- People don’t always make rational decisions when they go with their gut feeling.
- For policymakers, businesses and marketers, presenting information for rational thinking may not hit the mark.
- Leveraging behavioural economics can help encourage public acceptance of new technologies such as autonomous vehicles.
In Aesop’s fable, The North Wind and the Sun, two weather phenomena fight over who is strongest. To decide, they wager on who can force a passing traveller to take off his cloak. While the North Wind and his cold bluster initially threaten to tear the man’s cloak away, he eventually fails as the unsuspecting human pulls the garment closer to keep warm. The Sun simply shines down, heats the hapless wanderer up and thus persuades the outerwear to be discarded.
The moral of the story is that persuasion can often be more effective than force, and it’s one that business should take to heart.
Behavioural economics is a method of understanding how humans make decisions (hint: not always rationally). By looking at the psychology, bias and social aspects of decision-making, it becomes possible to persuade someone in a particular direction.
A new report by PwC, Nudging people into autonomous vehicles, looks at its use in helping people to accept driverless cars, trucks, buses and other vehicles. By examining this topic in light of the way that humans make choices, businesses can use the same methods to encourage consumer behaviour in their own area.
The case for autonomy
In some ways, using autonomous vehicles is an easy sell; the benefits to society are plentiful. Firstly, it is predicted that there will be less accidents, with a 90% reduction in crashes saving the Australian economy AU$31.5 billion every year. The elderly, the young and people with disabilities will all benefit from the mobility of cars that they don’t need to drive.
All of us will enjoy a reduction in traffic congestion, with smarter vehicles able to moderate speed and routes in conjunction with those around them, eliminating bottlenecks. Coupled with more efficient driving (less braking) and the absence of bumps and bingles in peak-hour traffic, the prospect of getting home on time is more pleasantly achievable.
Cities will become greener with today’s car parking reverting to useful space as vehicles drop people off and then wait outside city limits until it’s time for pickup.
With all those amazing positives, who wouldn’t want driverless vehicles tomorrow?
Rational humans and behavioural economics
As it turns out, plenty – and that’s where nudging behavioural change comes in. Much of marketing is based on the idea that humans think about choices carefully. While sometimes they do, often they do not.
Behavioural economists classify human decision-making into two types: automatic (also called System 1 thinking) and reflective (System 2)¹.
When people have to make a big or personally important decision they tend to use reflective thinking. This is the slow, controlled, conscious kind of thinking that attempts to take into consideration all the important information available and come to a deductive conclusion.
Automatic thinking, on the other hand, is what people use when they’re making a quick decision, are distracted or mentally overloaded. This is your gut reaction and it is possible (without dramatic failure) via a number of mental shortcuts and instinctive skills.
While it would be nice to believe that humans always use reflective thinking when making a choice, the reality is people don’t have the mental bandwidth or time to spend on whether to have toast or muesli for breakfast and often resort to automatic thinking when overloaded with information, even on big decisions.
Faster is not always better
Making quick decisions by instinct is not entirely arbitrary and involves mental shortcuts. Humans use a number of mental shortcuts (or heuristics) when making decisions¹. These are often based on extrapolating out from what we know, the frequency of examples we’re exposed to, or age-old stereotypes.
None of these methods will necessarily give the wrong answer and they can be very effective in simplifying the decision-making processes. However, their quick nature, inherent bias and lack of consideration for other data means that often they steer people in the wrong direction.
The challenge for business and government is to nudge consumers in the desired direction when they make these reflexive, gut decisions. By knowing the biases of human behaviour, it becomes possible to do just that, tailoring information to be more accessible in quick-choice scenarios.
Framing the proposition
Humans are susceptible to the way in which information is worded. Phrases that focus on the positives of a situation are more likely to be effective than those focusing on negatives.
In our autonomous car example, this could be overcome by careful wording. For instance, if policymakers or manufacturers were to claim ‘only one in ten driverless cars will be involved in an accident,’ most people would react with fear: what if they were ‘the one’? If this were phrased as ‘nine in ten car crashes will be eliminated,’ the same statistic is suddenly a positive to be coveted.
Language and communication are also critical when it comes to how people make decisions. It’s important to place consumers into the narrative of the marketing story. Promoting critical achievements as autonomous vehicles roll out, emphasising progress and using vivid terminology will allow people to picture themselves in a new reality.
Regret and loss aversion
In general, people are averse to regret and loss. They don’t like to miss out and if they have something, they don’t like it to be taken away. Psychologically, losing something is thought to be twice as painful as gaining something, so people do their best to avoid such situations². Moreover, many choose options based on whether they will regret their decision later on.
To go once more to our driverless vehicle example, these biases could be leveraged by showing people what they’re missing out on. For example, by promoting how much extra time someone has to spend with family because they’re using an autonomous vehicle, or rewarding early adopters publically with special privileges, such as one-off priority pickup passes.
People’s regret aversion bias could be appealed to with an emphasis on benefits that are available only if everyone participates. Marketing that shows the downsides to some abstaining would put the onus of success on an individual’s decision. For example, the environmental impact of people who still drive manual cars. By upping the stakes on needing to make the right decision, the regret that will follow if one doesn’t is similarly increased.
Social norms and herd behaviour
Keeping up with the Joneses is a real concept. Humans are social animals, they want what other humans have and don’t want to be seen as bucking a trend. They’re “easily influenced by the statements and deeds of others.”¹ Therefore, would be to use images people could relate to in campaigns. If the graphics showed a wide variety of people – of different ages, gender and other characteristics – more consumers would be able to see themselves in the messaging. An I’ll-have-what-she’s-having effect would provide proof to the consumer that the social norm is to accept driverless vehicles.
There are many behavioural biases that humans use to make decisions. As complex creatures, there are levers that can be pulled to help people make choices, especially in situations where they will not (or cannot) make an educated one.
Of course, there’s no magic pill that will ensure consumers do as marketers or policymakers want, nor should there be. By overcoming innate human biases, however, and nudging in a certain direction, there’s a greater chance of quick decisions being better informed.
With an issue such as autonomous vehicles, where the benefits seemingly speak for themselves but human nature makes their uptake difficult (loss aversion to not owning a sports car, anyone?) the use of behavioural economics evens the playing field of decision-making biases. Applying behavioural economics to your business could have a similar effect.
Jeremy Thorpe is a Partner in PwC’s Economics & Policy unit alongside Eshan Motwani, National Lead of the Behavioural Economics practice.
For more information about behavioural economics and driverless cars, download the PwC report Nudging people into autonomous vehicles.
1 R. Thaler & C. Sunstein, Nudge: Improving Decisions About Health, Wealth and Happiness, Yale University Press, 2008.