Over 400,000 people visited Farnam Street last month to learn how to make better decisions, create new ideas, and avoid stupid errors. With more than 100,000 subscribers to our popular weekly digest, we've become an online intellectual hub. To learn more about we what do, start here.

Choosing your Choice Architect(ure)

“Nothing will ever be attempted
if all possible objections must first be overcome.”

— Samuel Johnson

***

In the book Nudge by Richard Thaler and Cass Sunstein they coin the terms ‘Choice Architecture’ and ‘Choice Architect’. For them, if you have an ability to influence the choices other people make, you are a choice architect.

Considering the number of interactions we have everyday, it would be quite easy to argue that we are all Choice Architects at some point. But this also makes the inverse true; we are also wandering around someone else’s Choice Architecture.

Let’s take a look at a few of the principles of good choice architecture, so we can get a better idea of when someone is trying to nudge us.

This information can then be used/weighed when making decisions.  

Defaults

Thaler and Sunstein start with a discussion on “defaults” that are commonly offered to us:

For reasons we have discussed, many people will take whatever option requires the least effort, or the path of least resistance. Recall the discussion of inertia, status quo bias, and the ‘yeah, whatever’ heuristic. All these forces imply that if, for a given choice, there is a default option — an option that will obtain if the chooser does nothing — then we can expect a large number of people to end up with that option, whether or not it is good for them. And as we have also stressed, these behavioral tendencies toward doing nothing will be reinforced if the default option comes with some implicit or explicit suggestion that it represents the normal or even the recommended course of action.

When making decisions people will often take the option that requires the least effort or the path of least resistance. This makes sense: It’s not just a matter of laziness, we also only have so many hours in a day. Unless you feel particularly strongly about it, if putting little to no effort towards something leads you forward (or at least doesn’t noticeably kick you backwards) this is what you are likely to do. Loss aversion plays a role as well. If we feel like the consequences of making a poor choice are high, we will simply decide to do nothing. 

Inertia is another reason: If the ship is currently sailing forward, it can often take a lot of time and effort just to slightly change course.

You have likely seen many examples of inertia at play in your work environment and this isn’t necessarily a bad thing.

Sometimes we need that ship to just steadily move forward. The important bit is to realize when this is factoring into your decisions, or more specifically, when this knowledge is being used to nudge you into making specific choices.

Let’s think about some of your monthly recurring bills. While you might not be reading that magazine or going to the gym, you’re still paying for the ability to use that good or service. If you weren’t being auto-renewed monthly, what is the chance that you would put the effort into renewing that subscription or membership? Much lower, right? Publishers and gym owners know this, and they know you don’t want to go through the hassle of cancelling either, so they make that difficult, too. (They understand well our tendency to want to travel the path of least resistance and avoid conflict.)

This is also where they will imply that the default option is the recommended course of action. It sounds like this:

“We’re sorry to hear you no longer want the magazine Mr. Smith. You know, more than half of the fortune 500 companies have a monthly subscription to magazine X, but we understand if it’s not something you’d like to do at the moment.”

or

“Mr. Smith we are sorry to hear that you want to cancel your membership at GymX. We understand if you can’t make your health a priority at this point but we’d love to see you back sometime soon. We see this all the time, these days everyone is so busy. But I’m happy to say we are noticing a shift where people are starting to make time for themselves, especially in your demographic…”

(Just cancel them. You’ll feel better. We promise.)

The Structure of Complex Choices

We live in a world of reviews. Product reviews, corporate reviews, movie reviews… When was the last time you bought a phone or a car before checking the reviews? When was the last time that you hired an employee without checking out their references? 

Thaler and Sunstein call this Collaborative Filtering and explain it as follows:

You use the judgements of other people who share your tastes to filter through the vast number of books or movies available in order to increase the likelihood of picking one you like. Collaborative filtering is an effort to solve a problem of choice architecture. If you know what people like you tend to like, you might well be comfortable in selecting products you don’t know, because people like you tend to like them. For many of us, collaborative filtering is making difficult choices easier.

While collaborative filtering does a great job of making difficult choices easier we have to remember that companies also know that you will use this tool and will try to manipulate it. We just have to look at the information critically, compare multiple sources and take some time to review the reviewers.

These techniques can be useful for decisions of a certain scale and complexity: when the alternatives are understood and in small enough numbers. However, once we reach a certain size we require additional tools to make the right decision.

One strategy to use is what Amos Tversky (1972) called ‘elimination by aspects.’ Someone using this strategy first decides what aspect is most important (say, commuting distance), establishes a cutoff level (say, no more than a thirty-minute commute), then eliminates all the alternatives that do not come up to this standard. The process is repeated, attribute by attribute (no more than $1,500 per month; at least two bedrooms; dogs permitted), until either a choice is made or the set is narrowed down enough to switch over to a compensatory evaluation of the ‘finalists.’”

This is a very useful tool if you have a good idea of which attributes are of most value to you.

When using these techniques, we have to be mindful of the fact that the companies trying to sell us goods have spent a lot of time and money figuring out what attributes are important to you as well.

For example, if you were to shop for an SUV you would notice that there are a specific number of variables they all seem to have in common now (engine options, towing options, seating options, storage options). They are trying to nudge you not to eliminate them from your list. This forces you to do the tertiary research or better yet, this forces you to walk into dealerships where they will try to inflate the importance of those attributes (which they do best).

They also try to call things new names as a means to differentiate themselves and get onto your list. What do you mean our competitors don’t have FLEXfuel?

Incentives

Incentives are so ubiquitous in our lives that it’s very easy to overlook them. Unfortunately, this can influence us to make poor decisions.

Thaler and Sunstein believe this is tied into how salient the incentive is.

The most important modification that must be made to a standard analysis of incentives is salience. Do the choosers actually notice the incentives they face? In free markets, the answer is usually yes, but in important cases the answer is no.

Consider the example of members of an urban family deciding whether to buy a car. Suppose their choices are to take taxis and public transportation or to spend ten thousand dollars to buy a used car, which they can park on the street in front of their home. The only salient costs of owning this car will be the weekly stops at the gas station, occasional repair bills, and a yearly insurance bill. The opportunity cost of the ten thousand dollars is likely to be neglected. (In other words, once they purchase the car, they tend to forget about the ten thousand dollars and stop treating it as money that could have been spent on something else.) In contrast, every time the family uses a taxi the cost will be in their face, with the meter clicking every few blocks. So behavioral analysis of the incentives of car ownership will predict that people will underweight the opportunity costs of car ownership, and possibly other less salient aspects such as depreciation, and may overweight the very salient costs of using a taxi.

The problems here are relatable and easily solved: If the family above had written down all the numbers related to either taxi, public transportation, or car ownership, it would have been a lot more difficult for them to undervalue the salient aspects of any of their choices. (At least if the highest value attribute is cost).

***

This isn’t an exhaustive list of all the daily nudges we face but it’s a good start and some important, translatable, themes emerge.

  • Realize when you are wandering around someone’s choice architecture.
  • Do your homework
  • Develop strategies to help you make decisions when you are being nudged.

 

Still Interested? Buy, and most importantly read, the whole book. Also, check out our other post on some of the Biases and Blunders covered in Nudge.