What do you get when you mix up economic science and psychology? You get behavioral economics, a relatively new but already widely accepted field—Behavioral Economics. It’s founded on the premise that a number of factors, including the context in which they occur, influence our individual judgment, preferences and decisions. It even becomes tactical when applied to marketing, framing our decision-making in the moment. (As an example, the next time you’re in a check-out line, anywhere, look at what’s around you and at the price-point. It’s there, carefully placed, so you will pick it up, look at it, and think to yourself, “sure, why not?”) Think nudge.
Every day most people make at least a few seemingly irrational decisions—poor choices on some level—eating too much, spending too much, driving too fast. The list goes on. But, when we understand the “why” of these choices, the principles of behavioral economics can step in to create solutions.
And, how exactly do behavioral economics move us to make healthier and more cost-effective choices?
Consider what behavioral economics calls the Prospect Theory. We’re motivated more by the threat of a loss than we are by the promise of reward. (We’d all like to win $50, but we’d really hate to give up $50.) So, applied to our own health, the loss of our personal health and wellness, as in “change or die,” is a greater motivator than becoming healthier.
There’s also what’s called the Endowment Effect. In essence, we become attached to what we already own. Our own doctor, our own insurance policy, our own table at our favorite restaurant, our own lucky lottery numbers. We get used to these things, and others, and resist changing even when it’s in our best interest to do so. We might be suspicious of change, and stubbornly hold onto even unhealthy and costly behaviors—because they are ours’. But again, when we understand “why” and begin to explore other options we become more willing to make better, and perhaps more cost effective choices. Now we “own” better choices.
There are basic tenets at work here, such as loss aversion (we fear loss because it causes more pain than the pleasure we receive from a new gain) and status quo bias (because we are reluctant to change, we let changes be made for us or happen to us).
The trick in saving ourselves from ourselves is in finding ways to create a forgiving environment. Every element of every design has the potential to influence our choices. Do we close our eyes and hope for the best, or do we take what we know and apply it to making rational behavior choices? If others are doing it for us, shouldn’t we find ways to do it for ourselves?