A nudge at the margin and over the line
In business, we love certainty, big margins, and universal solutions, yet we sell to fickle, highly differentiated people each with their own budgetary restraints. There is an inherent tension between consumers and producers, but it falls on the hands of only the producers to ease this tension and find a way to acquire and maintain their customers––easier said than done. The unfortunate reality is that a good product isn’t enough. Business, it turns out, is much more complicated than our introductory economics textbook indicated. On top of the market and its products being far more complicated than “guns and butter,” people aren’t the highly knowledgeable and rational agents we were first taught that they are. As it turns out, people don’t always behave in the most predictable way, because when looking at products we take in far more information than just the quality and price of the product––our environment alters our thinking, decision making, and actions. It follows then, that a few clever adjustments to the surrounding environment can generate profit. Whether it’s coaxing restaurant goers to eat more by changing the color of the wall, or altering the productivity of your workers by switching their dress code, people’s behavior can be modulated in bizarre ways.
Behavioral scientists seek to understand how humans actually behave, if not rationally. People often like to think that, as members of the smartest species on the planet, our rationality alone is enough to make at least our own decisions, but that’s not the case. With both major and minor decisions, we’re highly susceptible to suggestion, some of which are straight forward while other suggestions go unseen, even if they remain potent. For example, changing the wall color of your restaurant can be used to increase profits. A bluer ambiance can goad people into sitting longer and ordering the extra dessert and drinks that come with that. Yet, red appears to increase our appetite. Which, paired with yellow’s attention grabbing properties, may explain why there’s so many fast food chains with identical color schemes (McDonalds, Burger King, Wendy’s, Pizza Hut, etc.). Subtle suggestion aside, simply altering the way a question is asked can reap drastic performance enhancement. One famed example is European organ donor registration. Split into two distinct groups, some countries manage a donor rates regularly above 99% while the other group is hardly able to reach a fifth of that success. The driving factor of this, rather than any sort of culture, geography, or religion is the way in which the question was asked. The question is posed either as “check this box to if you would like to be an organ donor,” or “check this box if you do not want to become an organ donor.” Remarkably, people rarely check the box, regardless of what it says, overwhelmingly resigning the fate of their organs to the form writer.
It seems like a cruel joke to be able to create masterpieces, conquer nature, build skyscrapers, and to still be so profoundly susceptible to irrational externalities as minor as phrasing, color, and default options. Our brain is tasked with processing immeasurable quantities of information simultaneously, consistently, and at blazing speeds. The only way our mind can keep up with our constant demands is to take shortcuts and act on what is probably true, to save time and energy calculating what certainly is. We have much more important things to worry about than whether or not we’re going to have a brownie 40 minutes from now or another glass of wine after the one in front of us, and I’m happy that—even if imperfectly—our brains know how to prioritize. However, this opens us up to our environment making potent suggestions on “lower priority” items, and these suggestions can be intentional and decision altering. By making behavioral suggestions of their own, businesses of all sorts can benefit through subtle yet targeted nudges on their customers, goading them to perform in a more favorable way. In the mean time, companies will continue to lose profit until they recognize the irrationality of treating their customers as anything but.