A Lawyer, an Economist, a Marketer, and a Behavioral Scientist Go into a Bar…

lastmile_main2Photo: vonderauvisuals

No matter who you are, whether you are selling soap or shampoo, whether you are a government looking after the welfare of citizens, or an agency promoting financial well-being and better health, or an institution that is responsible for collecting taxes, you are in the business of changing people’s behavior.

Now imagine that one of your stakeholders is a person who has chosen Option A, but you want to get them to choose Option B. A and B could be anything—products, services, or behaviors. What are the different tools or approaches that are available to us as we encourage or think about how to get people to switch from A to B?

There are a number of reasons why we might want people to choose B instead of A. Perhaps it is in our interest for the other person to choose B—perhaps B is the product we sell. Or perhaps we can recognize that B is a better choice than A, but the decision maker has failed to see that. Perhaps B is something that the consumer knows she wants to do but just can’t get down to doing. B could be a situation where people wish they could set more money aside in their bank accounts rather than going to a coffee shop every day, but they simply aren’t able to do that.

This sounds like a perfect opportunity to bring in one of these lawyer and economist jokes where they all go to a bar. While they’re in the bar, the bartender poses the following simple problem—the exact same problem that we talked about. The bartender says, “There was this guy in the bar a little while ago. He asked me a simple question: ‘If I want to get people to move from Option A to Option B, how can I do that?’”

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The lawyer says, “That’s very easy. The answer to that question is simply to ban Option A. You make it illegal to choose Option A. If you do that, then people will choose Option B, assuming there is nothing else to choose.”

It turns out that the lawyer is right. Banning or placing a restriction or introducing some legislation that forces compliance is a very handy strategy for changing behavior. If you were a marketer, you could place a restriction simply by making Option A unavailable. We see this happening a lot in the marketplace. When a new version of an electronic gadget is introduced, the older version is taken off the market and people now have to buy the new version. Likewise, in the world of public welfare and governments, there was recently much debate about then Mayor Michael Bloomberg’s ban on large-sized soda drinks in New York. This action would be an example of the first kind of behavior-change strategy, the idea of bans and restrictions.

Next, it is the turn of the economist to try and solve the puzzle. The economist says, “No, we don’t need to ban anything. Instead, why don’t we simply use incentives, i.e., the carrot-and-the-stick strategy?”

The carrot-and-the-stick strategy is simple. It basically argues that if you want to get people to move from A to B, you either impose some kind of economic tax on choosing A, making it expensive to choose A, or give people some kind of economic benefit for choosing B, making it economically attractive to choose B. In the world of consumer marketing, you could provide a carrot by simply offering a discount or a buy-one-get-one-free offer or some kind of promotion where people earn loyalty points and are essentially rewarded economically for choosing Option B. Or in the field of public welfare, think about a government that is trying to get farmers to adopt the latest technology or use a high-yielding variety of a particular crop. To make Option B attractive they might offer some sort of subsidy or impose a higher tax on the behavior that they are looking to avoid. A carbon tax—a tax imposed on certain products that leave large carbon footprints—is another example of an economic approach to promoting behavior change.

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The third person to answer the question is the marketer. The marketer says, “Let’s not think about banning. Let’s not think about offering economic restrictions. People are probably not choosing Option B either because they don’t know about Option B, they don’t understand why it is a superior option, or they simply need to be persuaded in order to choose Option B.” The marketer’s approach to behavior change would be one of advertising. It would be one of providing more information. Disclosures act in this particular manner. The rationale behind disclosures is very simple. The rationale is that if you provide people with more of the information they need to make better choices, they will make better choices. The whole advertising industry works on the premise that if you provide people with the right information and a good, compelling reason to purchase Option B, they will in fact do so.

Finally, it is the turn of the behavioral scientist. The behavioral scientist says, “We don’t need to do any of the above. Instead, what we should do is simply make it easy for the person to choose Option B rather than Option A.”

“We create a world in which Option B is the easy choice. There is some sort of effort, some sort of cognitive load, involved with choosing Option A. That is the right way of getting people to choose Option B instead of Option A.”

What the lawyer, the economist, the marketer, and the behavioral scientist have proposed are essentially four ways to think about behavior change: the restriction approach, the incentive approach, the persuasion approach, and the nudge (or choice architecture) approach.

What exactly is a nudge? Here is a formal definition of a nudge from the authors of the book Nudge.

“A nudge is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options, or significantly changing their economic consequences. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting food at eye level to attract attention, and hence to increase the likelihood of getting chosen, counts as a nudge. The banning of junk food does not.”

Now while I make the distinction between these four different strategies for behavior change, we need to keep in mind that this is just a helpful taxonomy to get us to think about different approaches to tackling the problem. It is important not to get fixated on deciding whether an intervention is purely a nudge or purely an economic incentive.

Let us think about this in the context of an example that was mentioned in Nudge and also in A Practitioner’s Guide to Nudging. Think about two cafeterias that want to help students consume less junk food. One of them decides to attack the problem by imposing a tax on junk food, so they just increase the price of junk food. Or, as an alternative, they consider banning the sale of junk food altogether.

The other cafeteria decides to change the way in which food is displayed so that junk foods will be less likely to be chosen. Specifically, they place the fruits and vegetable snacks at eye level right at the front of the shelves, so it is easy for customers to reach out and pick those snacks. Junk foods, on the other hand, are placed on higher, harder- to-reach shelves, so that it is not very easy to pick them. Both cafeterias are trying to reduce the consumption of junk food, but as the example shows, they are using very different methods.

The first cafeteria is trying to influence behavior using the incentives option, or by imposing restrictions, which of course will eliminate freedom of choice completely. The second cafeteria does neither of these, but uses a nudging strategy.

In thinking about the four strategies for changing behavior, the most important question is: What is the right kind of strategy to use in which situation? I would argue that although there are no correct answers, there are three or four criteria that we need to think about to help us decide which type of strategy to use.

The first criterion is whether enforcement is feasible and cost-effective. This is particularly relevant when we are using regulations and restrictions, as well as incentives, as our tools to change behavior. When we use these particular strategies, we need to think through whether monitoring and enforcement are actually possible. Is it easy to monitor who engages in a particular behavior? Is it easy to then sanction people and punish them appropriately, or reward them with the right incentives? If the cost of monitoring behavior is very high, then these strategies are perhaps not very cost-effective.

lastmile_quote2bA second criterion is whether freedom of choice is an important consideration. As we mentioned earlier, one possible option for businesses to engineer behavioral change is to eliminate Option A and make Option B the only choice in the marketplace. Although this might be seen as acceptable from a business point of view (and note that recently we’ve seen examples from companies such as Facebook and Apple where consumers have actually rebelled against such a strategy), it is clearly not very appropriate if we are thinking about behavior change in the social welfare domain.

For example, if Option B enhances an individual’s standard of living, or if Option A leads to serious consequences for society or the individual, the policymaker should also consider whether eliminating choices results in a negative response from the community or from government.

A third criterion is the possible response from the marketplace. Policymakers working in domains such as financial services and consumer protection should consider how businesses will respond to their policies. For example, requiring them to ban certain products or requiring them to withdraw certain products from the marketplace might leave the door open for businesses to introduce new products. Likewise, providing an incentive for the choice of Option B could lead the business to provide a more attractive incentive for choosing Option A. That is why it is important to keep in mind that any lever that is pressed into service might result in a response from the marketplace.

Finally, a fourth criterion is the potential outcome of the intervention above and beyond the short-term goal. While any intervention is designed with particular attention to the immediate consequences of the intervention, it’s also important for policymakers to think about secondary and longer-term effects.

One example of a secondary effect that might not be desirable is from the so-called research on the licensing effect. The licensing effect shows that when people engage in one good behavior, they are likely to follow it up with a bad behavior. For example, research shows that people who conserve water tend to use more electricity. Likewise, people who use paper towels that are ostensibly made from recycled materials are more likely to consume a larger number of paper towels.

These are both situations in which a good action—conservation—results in a negative downstream outcome—increased usage. Clearly, policymakers need to think through the longer-term consequences of any intervention.

It is important to keep all of these factors in mind as you develop effective strategies for behavior change. The table below provides guidance for thinking through when specific policy tools are useful and when choice architecture or nudging can be used to complement or enhance a particular strategy.

TOOLS FOR BEHAVIOR CHANGE

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Adapted from The Last Mile: Creating Social and Economic Value from Behavioral Insights, published in North America by Rotman—University of Toronto Press . Copyright © 2015 Dilip Soman, all rights reserved. Reprinted with permission.

dilip_somanDilip Soman is a professor and the Corus Chair in Communications Strategy at the Rotman School of Management at the University of Toronto. A behavioral scientist with a PhD from the University of Chicago Graduate School of Business, he is director of the University of Toronto’s India Innovation Institute and the coordinator of the Behavioral Economics in Action research cluster.

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