Mar 21, 2023
Today’s episode is all about iNcentives, specifically
as they pertain to the concept of NUDGES. This episode first aired
as part of a 7-part series I did on NUDGES back in 2019. Why seven
parts? Well, “NUDGES” is an acronym for the six types of nudges as
introduced by Thaler and Sunstein: iNcentives (which is a bit of a
fudge to make it work, but we all forgive them), Understand
Mapping, Defaults, Give Feedback, Expect Error and Structuring
Complex Choices. That original series included one episode on each,
plus an introductory episode into what nudges and choice
architecture are to kick things off - so there you have it: seven
This episode on incentives is being refreshed today to
help get your brain buzzing on the idea before the wonderful Dr.
Uri Gneezy is here on Friday to share about his new book (which
just came out today) called Mixed Signals: How Incentives Really
Work. It is all about what happens when we mix up our incentives so
things don’t work as intended, and what we can do to correct those
errors before they happen.
Digging in on nudging incentives as it pertains to
behavioral economics felt like the perfect way to get you ready and
in the right mindset for that episode coming out on Friday. (If you
haven’t already subscribed to the podcast, take a moment to do so
- [00:38] Today’s episode is all about iNcentives,
specifically as they pertain to the concept of NUDGES. This episode
first aired as part of a 7-part series I did on NUDGES back in
- [03:20] We are inundated with choices in our lives
and because our brains are lazy we don’t put in all the effort
required to make the best decision every time. Well structured
choice architecture can influence the way someone makes a decision
and the choice they make.
- [04:37] Proper incentives can help encourage sales
when you understand how they work.
- [05:11] Good choice architects understand how to
structure the nudges and architecture to do what is best for their
- [06:43] Melina’s example - air conditioning!
- [09:02] In general with air conditioning, it may feel
like there isn’t really a choice to be had. It looks pretty easy on
- [10:30] While air conditioning seems like a simple
choice there were actually a lot of variables to be
- [13:05] Consider who pays, who chooses, who uses, and
- [14:06] What happens when there are conflicting
incentives? That is where we can really run into
- [15:47] “Do you want the wi-fi enabled
- [19:11] Look at how you can align the incentives to
find the win-win-win scenario.
- [21:45] When all you look at is the cost it is easy
to base your pricing off of that – but that isn’t the best
- [23:52] Salience (or saying something is salient) is
the way an item stands out from other items.
- [25:19] Our human brains have a hard time
understanding value and cost over time.
- [27:03] Breaking down a large payment by year, month,
week, or even day can make it a choice easier (or harder!) to make.
- [29:43] Being in sales is basically being a full time
choice architect. It is the burden of a salesperson and company to
structure choices in a way that customers can quickly understand
the value and make a choice.
- [32:02] Paying for the car is removed from the
experience of you using and driving it.
- [34:00] Think about what you want to bring your
customers’ attention to (versus what would be a negative experience
if you brought their attention to it).
- [36:23] Points, foreign currency, and tokens are not
the same in our mind as “real” money.
- [38:04] It is important to consider the questions of
who uses, who choses, who pays, who profits.
- [40:44] Surge pricing may seem like a way to nudge
people into using less energy, but because this isn’t salient in
the moment it doesn’t do as much as it could. Here’s something else
that might work better…
- [41:55] The last example of competing incentives is
the US healthcare system.
- [44:20] Improvements can always be made.
- [46:30] Melina’s closing thoughts
- [46:35] I find incentives fascinating because there
are so many layers to them. It is so important to look at the
ripples of choices and incentives, all those little facets that may
not come to mind but can actually be really really important when
decisions are made.
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