How BehavioralEconomics InformsWebsite DesignEric Gold, PhDFidelity InvestmentsOctober 24, 2012
How Behavioral Economics InformsWebsite Design►Getting in the way of good decision making►Seemingly inconsequential design...
Getting in the Wayof Good DecisionMaking
AnchoringGetting in the way of gooddecision making
AnchoringQuestion: What percent of UN members areAfrican countries?But, before answering, spin the wheel of fortune       ...
Choice ParalysisGetting in the way of gooddecision making
Choice Paralysis                                 6             24                            kinds of jams   kinds of jams...
Choice Paralysis                                 6             24                            kinds of jams   kinds of jams...
Choice Paralysis7000                              Mutual                              Funds500030001000     NYSE  1940    ...
Choice Paralysis                80%PARTICIPATION                70%                60%                50%                 ...
Confirmation BiasGetting in the way of gooddecision making
Confirmation Bias“If there is a vowel on one side,then there is an even number on the other.”Which card(s) would you need ...
Irrelevant InformationGetting in the way of gooddecision making
Irrelevant Information►Use of irrelevant information increases with time, effort and cost of obtaining the information►Peo...
Irrelevant InformationYou are considering registering for a course in your major that has veryinteresting subject matter a...
Recommendations►Don’t use default numbers unless meaningful.►Make sure anchors represent a sensible estimation.►Keep users...
Recommendations►Organize choices►Give strategies for making choices►Avoid choices that are essentially the same►Limit choi...
Seemingly InconsequentialDesign Decisions
FramingSeeming inconsequential designdecisions
FramingImagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which isexpected to kill 600 peopl...
FramingImagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which isexpected to kill 600 peopl...
FramingImagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which isexpected to kill 600 peopl...
Framing  Surcharge for Credit          vs.   Discount for Cash
Attraction EffectSeeming inconsequential designdecisions
Attraction EffectPatient suffers from migraine headaches that:   Last about 3 hours.   Involve intense pain, nausea, dizzi...
Attraction EffectWhich would you choose?  Drug A        Reduces the number of headaches                from 100 days with ...
Attraction Effect  Drug A        Reduces the number of headaches          36%                from 100 days with a headache...
Attraction Effect  Drug A        Reduces the number of headaches                from 100 days with a headache per year    ...
Attraction Effect                                                    2 choices 3 choices  Drug A        Reduces the number...
Joint vs. SeparatePresentationSeeming inconsequential designdecisions
Joint vs. Separate PresentationDictionary A: 10,000 entries, like newDictionary B: 20,000 entries, the cover is tornJointl...
Diversification BiasSeeming inconsequential designdecisions
Diversification BiasRead & Loewenstein (1995)
Diversification Bias                            Combined choice: 100%                            chose different candy bar...
Diversification Bias                            Combined choice: 100%                            chose different candy bar...
Diversification Bias        1/n strategy – participants in 401(k) plans distribute their contributions        more or less...
Diversification Bias        1/n strategy – participants in 401(k) plans distribute their contributions        more or less...
Diversification Bias        1/n strategy – participants in 401(k) plans distribute their contributions        more or less...
Recommendations►Run usability tests to determine best frame►When appropriate, avoid negative frames that may paralyze the ...
Taking Advantageof the Web
DisambiguationTaking advantage of the web
Ambiguity AversionAn urn contains 30 red balls and 60 additional balls thatare either yellow or blackGamble I:    A: $100 ...
DisambiguationSome subjects were tested with a variationof the Ellsberg Paradox, measuringambiguity aversion.Other subject...
Discounting of Ambiguous InformationEarlier this year you decided to exercise and opted for tennis. You purchased a one-ye...
Disjunction Effect Shafir & Tversky (1992)
Trade-offsTaking advantage of the web
Trade-offs ► Satisficing ► Elimination by aspects ► Most important attribute ► Majority of confirming dimensions ► Avoidin...
Recommendations►Run studies to determine what trade-off strategies customers use.►Make sure that important possibilities a...
Recommendations►Identify and resolve ambiguities►Build tools that don’t needlessly resolve ambiguity
Advice
HypothesesAdvice
Advisors: This is not how it worksWe often expect that people will just do what we tell them…                             ...
Advisors: This is not how it worksWe often expect that people will just do what we tell them……sometimes without their even...
Advisors: The Judge-Advisor SystemJudges (i.e., people) make decisions with orwithout one or more advisors.           Advi...
Changing Minds – InformationAcquisition►Subjects were asked to choose a mountain bike►Subjects were presented with either ...
Changing Minds – Information Acquisition                          Low                   Medium                High        ...
Weighting EvidenceAdvice
Egocentric Discounting Phase 1 In what year was the Suez Canal first opened for use? Your best estimate____ Phase 2 In wha...
Other’s Advice Phase 1 In what year was the Suez Canal first opened for use? Your best estimate____ Phase 2 In what year w...
Recommendations►Let the customers develop their own hypotheses►Keep a clear and consistent position►Base advice on multipl...
Conclusion
Topics►Emotions  ► Regret  ► Anxiety  ► Fear►Overconfidence►Financial literacy►Numeracy►Inertia►Mental accounting►Risk com...
How Behavioral Economics Informs Website Design
How Behavioral Economics Informs Website Design
How Behavioral Economics Informs Website Design
Upcoming SlideShare
Loading in...5
×

How Behavioral Economics Informs Website Design

1,468

Published on

At the 2012 Face of Finance Conference, at Bentley University, in Waltham, MA, Eric Gold (Fidelity Investments) presented "How Behavioral Economics Informs Website Design".

0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,468
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

How Behavioral Economics Informs Website Design

  1. 1. How BehavioralEconomics InformsWebsite DesignEric Gold, PhDFidelity InvestmentsOctober 24, 2012
  2. 2. How Behavioral Economics InformsWebsite Design►Getting in the way of good decision making►Seemingly inconsequential design decisions►Taking advantage of the web►Advice
  3. 3. Getting in the Wayof Good DecisionMaking
  4. 4. AnchoringGetting in the way of gooddecision making
  5. 5. AnchoringQuestion: What percent of UN members areAfrican countries?But, before answering, spin the wheel of fortune Mean Mean answer: answer: 25% 45% Tversky & Kahneman (1974)
  6. 6. Choice ParalysisGetting in the way of gooddecision making
  7. 7. Choice Paralysis 6 24 kinds of jams kinds of jams Shoppers who 40% 60% stopped Iyengar & Lepper (2000)
  8. 8. Choice Paralysis 6 24 kinds of jams kinds of jams Shoppers who 40% 60% stopped Shoppers who bought 30% 3% jam Iyengar & Lepper (2000)
  9. 9. Choice Paralysis7000 Mutual Funds500030001000 NYSE 1940 1960 1980 2000
  10. 10. Choice Paralysis 80%PARTICIPATION 70% 60% 50% 0 20 40 60 FUNDS OFFERED Iyengar et al. (2003)
  11. 11. Confirmation BiasGetting in the way of gooddecision making
  12. 12. Confirmation Bias“If there is a vowel on one side,then there is an even number on the other.”Which card(s) would you need to turn over todecide whether the statement is true or false? E K 4 7Johnson-Laird (1983)
  13. 13. Irrelevant InformationGetting in the way of gooddecision making
  14. 14. Irrelevant Information►Use of irrelevant information increases with time, effort and cost of obtaining the information►People are more likely to pursue irrelevant information for complex tasks►People consider information relevant if they must wait for it►Even mentioning information makes it seem more relevant►People overweight recent information►The internet is full of irrelevant adviceBastardi & Shafir (1998), Baron, et al. (1988), DeBondt & Thaler (1985)
  15. 15. Irrelevant InformationYou are considering registering for a course in your major that has veryinteresting subject matter and will not be offered again before you graduate.While the course is reputed to be taught by an excellent professor, you havediscovered that he will be on leave, and that a less popular professor will beteaching the course. Immedia After TotalSimple version te waiting(a) Decide to register for the course (82%) Simple Register 82 - 82(b) Decide not to register for the course (18%) Not 18 - 18 registerUncertain version Uncertain Register 42 29 71(a) Decide to register for the course (42%) Not 2 27 29(b) Decide not to register for the course (2%) register(c) Wait until tomorrow (after finding out if the regular professor will be teaching) to decide about registering for the course (56%)If you chose c in the question above, please answer the following:It is the next day, and you find out that the less popular professor will be teaching the course.(a) Decide to register for the course (29%)(b) Decide not to register for the course (27%) Bastardi & Shafir (1998)
  16. 16. Recommendations►Don’t use default numbers unless meaningful.►Make sure anchors represent a sensible estimation.►Keep users away from irrelevant information►Afford disconfirming evidence
  17. 17. Recommendations►Organize choices►Give strategies for making choices►Avoid choices that are essentially the same►Limit choices►Use defaults
  18. 18. Seemingly InconsequentialDesign Decisions
  19. 19. FramingSeeming inconsequential designdecisions
  20. 20. FramingImagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which isexpected to kill 600 people.Framing I: Which would you choose? A B 200 people will be saved 1/3 probability 600 people will be saved 2/3 probability no people will be savedTversky and Kahneman (1981)
  21. 21. FramingImagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which isexpected to kill 600 people.Framing I: Which would you choose? A B 200 people will be saved 1/3 probability 600 people will be saved 2/3 probability no people will be savedFraming II: Which would you choose? A B 400 people will die 1/3 probability that nobody will die 2/3 probability that 600 people will dieTversky and Kahneman (1981)
  22. 22. FramingImagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which isexpected to kill 600 people.Framing I: Which would you choose? A B 200 people will be saved 1/3 probability 600 people will be saved 2/3 probability no people will be saved 72% 28%Framing II: Which would you choose? A B 400 people will die 1/3 probability that nobody will die 2/3 probability that 600 people will die 22% 78%Tversky and Kahneman (1981)
  23. 23. Framing Surcharge for Credit vs. Discount for Cash
  24. 24. Attraction EffectSeeming inconsequential designdecisions
  25. 25. Attraction EffectPatient suffers from migraine headaches that: Last about 3 hours. Involve intense pain, nausea, dizziness, and hypersensitivity. Occur about 100 of those days/year (8.3 per month).You are considering 3 medications. All have same minor side effects, and are pills taken 1/day. Each differs in effectiveness and cost.The patient pays cost. Chapman & Malik (1995)
  26. 26. Attraction EffectWhich would you choose? Drug A Reduces the number of headaches from 100 days with a headache per year to 30 days with a headache per year. It costs $350 per year. Drug B Reduces the number of headaches from 100 days with a headache per year to 50 days with a headache per year. It costs $100 per year. Chapman & Malik (1995)
  27. 27. Attraction Effect Drug A Reduces the number of headaches 36% from 100 days with a headache per year to 30 days with a headache per year. It costs $350 per year. Drug B Reduces the number of headaches 64% from 100 days with a headache per year to 50 days with a headache per year. It costs $100 per year. Chapman & Malik (1995)
  28. 28. Attraction Effect Drug A Reduces the number of headaches from 100 days with a headache per year to 30 days with a headache per year. It costs $350 per year. Drug B Reduces the number of headaches from 100 days with a headache per year to 50 days with a headache per year. It costs $100 per year. Drug C Reduces the number of headaches from 100 days with a headache per year to 60 days with a headache per year. It costs $100 per year. Chapman & Malik (1995)
  29. 29. Attraction Effect 2 choices 3 choices Drug A Reduces the number of headaches 36% 9% from 100 days with a headache per year to 30 days with a headache per year. It costs $350 per year. Drug B Reduces the number of headaches 64% 81% from 100 days with a headache per year to 50 days with a headache per year. It costs $100 per year. Drug C Reduces the number of headaches 10% from 100 days with a headache per year to 60 days with a headache per year. It costs $100 per year. Chapman & Malik (1995)
  30. 30. Joint vs. SeparatePresentationSeeming inconsequential designdecisions
  31. 31. Joint vs. Separate PresentationDictionary A: 10,000 entries, like newDictionary B: 20,000 entries, the cover is tornJointly► Dictionary A: 10,000 entries, like new - $19► Dictionary B: 20,000 entries, the cover is torn - $27Separately► Dictionary A: 10,000 entries, like new - $24► Dictionary B: 20,000 entries, the cover is torn - $20 Hsee(1996)
  32. 32. Diversification BiasSeeming inconsequential designdecisions
  33. 33. Diversification BiasRead & Loewenstein (1995)
  34. 34. Diversification Bias Combined choice: 100% chose different candy barsRead & Loewenstein (1995)
  35. 35. Diversification Bias Combined choice: 100% chose different candy bars Separate choice: 48% chose different candy barsRead & Loewenstein (1995)
  36. 36. Diversification Bias 1/n strategy – participants in 401(k) plans distribute their contributions more or less evenly over the funds offered. Implied Allocation Allocation Fund A Fund B for Fund A for Fund A Stocks Bonds 54% Stocks ½ Stocks, ½ Bonds ½ Stocks, ½ Bonds BondsBenartzi & Thaler (1999)
  37. 37. Diversification Bias 1/n strategy – participants in 401(k) plans distribute their contributions more or less evenly over the funds offered. Implied Allocation Allocation Fund A Fund B for Fund A for Fund A Stocks Bonds 54% Stocks ½ Stocks, ½ Bonds 46% 21% ½ Stocks, ½ Bonds BondsBenartzi & Thaler (1999)
  38. 38. Diversification Bias 1/n strategy – participants in 401(k) plans distribute their contributions more or less evenly over the funds offered. Implied Allocation Allocation Fund A Fund B for Fund A for Fund A Stocks Bonds 54% Stocks ½ Stocks, ½ Bonds 46% 21% ½ Stocks, ½ Bonds Bonds 69% 87%Benartzi & Thaler (1999)
  39. 39. Recommendations►Run usability tests to determine best frame►When appropriate, avoid negative frames that may paralyze the customer►Encourage making decisions all at once, not piecemeal
  40. 40. Taking Advantageof the Web
  41. 41. DisambiguationTaking advantage of the web
  42. 42. Ambiguity AversionAn urn contains 30 red balls and 60 additional balls thatare either yellow or blackGamble I: A: $100 if red is drawn B: $100 if black is drawnGamble II: A: $100 if red or yellow is drawn B: $100 if black or yellow is drawnEllsberg (1961)
  43. 43. DisambiguationSome subjects were tested with a variationof the Ellsberg Paradox, measuringambiguity aversion.Other subjects were tested for risk aversion.Response to ambiguity Response to riskHsu et al. (2006)
  44. 44. Discounting of Ambiguous InformationEarlier this year you decided to exercise and opted for tennis. You purchased a one-yearseason ticket at a luxurious tennis club in your neighborhood. This means that during theyear you can play on each Wednesday afternoon. The membership fee is 600 Euros forthe entire year, and the costs have to be paid monthly (50 Euros per month). After a fewweeks you injure your elbow, and the pain progresses. After two months it appears thatyou have developed tennis elbow. There are two options: either you continue to play andretain your season ticket for the year; or you quit, and return the season ticket to the club.The club has a standard arrangement: if you decide to return the season ticket, you aregranted a refund so that you not have to play for the months to come. What would youdo? Control Low Cost High Cost Ambiguous Continue 16% 38% 52% 22% Stop 84% 62% 48% 78% Van Dijk & Zeelenberg (2003)
  45. 45. Disjunction Effect Shafir & Tversky (1992)
  46. 46. Trade-offsTaking advantage of the web
  47. 47. Trade-offs ► Satisficing ► Elimination by aspects ► Most important attribute ► Majority of confirming dimensions ► Avoiding the decisionSimon (1969), Fishburn (1974), Russo & Dosher (1983), Beattie & Barlas (2001)
  48. 48. Recommendations►Run studies to determine what trade-off strategies customers use.►Make sure that important possibilities are presented as trade-offs and understood that way.►Make clear what attributes are important.►Consider asking users to rate utilities and weights explicitly.►When a trade-off is required, use similar attributes.►Inform users that they can change their mind (when this is so).
  49. 49. Recommendations►Identify and resolve ambiguities►Build tools that don’t needlessly resolve ambiguity
  50. 50. Advice
  51. 51. HypothesesAdvice
  52. 52. Advisors: This is not how it worksWe often expect that people will just do what we tell them… Problem to solve Advisor Request for help The Judge (“me”) Advice “Just do it!” Swoll & Sniezek (2005), Gino & Moore (2006), Rantilla & Budescu (1999)
  53. 53. Advisors: This is not how it worksWe often expect that people will just do what we tell them……sometimes without their even asking! Problem to solve ?! Advisor The Judge (“me”) Advice “Just do it!” Swoll & Sniezek (2005), Gino & Moore (2006), Rantilla & Budescu (1999)
  54. 54. Advisors: The Judge-Advisor SystemJudges (i.e., people) make decisions with orwithout one or more advisors. Advisors Problem to solve Advice The Judge (“me”) What gives the Judge confidence in the advice? Decision Swoll & Sniezek (2005), Gino & Moore (2006), Rantilla & Budescu (1999)
  55. 55. Changing Minds – InformationAcquisition►Subjects were asked to choose a mountain bike►Subjects were presented with either 5 (low complexity), 9 (medium complexity), or 13 (high complexity) possible bikes►Each bike was rated on 6 attributesSchrah, Dalal & Sniezek (2006)
  56. 56. Changing Minds – Information Acquisition Low Medium High complexity complexity complexity Pre-Advice Post- Pre- Post- Pre- Post- Advice Advice Advice Advice AdviceDepth of search 2.41 1.28 2.16 0.69 1.45 0.49Variability of search - 3.96 2.40 7.38 2.46 8.15 2.42attributesVariability of search - 5.46 6.27 6.10 5.15 5.22 4.15alternativesSearch pattern -0.05 0.16 -0.17 0.43 -0.02 0.25Latency of search 1.18 1.56 0.92 1.71 1.20 1.65Proportion of 0.96 0.74 1.00 0.43 1.00 0.40alternatives searchedProportion of 0.31 0.64 0.20 0.62 0.18 0.54information searchdedicated toselected/recommendedalternative Schrah, Dalal & Sniezek (2006)
  57. 57. Weighting EvidenceAdvice
  58. 58. Egocentric Discounting Phase 1 In what year was the Suez Canal first opened for use? Your best estimate____ Phase 2 In what year was the Suez Canal first opened for use? Your previous estimate was 1905 The best estimate of advisor K was 1830 Your final best estimate ____ Judges Weight of knowledge advice High 0.20 Low 0.33Yaniv (2004)
  59. 59. Other’s Advice Phase 1 In what year was the Suez Canal first opened for use? Your best estimate____ Phase 2 In what year was the Suez Canal first opened for use? Your previous estimate was 1905 The best estimate of advisor K was 1830 Your final best estimate ____ Distance Near Intermediate Far Decision Makers Knowledge High 0.31 0.28 0.23 Low 0.38 0.34 0.30Yaniv (2004)
  60. 60. Recommendations►Let the customers develop their own hypotheses►Keep a clear and consistent position►Base advice on multiple sources►Keep advice relevant►Encourage people to consider all available options
  61. 61. Conclusion
  62. 62. Topics►Emotions ► Regret ► Anxiety ► Fear►Overconfidence►Financial literacy►Numeracy►Inertia►Mental accounting►Risk communication

×