Choice Architectures
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Transcript of Choice Architectures
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Choice Architectures
Research and diagnostic seriesBob Suh, Founder and CEO
August 2014
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This presentation is derived from the theories developed by
Daniel Kahneman, AmosTversky, Richard Thaler and Cass Sunstein
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When conditions change, default decisions can be mistakes
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Avoiding the certainty of releasing bad data can result in fraud
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Confusion over product differentiation causes products to lose
A&W third pounder fails because consumers think it is smaller than quarter pounder
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Decisions can be “nudged” to improve outcomes
1.Automatic
2.Reflective
2+2=?
32x11=?
Whenever multiplying by 11, add first 2 numbers and
insert sum between themRepeat insight
Lean back when you fear falling
Learn to lean forwardBalance retained
32x11=352
Repeat insight
Nudges
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We are piloting a series of heuristic algorithms
Belief Observation Reaction
ABC stock will go up 200%
ABC stock rises 210% Sell ABC
ABC stock declines 20% Switch to XYZ
Buy more ABC
All shares
Some shares
• How convicted are you in your beliefs?
• How do your beliefs influence what you observe?
• How does what you observe change your beliefs?
• How does what you observe change your actions?
• How does your action or inaction change your observed performance?
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Risk aversion drives many of our decisions
Value
GainsLosses
Take a risk on possible loss
versus accepting a certain loss
Choose certain cash
versus higher expected
value
Reference point or value function can change
They can also change the perception of gains and losses: for example, gaining $10,000 from nothing is much more significant than gaining $110,000 from $100,000
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Typical prospect theory behaviors
Value
GainsLosses
Short-term profit taking in favor of long-term investments
Not accepting a sunk cost or actual loss in favor of a delayed probable loss
Risk averse
Risk seeking
Hypothetical value function curve
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Prospect Analysis: Value Function
Value
GainsLosses
Mobile Q: at what level would you sell to cut losses?
Mobile Q: at what level would you sell to capture gains?
Mobile Q: What is your target price for IBM?• Group 1• Group 2• Group 3
Threshold for selling to
capture gains
Threshold for selling to cut losses
Bottom quartile
Top quartile
Median value
Bottom quartile
Top quartile
Median value
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Richard Thaler’s Nudges
1. Incentives: putting the right incentives on the right people.
2. Understanding mappings: helping customers understand the right categories and steps.
3. Defaults: helping customers avoid the “path of least resistance.”
4. Give feedback: provide customers data on how they are doing.
5. Expect error: anticipate common errors and make the process or product error-tolerant.
6. Structure complex choices: making complex choices easier to make through understandable structures.
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