Choice Architectures

800 views
629 views

Published on

This presentation provides OnCorps' perspectives on critical research from Daniel Kahneman, AmosTversky, Richard Thaler and Cass Sunstein.

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
800
On SlideShare
0
From Embeds
0
Number of Embeds
287
Actions
Shares
0
Downloads
9
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Choice Architectures

  1. 1. Choice Architectures 1 Research and diagnostic series Bob Suh, Founder and CEO August 2014 © Private and confidential. All rights reserved. OnCorps 2014.
  2. 2. This presentation is derived from the theories developed by Daniel Kahneman, AmosTversky, Richard Thaler and Cass Sunstein 2 © Private and confidential. All rights reserved. OnCorps 2014.
  3. 3. 3 © Private and confidential. All rights reserved. OnCorps 2014. When conditions change, default decisions can be mistakes
  4. 4. 4 © Private and confidential. All rights reserved. OnCorps 2014. Avoiding the certainty of releasing bad data can result in fraud
  5. 5. 5 © Private and confidential. All rights reserved. OnCorps 2014. Confusion over product differentiation causes products to lose A&W third pounder fails because consumers think it is smaller than quarter pounder
  6. 6. 6 © Private and confidential. All rights reserved. OnCorps 2014. Decisions can be “nudged” to improve outcomes 1. Automatic 2. Reflective 2+2=? 32x11=? Whenever multiplying by 11, add first 2 numbers and insert sum between them Repeat insight Lean back when you fear falling Learn to lean forward Balance retained 32x11=352 Repeat insight Nudges
  7. 7. 7 © Private and confidential. All rights reserved. OnCorps 2014. We are piloting a series of heuristic algorithms Belief Observation Reaction ABC stock will go up 200% ABC stock rises 210% Sell ABC ABC stock declines 20% Switch to XYZ Buy more ABC All shares Some shares • How convicted are you in your beliefs? • How do your beliefs influence what you observe? • How does what you observe change your beliefs? • How does what you observe change your actions? • How does your action or inaction change your observed performance?
  8. 8. 8 © Private and confidential. All rights reserved. OnCorps 2014. Risk aversion drives many of our decisions Value GainsLosses Take a risk on possible loss versus accepting a certain loss Choose certain cash versus higher expected value Reference point or value function can change They can also change the perception of gains and losses: for example, gaining $10,000 from nothing is much more significant than gaining $110,000 from $100,000
  9. 9. 9 © Private and confidential. All rights reserved. OnCorps 2014. Typical prospect theory behaviors Value GainsLosses Short-term profit taking in favor of long-term investments Not accepting a sunk cost or actual loss in favor of a delayed probable loss Risk averse Risk seeking Hypothetical value function curve
  10. 10. 10© Private and confidential. OnCorps 2014. Prospect Analysis: Value Function Value GainsLosses Mobile Q: at what level would you sell to cut losses? Mobile Q: at what level would you sell to capture gains? Mobile Q: What is your target price for IBM? • Group 1 • Group 2 • Group 3 Threshold for selling to capture gains Threshold for selling to cut losses Bottom quartile Top quartile Median value Bottom quartile Top quartile Median value
  11. 11. 11 © Private and confidential. All rights reserved. OnCorps 2014. Richard Thaler’s Nudges 1. Incentives: putting the right incentives on the right people. 2. Understanding mappings: helping customers understand the right categories and steps. 3. Defaults: helping customers avoid the “path of least resistance.” 4. Give feedback: provide customers data on how they are doing. 5. Expect error: anticipate common errors and make the process or product error-tolerant. 6. Structure complex choices: making complex choices easier to make through understandable structures.
  12. 12. 12Private and confidential. OnCorps © 2014. © www.oncorps.org www.oncorps.io Cambridge, Massachusetts | Bristol, United Kingdom

×