Last week, I had the opportunity to be in the same room as one of the people I admire the most. You may know by now that I call myself a behavioral economics enthusiast and am a big fan of Dan Ariely. When I heard that he was going to be in the same town as I, I had to book tickets to hear him speak. Even though I was disappointed that his talk didn’t cover anything new, there is something totally dizzying about being in the same room as someone you’ve wanted to meet for almost 10 years. It is a totally different story that I walked right by him and was terrified to stop to ask him for a photograph, to shake his hand or just say hello. Also worse was that despite having some insight into behavioral economics, I gave into impulse and bought his latest book knowing that it would hit the library within a week if not already. Yet, we are humans and are allowed our irrationality every now and then. Otherwise, he wouldn’t have much to study, would he?
I have Dan Ariely to thank for my fascination with behavioral economics. Had I not enrolled into a course hosted by Duke University & Ariely on Coursera back in 2014, I wouldn’t have encountered or loved behavioral economics as early in my career as I did. Even though I didn’t learn anything drastically new last week, it was a good reminder that I haven’t implemented my learning enough. For e.g. I have stayed quiet in many conversations where the benefits team have attempted to increase voluntary enrollment into the pension scheme by focusing on ‘literacy’ but not paid enough attention to eliminating friction.
Thus, I am going to use this space to recap the talk and layer my thinking with it.
Friction & Fuel
Dan began by analyzing the two elements that determine if we’ll act in our best interest; (1) friction – how hard is it to do and (2) fuel – what propels us. This is not a new concept. It is the same reason health experts recommend storing junk food in hard to reach places and keeping workout clothes ready and easily accessible when we wake up.
For deeper illustration of friction, let’s retell the story Dan shared about how Express Script, an US firm that delivers medication to the doorsteps, and how they transitioned customers from branded to generic medication. Express Script began by sending a letter to customers stating the benefits of switching to generic and the cost saving involved (`25$ per month). Less than 1% switched. Having come across Ariely’s work on ‘free’, they sent out a second letter offering customers a year’s worth of free medication if they switched from branded to generic. Yet, the number of switchers hovered around 10%. At this point, they rushed into Ariely’s office asking if customers really loved branded to the extent that they wouldn’t switch even if being offered medication for free. The question Ariely asked in return was – Was it the extra step of returning a letter that was dissuading people? Is this love for branded or friction at play?
The easiest way to test the theory would be to switch the default to generic and supply branded only when explicitly requested. Fortunately, law doesn’t allow switching someone’s medication. So Express Script sent an email out stating that they’d be forced to stop delivering medicines unless the letter received a response. While returning the letter, customers would need to indicate which medication they preferred. Guess the number of switchers this time?
80%!
We often underestimate the power of friction in preventing us from becoming the best versions of ourselves. It is the reason why vegetables rot in our fridge even though we know we should be consuming them and why we have subscriptions we should have cancelled, but haven’t. Think about it: what is the one thing that you should have done but haven’t done it because it needs extra effort? Let me know in the comments below.
But enough about friction, let’s switch to the story of fuel.
This time we’ll take a trip to a village in Kenya. This story is of an impoverished village that lives on daily wages and with little to no savings. On good days, they’d buy an extra egg and on bad days, they’d go hungry. This story is also about an experiment to encourage villagers to save so that when a rainy day came along, they could leverage savings vs fall victim to lenders and high interest rates. The team began by eliminating friction in saving (single click) and adding friction while withdrawing (going to the bank). Yet, while friction had been dealt with they needed fuel i.e. a reason why the villagers would choose to save vs eat better that day. Here are the options they tried.
Option 1: A text reminder sent everyday asking them to save
Option 2: A text reminder on behalf of their children asking them to save
Option 3: A match of 10% for the amount they saved
Option 4: A match of 20% for the amount they saved
Option 5: A pre-match of 10% that would disappear if they didn’t save an equivalent amount (loss aversion)
Option 6: A little coin that they’d scratch everyday indicating if they saved or didn’t (ceremony addition)
Take a minute to guess which one worked best and think about why you picked it?
It is important to preface the result by saying that cultural references are very important while influencing behavior. What works in one culture may not work in another. Therefore, experimenters closely study their control groups before launching experiments (this is also why global competence is increasingly a key skill for organizations that hope to grow and thrive globally). In this community and South Africa in general, death is the biggest occasion instead of weddings. People first invest in funeral insurance and then for their wedding day (They may have got this right as you only die once). The act of buying a week’s funeral insurance is celebrated by ceremoniously handing over the insurance certificate to their child. With that context, let’s look at the sequence of which options worked best.
In ascending order of effectiveness:
Option 1: A text message everyday asking them to save
Option 3: A match of 10% for the amount they saved & Option 4: A match of 20% for the amount they saved
Option 4: A match of 20% for the amount they saved & Option 2: A text message written as though it was sent from their children asking them to save
Option 6: A little coin that they’d scratch everyday indicating if they saved or didn’t
Every evening, the family would come together to mark (tangible outcome) whether they’d saved and derive satisfaction that while they may have foregone something today, they were saving for a better future. Think about all the intangible things you ought to be doing e.g. saving. How can you make it a little more tangible thus acting as fuel? It is easy to see how much people are spending via their cars, outfits, Instagram stories and posts. Yet, we don’t see how much our friends and neighbors are saving.
Temptation
Let’s shift topics and talk about death for a moment. It was a grim wake-up call that hit me hard. Ariely’s commentary on temptation began by stating a fact that didn’t surprise me: 100 years ago, approximately 10% of people died due to preventable causes i.e. causes that they could have prevented. E.g. a car crash because they were texting vs death by being hit by a drunk driver. This decade, the number of deaths due to preventable causes is averaging 43%. What happened? Did the human population suddenly become a lot dumber?
No, we didn’t. But we did surround ourselves with temptation and by creating an envelope of technology around us.
Do we live longer and more interesting lives because of technology? Yes.
Do we live a longer life due to temptations? No.
When we walk into a supermarket, unless we are extremely focused, the supermarket decides what we walk out with. The supermarket does not care about our long-term health. It cares about how much we spend. Everything from the lighting, to product display on aisles, the offers and the ease of purchase is designed to make us spend more and on products that aren’t necessarily the best for us. Similarly, Facebook doesn’t care about our mental well-being. It cares about how much time we spend on the platform. The friction to do what’s good for our long-term physical, mental and financial health is extremely high and the fuel low.
The bad news is that literacy doesn’t help. We all know driving and texting is dangerous. We know that we should be saving for retirement, eating better and exercising more. Literacy isn’t the problem.
The good news is that we know that literacy alone is ineffective. With that knowledge, we can supplement literacy with low friction tools to enable implementation.
Let’s go back to the pension problem. The fuel exists. Companies match individual contributions. It leads to tax benefits. It happens automatically once you sign up via payroll. Minimal effort required. The friction exists in the right place too. Pension money isn’t easily accessible until you really need it – at the time of retirement. Literacy is important too. It helps employees familiarize themselves with the positives and risks of putting away money for a pension fund. What’s missing?
Firstly, signing up for a pension needs action. If there’s one thing we’ve learned from our Express Script story, it is that everyone prefers inaction. While some countries allow organizations to auto enroll employees into pension, not all do. Instead, organizations could pause pay (like when Express Script held back medication) until employees explicitly make a choice. Secondly, once employees sign up, it all happens in the background. Employees get no satisfaction of knowing what their pot of retirement is looking like until they log into a portal that is hard to navigate. How about sending a congratulatory email every time they hit a $ landmark? Maybe every time pension savings hit a 50k landmark, we also send a 10-dollar voucher to spend. Wouldn’t that be wonderful?
All I need to do now is overcome my inertia and send this blog post to my benefits team.
The HR Business Partner Story 