Feb 22, 2019
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
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.
- [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
- [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
- [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
- [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
- [14:42] What happens when there are conflicting
- [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
- [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
- [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
- [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
- [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
- [33:43] The way a choice feels can impact the choice a human
- [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?
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