How do we make decisions? Are they simply quick, spontaneous thoughts that determine our course of action? Or are they an act of teamwork between our brains, our surroundings and the ‘nudges’ that guide us towards our choices?
Behavioral economics, studies the psychology behind economic decision making. This field of study was first introduced by Tversky and Khaneman (“Prospect Theory: An Analysis of Decision under Risk”. Econometrica; Mar 1979; Volume 47, Number 2) who identified through initial prospect theory and loss aversion principles that human beings are not always entirely rational. We have a much stronger reaction to losing something than gaining something of the same value.
What is a nudge?
The study of behavioral economics is fairly recent but these ‘nudges’ – a word popularised by American economist Richard Thaler – that influence our decision making, have been around us our whole lives. In stores, the attractive packaging and strategic location of the products we see strongly influence our decision to buy.
More recently, the notifications on our phones suggest all sorts of economic decisions from returning to items left in virtual shopping baskets to ordering pizza for dinner at the click of a button.
Not all nudges lead to economic choices however, one of Thaler’s preferred and possibly most entertaining examples is an experiment at Amsterdam’s Schiphol airport where decals of flies were stuck to the urinals in the men’s bathrooms. With their new ‘target’ in place, there was a reported 80% decrease in spillage and the consequent cleaning required.
On a more serious note, several countries have changed their organ donation policies to opt-out systems. Citizens are on the donors register by default instead of being forced to face the decision and actively put themselves on the register. Organ transplants have increased ten-fold in some places because people have been to face the issue and take a position on it.
Could behavioral economics keep us safe?
It’s clear that these nudges have a lot of power over what we buy but what if they could actually make our lives safer and our journeys more pleasant? This is the main point of interest for Cintra at the moment as they seek to understand motorway drivers’ decision making processes and the reasons behind them. As consumers and simply as humans, we often make decisions on ‘autopilot’ and in a matter of seconds in what is called “fast thinking”. But in most cases, as an energy-preservation measure we just skip making those decisions. Despite the myriad of options that may lie ahead of us, it can be easier to simply carry on as we are. Therefore if we make the safer option the default option, we could be seeing a real game changer in many situations.
For Cintra to truly understand drivers’ decisions, it will require multi-phase experiments that are based on behavioral economics. These are currently underway in some of our projects. Approaching motorway construction and interactions with the customer from a psychological viewpoint could be a solution to helping drivers to make decisions that lead to safer and ultimately more enjoyable driving experiences.
New technologies to our experiment human behaviors?
Thanks to the latest technologies, not all tests have to be conducted in real-life scenarios. Digital twins are identical, virtual representations of a product that allow an insight into the thought and decision making processes of the customer. This is something that for a long time has proved very useful to companies as they design and optimise their websites. They can create experiments where different ‘customers’ visit slightly different versions of their website and they can then track the decisions the customers make. What makes new customers visit the website? How do they navigate the page once they have arrived? Which aspects of the site direct the customer to the desired end point (usually a ‘buy now’ button) and on the contrary, which aspects can lead to a customer abandoning the site without a purchase? This is incredibly useful information for a company and the changes that are made based on the results of the experiment can lead to better and more successful business in the future. In the context of roadways, we can use these technologies to observe drivers’ reactions to all sorts of changes to their usual road experience. For example, we can see how they react to alternative design elements, different messages and signs, even how different colors can impact the drivers and therefore help in the design of better infrastructures.
Furthermore, advances in virtual reality have made these experiments much quicker and easier. By using VR headsets that simulate the experience of being on the road, there is no need to close roads and impact traffic for an experiment. We are in an incredibly exciting time of new and advancing technology that can be used to our advantage to help us create successful, enjoyable and safer experiences for our customers.