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As a designer, I’m interested in bringing concepts and learnings from a wide range of disciplines into the world of design to help create better solutions. One field that has had a massive influence on my design approach has been behavioural economics.
I’ve been fascinated with it ever since picking up a copy of Dan Ariely’s book Predictably Irrational at an airport many years ago. Having previously studied traditional economics with its assumptions of rationality, behavioural economics was a breath of fresh air with its premise that people are in fact irrational creatures.
What appeals to me most about behavioural economics is the way in which it explains people’s motivations and how they act on those motivations. As designers, we can make use of these insights to design more effective solutions.
Behavioural economics principles
Researchers have conducted many fascinating experiments to try to understand and predict people’s irrational behaviour, and have drawn up principles to help make sense of it.
Each principle describes at a high level how the majority of people will behave under specific circumstances. Behavioural economics principles are like universal research insights that describe the underlying forces that are driving your users’ decisions, even though they aren’t always consciously aware of it.
The key idea behind the field of behavioural economics is the fact that even though people don’t behave rationally when it comes to making decisions, it is possible to predict their decision-making behaviour. In other words, people are predictably irrational — hence the title of Ariely’s book.
Let’s take a look at eight of the most interesting behavioural economics principles that designers can make use of.
1. People think in relative terms
Daniel Kahneman and Amos Tversky[1] showed that people would spend 15 minutes walking to save $7.00 on a $25.00 pen, but wouldn’t take the same 15-minute trip to save $7.00 on a $455.00 suit. The amount saved and time involved are the same, but people make different choices. If people were rational, the price of the item wouldn’t matter to them, only that $7.00 could be saved with a 15-minute walk.
As designers, we shouldn’t assume that users will behave in a rational way when it comes to our solutions. Instead we should try to understand the particular type of irrational behaviour that may occur in the context of our solutions, and design accordingly.
2. The first fact or figure a person sees will bias their decisions
Participants in an experiment were asked whether they would pay a given price for a specific item. Then they were asked to make their own bids on the same item.[2]
The experiment found that the participants’ own bids were heavily influenced by the price they were first asked about: people made higher bids when they were asked about higher initial prices. This is called the Anchoring Effect. The first fact, number, or figure a person hears will bias their judgements and decisions down the line.
For example, for people who have never used an image-editing program, a default gamma value of 2.2 creates an understanding of the normal, most used value, and allows them to adjust that value in the direction that they want, according to the effect they seek.
Anchoring means that we need to be very deliberate about the first fact or figure we put in front of users, considering how they might rely on it to anchor subsequent decisions. As designers, we can make use of this principle by offering the user good defaults and suggested values.
3. The power of free
Dan Ariely and his team at Duke University[3] wanted to find out if it was possible to discount two items by the same amount of money and in the process reverse people’s preferences for the items. It turns out there is a way to do it.
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They took Lindt’s Lindor Chocolate Truffles and Hershey’s Kisses and put them on sale for 15 cents and 1 cent respectively. Both of these prices are much lower than would be paid in a shop. The participants overwhelmingly preferred the Lindor Truffles, with the discount and perceived quality of the product driving their choices.
Then the researchers dropped the price of both by a single cent.
The Lindor Truffles were now 14 cents and the Kisses were now free. This changed people’s approach and the preferences immediately reversed, despite the fact that nothing had really changed. The Truffles were still 14 cents more than the Kisses, and the levels of enjoyment at eating them were the same. What had changed is that the Kisses were now free.
People love free stuff. It’s why when you go to a supermarket the offers are ‘Buy 1 get 1 free’ and not ‘Buy 2 and get 50% off’ even though they’re the same thing.
The power of free can be used in our design solutions to drive commitment in decision making.
4. Defaults are cognitive shortcuts
People tend to choose the easiest option to avoid having to make complex decisions. Defaults provide a cognitive shortcut and signal what people are supposed to do. It’s easier and more comfortable to stick to what we already know.
As designers, this makes the selection of default options one of the most important choices we can make. When setting user defaults, we provide a cognitive shortcut that signals what people are supposed to do.
Research by Eric Johnson and Daniel Goldstein[4] looked at how European countries have experimented with organ donation default options. The nations where everyone is listed as an organ donor by default have donation rates that are twice as high as nations that require their citizens to opt-in to organ donation. People generally choose to stick with the default, no matter what it is. This leads to organ donation rates that are either incredibly high or incredibly low, depending on the default.
Image by the author based on Eric Johnson and Daniel Goldstein[4]
Defaults are one of the most powerful tools we have at our disposal, so we need to be very thoughtful about what options we pre-select for our users.
5. The answer depends on how the question is framed
We respond differently to a question if it’s worded differently. People make different choices depending on what the default answer is, or whether the description emphasises what one can gain or what one can lose. This is the effect of framing.
This concept is particularly important when it comes to design research. If we frame our questions incorrectly, we risk getting inaccurate and unreliable data.
If we ask the same question in a different way, we may get a different answer. If we were to ask a study participant, “How much do you like product X?” rather than, “How do you feel about product X?” we are bound to get two different responses.
So, the next time you are analysing a problem or question take a step back and ask yourself, “If the question was asked differently, would I get a different answer?” Will the question give you the answer you want — a balanced and unbiased response, or, will it give you skewed results? With the right framing your increased confidence in your findings will reflect in the final result.
6. People can be deterred from taking action by seemingly small barriers
Friction costs are the little speed bumps that people hit when engaging with a service. Is it easier to pay with cash or credit? What’s more convenient to reach for, the healthy food or the junk food? Is it easier for the user to get where they want to go, or just quit the process entirely? These are the types of questions we can ask when deciding where we want to nudge users.
Source: Amazon
Amazon’s ‘1-click to buy’ feature is an example of reducing friction costs to the extreme. Amazon was able to get a huge competitive advantage in sales conversion by reducing a purchase down to a single action.
As designers, we should direct users or help them complete a task by removing small barriers or, conversely, adding small barriers to hinder undesirable behaviour.
7. Too much choice leads to decision paralysis
Traditional economic theory felt that the more choice presented to an individual, the happier they would be. In practice this turns out to be untrue. While people do like choices, there’s a point when there are just too many choices to be made. To examine this concept, researchers ran an experiment involving varieties of jam in a supermarket taste test.[5]
The experimenters set up a table where customers could taste, and then if they wanted to, purchase jam. One table was set up with 24 different varieties of jam, and a second had just 6 varieties.
It turns out that the table with the most choice was the most visited table — people tasted a lot of jam when they had 24 options to choose from. However, despite this, the people who visited the table with just 6 options to choose from actually bought ten times as much jam as those who visited the table with 24 options.
Image by the author based on S. Iyengar and M. Lepper[5]
So why did this happen? Well, human beings in general can only handle about seven pieces of information at any one time. The more data we have to process, the more occupied the brain becomes until eventually it stops trying to handle the data altogether.
People bought less jam from the table with 24 choices because they couldn’t hold all 24 choices in their minds when making a decision. So they ended up making no purchasing decision at all. Six varieties of jam, on the other hand, was easy enough to process and purchasing decisions were made much more frequently because of this.
The lesson for designers is that sometimes less really is more. Learning to manage the brain’s bandwidth can enable you to help users make easier decisions.
8. People avoid bad situations by pretending they don’t exist
People who are worried they have fallen off track don’t want to know how they’re doing.
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The Ostrich Effect became a prominent term in the finance world when Dan Galai and Orly Sade[6] defined it as “the avoidance of apparently risky financial situations by pretending they do not exist”. Galai and Sade used this principle to describe irrational investors who actively avoided receiving information on potential losses to their funds.
When it comes to design, this means that users who are worried they have fallen off the correct path tend to deny or dismiss their situation. When your user sees too many red flags or warning bells, they may ignore them all and push on rather than correcting course. When this happens, they’re not dealing with the problematic path they’re stumbling down and likely not moving towards the desired behaviour.
As designers, we can help users stay on track and avoid running off course. If they do, we can make course correction as easy as possible to accommodate them, knowing that they’re likely to slip into ostrich mode.
So there you have it — eight concepts from behavioural economics that we, as designers, can make use of to improve the quality of our solutions. Remember that the key idea is that, even though people don’t behave rationally when it comes to making decisions, it is possible to predict their decision-making behaviour. The more accurately we are able to predict their behaviour, the more likely we are to design solutions that have impact.
[1] “Choices, values, frames” 1984. Tversky, A., and Kahneman, D. American Psychologist 39(4), pp. 341–350.
[2] “Judgment under uncertainty: heuristics and biases” 1974. Tversky, A., and Kahneman, D. Science 185, pp. 1124–1131.
[3] “Zero as a Special Price: The True Value of Free Products” 2007. Shampanier, Kristina; Mazar, Nina; Ariely, Dan. Marketing Science Vol. 26 (6), November–December 2007, pp. 742–757.
[4] “Do Defaults Save Lives?” 2003. Johnson, Eric, and Goldstein, Daniel. 2003. Science 302 (5649), pp. 1338–1339.
[5] “When choice is demotivating: Can one desire too much of a good thing?” 2000. Iyengar, S. S., and Lepper, M. R. Journal of Personality and Social Psychology 79(6), pp. 995–1006.
[6] “The Ostrich Effect and the Relationship between Liquidity and the Yields of Financial Assets” 2006. Galai, Dan, and Sade, Orly. The Journal of Business 79(5), pp. 2741–2759.
