are going to be largely influenced by choice architecture. Choice architecture is drawing interest from other sectors, too.

What is choice architecture?

Marketers are probably most familiar with one element of choice architecture: the order and placement of choices. We rotate the presentation of survey questions, for example, to neutralize the influences of order bias.

“Researchers tell us that if a candidate is listed first on the ballot, he may well get a 4% increase in votes,” say Thaler and Sunstein in “Designing Better Choices“.

But, the mere order or placement of choices is only one dimension of choice architecture. The actual construction of the choice options, including the content and number of options is a second dimension. A third is the environment in which choices are presented.

Choice architecture is an component of behavioral economics, popularized by recent bestselling books Nudge, Freakonomics and Predictably Irrational.

At Modern Healthcare.com, Rebecca Vesely writes, “Over the next five years, the government will put behavioral economics into practice on a large scale through the Patient Protection and Affordable Care Act. Starting in 2014, employers can offer workers rewards worth up to 30% to 50% of their cost of health coverage for participating in a wellness program and meeting health benchmarks.”

AFSCME is already seeing the benefits. Vesely reports, “Prior to 2007, [AFSCME] was seeing steady double-digit increases in medical claims. But since implementation in January 2007, paid claims have been flat, and are below 2006 levels…The union also is starting to see movement in risk factors such as smoking, weight loss and cholesterol.”

But, reducing choice architecture to “carrots and stick” is an oversimplification.

In Predictably Irrational, Dan Ariely, demonstrates more subtle, but equally powerful influences of choice architecture on our behavior. Ariely shows us an advertisement for The Economist Magazine that he found.

The ad offered three subscription options:

  • Electronic Only: $59
  • Print Only: $125
  • Electronic and Print: $125

Would more people choose the Electronic Only option or the Electronic and Print option?¬† Ariely conducted a test with 100 MIT students to see what they’d choose. 84 students chose the Electronic and Print option. 16 chose the Electronic Only option. None chose the Print Only option. Why would they?

The Print Only option seems irrelevant. But, it isn’t!

Here’s what happened when the seemingly irrelevant Print Only option was eliminated. Ariely offered another 100 students only two subscription options and asked them to choose:

  • Electronic Only: $59
  • Electronic and Print: $125

Now, only 32 students chose the Electronic and Print option. That’s 52 fewer students than when three options were presented. What happened?

The presence of an irrelevant option, a decoy, influenced twice as many students to choose the more expensive subscription.

Ariely describes the cause as “relativity”. We’re wired to compare the things that are most comparable. The choice between Print Only at $125 and Electronic and Print at $125 is a no brainer.

Behavioral economics is revealing that we choose and act in ways that are decidedly irrational. If you want to discuss choice architecture, please give me a call.

Jason M. Sherman is SVP of Cleveland-based, Whyze Group. Whyze Group provides customer- and user-experience innovation workshops to Global 2000 clients. The company has been recognized by the Baldrige National Quality Program, business associations and numerous business media as a leader in product innovation and management.

Email Jason here or call (440) 785-0547.

August 20th, 2012


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