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Bob Thomas's talk from the UXPA 2014 Ignite session "Are you a Super Hero or a Super Villain? Using Design Psychology for Good (and Evil)." Design Psychology is a powerful tool to wield and can be used to the benefit or detriment of our users; motivating them to behave in ways that can be in their interest, or our own. Our panel of experienced professionals, each with an interest in different facets of design psychology, will choose a white hat or black hat - some taking the side of good and honest intentions, with others taking the dark side where manipulation and coercion reign. On which side will you fall?
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PowerPoint Presentation
Behavioral Economics: Good and Evil Practices in the Insurance and Financial Industries
Bob ThomasDirector of User Experience, Liberty Mutual Insurance
(email) robertl.thomas@libertymutual.com(twitter) @bobthomas
2014
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Hello everyone. Im Bob Thomas, and I work for Liberty Mutual Insurance.
Im going to talk about Behavioral economics, which applies economics and psychology to explain the ways we make decisions. And well look at some good and evil practices in the insurance and financial industries along the way
Classical Economics: We Are All Rational Creatures
2014
Source: CBS. This photo is used here for personal, non-commercial use.
2014
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Classical economics holds that were all rational human beings, Were all driven by self-interest and know exactly what we want, We think about the pros and cons of everything before we buy something.
Behavioral Economics: We Are Emotional and Irrational
2014
Source: CBS. This photo is used here for personal, non-commercial use.
2014
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But these assumptions break down because we dont make decisions consciously. Were emotional. Were irrational. Think gut reactions.
And financial and insurance companies today understand that most users dont know the HOW and WHY behind their purchase decisions
Principles of Behavioral Economics
2014
Principle 1: Mental Shortcuts
Principle 2: Value Assessments
Principle 3: Emotional Impacts
FREE!No Annual Fee
2014
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And this is why companies use principles of Behavioral Economics. 3 principles Ill discuss are:Mental Shortcuts, Value Assessment, and Emotional ImpactsAnd companies use these principles to empower people (for good), or themselves (for evil)
Principles of Behavioral Economics
2014
Principle 1: Mental Shortcuts
Source: http://ozeanmedia.com/wp-content/uploads/2013/05/brain_shortcuts.jpg. This image is used here for personal, non-commercial use.
2014
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So lets start with one principle, mental shortcuts. We make financial decisions that require us to reconcile all sorts of information (think retirement portfolios, or taxes, or car insurance) Were not very good at this, which is We rely on mental shortcuts
Mental Shortcut: Reliance on Defaults & Relative Choices
2014
People rely on defaults as complexity increases
2014
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One Mental Shortcut is that:People rely on defaults in the face of complexityWe dont usually override the defaults set for us Think about setting up a 401K or retirement account do you remember the investment choices you made? Or were they defaulted for you?
Mental Shortcut: Reliance on Defaults & Relative Choices
2014
To help consumers, this life insurance estimator includes default values
2014
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In the face of complexity, some companies try to help consumers. Northwestern Mutual has a life insurance estimator that includes defaults for those assets and expenses that are HARD to ESTIMATEAnd this is probably Good for most people
Mental Shortcut: Reliance on Defaults & Relative Choices
2014
Relative choice: we value products based on comparisons with other similar products
2014
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Closely related to a reliance on defaults is the idea of relative choiceWe value products based on comparisons with other similar productsOffering up to 3 or 4 choices makes people feel comfortable and in control
Mental Shortcut: Reliance on Defaults & Relative Choices
2014
Buying insurance can be very complex
Potential customers may refuse to add coverages that may benefit them
2014
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Buying car insurance is difficultAnd in the face of complexity, people may refuse to add coverages that may benefit themGeico Insurance helps by offering 4 relative choices, which makes people feel comfortable and in controlAnd this is good
Principles of Behavioral Economics
2014
Principle 2: Value Assessments
2014
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A second principle of Behavioral Economics involveshow we assess value, because value is a relative conceptIn looking at the value of a product we often use "irrational metrics to guide us, especially if companies use a key word as a trigger
.
Value Assessment: Love of Free
2014
Free triggers consumer reactions that cause people to overlook underlying math
2014
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One of these irrational metrics that guide is in the wrong direction is the love of freeFree triggers reactions different from what we think are logical And they cause us to make impulsive financial decisions and overlook underlying math
Value Assessment: Love of Free
2014
Most people carrying greater than $1000 in balances instinctively select a card offering
15% APR + No Annual Fee Free = No Annual Fee(Example: $150 in first month)
vs. 10% APR + $50 Annual Fee (Example: $100 in first month)
2014
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For example, some people carrying greater than $1000 in debt may opt for a credit card offering no annual fee (think free) even though its bad math to do soAnd credit card companies take advantage of our Love of Free. And this is evil
15% APR + No Annual Fee ($150 in first month).. So free = no annual feevs. 10% APR + $50 Annual Fee ($100 in first month)
Value Assessment: Hyperbolic Discounting
2014
We buy or borrow now at the cost of having less money in the future
2014
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Another value assessment is Hyperbolic discounting.Which means We buy or borrow now at the cost of having less money in the future. So we discount the value of future spending. And cash advance and loan companieswho take advantage of our need for instant gratification are evil
Principles of Behavioral Economics
2014
Principle 3: Emotional Impacts
2014
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A third principle of Behavioral Economics involvesEmotions we make impulsive decisions when emotions get the better of usFor example, we place greater psychological weight on a financial loss than a similar financial gainSo well panic and SELL! probably at the wrong time
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Emotional Impact: Risk Aversion
2014
People would rather save money under the mattress than invest in the market
2014
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One example of this is Risk Aversion.People are willing to pay a premium to move an outcome from highly uncertain to certain
People would rather NOT invest in the market, for fear of losing the cash if the bank fails or the market collapses
Emotional Impact: Risk Aversion
2014
Progressive Insurance offers a Coverage Checker that highlights areas where an individual may be buying too little (or too much) insurance
2014
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So to take advantage of our aversion to riskA company like Progressive Insurance offers a Coverage Checker that highlights areas where an individual may be buying too little (or too much) car insuranceAnd we think this method of moving us toward safer outcomes is good
Emotional Impact: Self-Control Facilitation
2014
We recognize the need for self-control but need support
We are often willing to accept downsides of third-party control to achieve goals
2014
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Our emotions drive us to make irrational purchasesWe want to control ourselves but need support. So well accept controls that a financial company facilitates for usFor example, well pay a fee to a company like this one to help us counteract our impulse buying with impulse saving
Emotional Impact: Self-Control Facilitation
2014
Insurethebox provides low-mileage car insurance. They give their customers a free telematics device to keep track of mileage
2014
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Another example of a 3rd-party control is Insurethebox, which provides low-mileage insurance policies and gives drivers a device to keep track of mileageThis motivates people to drive less, decreasing the likelihood of an accident.And this we think is good
In Summary: What Behavioral Economics Shows Us
We make financial decisions intuitively, and were not very good at itIt helps to understand these principles behind our financial decisions:Mental ShortcutsValue AssessmentsEmotional Impacts
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So Behavioral Economics shows us were emotional and irrationalWe make decisions intuitively, and were not very good at itSo we need to understand principles like:Mental ShortcutsValue AssessmentsEmotional Impacts behind our financial decisions
Behavioral Economics: Good and Evil Practices in the Insurance and Financial Industries
2014
Bob ThomasDirector of User ExperienceLiberty Mutual Insurance
Email:robertl.thomas@libertymutual.com
Twitter:@bobthomas
Original photo source: http://3.bp.blogspot.com/-3d5cnvWaRhw/UaYN9yTucfI/AAAAAAAAAPk/CDlSqE3DJzU/s1600/CloseUpGuard_Blog.jpg. This photo is used here for personal, non-commercial use.
2014
Thank you, London and my fellow UX professionals. Again, Im Bob Thomas, Director of User Experience at Liberty Mutual Insurance. You can e-mail me at robertl.thomas@libertymutual.com or contact me on Twitter @bobthomas
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