Nudging behaviour

At Dura, we craft how people feel and behave to improve their well-being. We do this by including behavioural economics into our design process.

Using Behavioural Economics for better businesses

We recently talked at General Assembly in London about our approach to design solutions, some of the key theories of behavioural economics and Nudge Theory. We showed how we would improve an existing painful experience - Uber's Surge pricing. Below is a segment from our talk and highlights how businesses can easily improve their experiences by implementing design psychology.

How do we change the way people feel and react?

There are a few ways we can change how people feel, think and act when interacting with your business or digital product. At Dura, we approach behaviour change using the Nudge Theory, first introduced by the great Richard Thaler. There are documented successes of implementing the Nudge Theory, whether it is increasing organ donation in Denmark1 to increasing the energy efficiency of our homes2 and saving more for old age3. The one thing that these all have in common is that they steer people towards better decisions by presenting choice in a different way. This is the essence of the Nudge Theory, with nudges based on the principles of behavioural economics. 

[It] is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. 

Thaler & Sunstein (2008), Nudge: Improving Decisions about Health, Wealth & Happiness

Behavioural economics

Behavioural economics, in particular, explores how theories and models in economics (which are based on the assumption that humans are rational creatures) change when we take into account the impacts of cognitive biases and irrational behaviours. These are most interesting when used to reframe the way people approach problems. Below are three principles we will use in the Uber case study below.

1. People always choose ‘gain’ over ‘loss’

To encourage one behaviour or selection over another, emphasise its associated gains rather than its associated losses. Research has shown that losses are more painful than gains are pleasurable – and as a result, people exhibit loss aversion. They will go to great lengths to avoid losses.

2. Instant gratification feels good

Getting a small gain now is more rewarding than a larger gain in the future. A classic example is Amazon prime, where you would choose a less good deal to get next day delivery. You could wait a few days to get the item, but instead, want the immediate gain of receiving the item sooner so opt for the more expensive prime item.

3. Prospect theory

Prospect theory describes how we frame choices in terms of their loss and gain. People make decisions based on perceived gains instead of perceived losses, usually over a time period. People overall as loss averse, for example, people may avoid positive choices in the short term as they appear to have more loss in the long term. It’s due to the first point of information being used as referencing for the rest of the interaction.    

Importantly, how we introduce things to people can impact their interpretation of the losses and gains associated with their choice throughout their experience. How a business frames and communicates to its users is, therefore, key to their long-term success.    

In one study from 2016, students were presented with information about treatment for lung cancer. It was the same treatment plan, but the one was framed in how likely people are to survive, and the other in terms of their mortality rate. People were more likely to choose treatment when framed in terms of their survival rate than their mortality rate. The language sets the reference point for their overall decision making. The one starting with a gain, survival rate and the other a loss, mortality rate.4

Prospect theory
People make decisions based on perceived gains instead of perceived losses, usually over a time period.

These are usually the first type of information presented and are used as the reference point for further judgements.

Theory in context - Uber's surge

Uber’s surge pricing is a classic example of the pain and annoyance of having to pay more when you need it most.    

Whether it is at rush hour, when it’s raining, even getting home after the pubs close. I’m guessing most of us if not all of us have been hit by this at some point. And it hurts. For Uber, though it makes common sense. When demand is high and the system is saturated it has two aims;

  • it encourages more drivers to come into the high demand area
  • it discourages some people from using the service straight away. Instead, encouraging some riders that can wait to stay put for a while.


It's good for supply and demand. But bad for customer experience. The surge charge is one of the biggest sources of grievances for Uber's customer complaints team.

So, why does this annoy and hurt us? Behavioural economics has the answer, specifically the prospect theory, that losses and gains are assessed in terms of their initial reference point. When Uber presents Surge Pricing as a multiplier on top the standard fare, Uber is ensuring the consumer perceives Surge Pricing as a monetary loss.    

We get charged twice for the one service. Making us think, I’ve paid for my fare. Then paid again for the surge.

How do we design a different solution to increase people's wellbeing and ensure we feel happier about something like the Surge charge?

[It] is any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. 

Thaler & Sunstein (2008), Nudge: Improving Decisions about Health, Wealth & Happiness

Inverting the cost structure

If Uber had introduced the service as presenting the higher cost as standard, and give a discount at non-peak times. People will be more encouraged to use the service as they will be getting a ‘discount’ and not annoyed during peak as the fare will be perceived as standard. In most business cases this type of solution or input at the very start of the business isn't always possible.

It feels so much better to see that Uber has saved you 30% off the standard fare, than paying for the surge.

Uber saved you 30%

Changing how the information is communicated

In most cases, this is the most powerful way we can change the system without screwing with restructuring the business.

By tweaking the way that the surge is presented, Uber can apply the same policies and price structure but remove the impact of the loss on the rider.

Instead, experiencing the surge as a gain.

Here’s one solution.

Presenting the surge price at the time of trying to book the ride, like it is now. Then showing the costs in the immediate future. For example, in 10 minutes, 20 minutes and half an hour.

This sets the current inflated surge price as a reference cost.

In the current system, Uber sets the reference cost was the standard lower fare, with surge added on top. But, with this solution, we now compare the surge price, with prices in the immediate future.

This gives the rider the power of choice.

Instead of being forced to choose between accepting the surge cost straight away, or waiting for an unknown time until it drops. A rider can see what is happening over the next half an hour.

A small change sets the current inflated surge price as a reference cost.

This gives the rider the power of choice.

They can now see three possible events

1. Surge stay the same

No win, no loss

2. Surge goes down

Time is now the value they gain through the surge
“£14 is worth getting home half an hour sooner.”

3. Surge goes up

The gain is perceived against the increased cost of the future
“If I leave now, I’ll save £14 compared to leaving in half an hour.”

1 - If the price stays the same

People will likely accept the surge to get to where they want to go in time.

What gets interesting is people’s reactions to 2 and 3.

2 - The price decreases

The rider can choose to:

1. leave in 30 minutes for a reduced fare, or,

2. leave immediately at the surge cost. 

The higher cost, is now framed as a gain.

Time is now the value they gain through the surge cost. It gives the rider the comparable value of those 30 minutes.

 

£14 is worth getting home half an hour sooner.

Uber’s context - our drivers are busy

It transfers the context of the surge cost, from uber's context - our drivers are busy to a personal context - your time. 

As a rider, we care more about our time than we do about how busy Uber’s drivers are.

Therefore, if you choose to wait for the surge to drop, the decreased cost compared to the references surge cost is now experienced as a gain. The rider may instead choose to pick up some groceries or head back to the office instead of leaving immediately during the surge time.

I can save £14 by chatting to my friend instead of leaving right away

3. The surge price goes up

If we can see that the surge price is going to get more in the next half an hour. We are more likely to feel happy about accepting the immediate surge cost, as we will be ‘saving’ the additional surge in the future.

The loss of the surge is now reframed as a gain compared to the cost in 20 minutes.

If I leave now, I’ll save £14 compared to in half an hour

Reframing how we approach design and business solutions, and the way we communicate has a significant impact on how we feel as people.

Implement nudges in your business, contact us at hello@dura.studio

 

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Works cited and recommended reads

1 Johnson, E. J., Goldstein, D. G. (2004) Defaults and Donation Decisions
2 Frederiks, E. R., Stenner, K., Hobman, E. V. (2015). Household energy use: Applying behavioural economics to understand consumer decision-making and behaviour
3 Boardman, T., Blake, D. (2014) Spend more today safely
4 Barnes, A. J., Groskaufmanis, L., & Thomson, N. B. (2016). Promising Approaches From Behavioral Economics to Improve Patient Lung Cancer Screening Decisions.
Thaler, R., Sunstein, C. (2009) Nudge: Improving Decisions About Health, Wealth and Happiness