Choice architecture

November 17, 2010

Overview

• What is choice architecture? What can it do?• What are some good examples?• What are important features of choice

architecture?

• The paradox of choice

Choice architecture

• How you organize the context in which people make decisions

• Some of the best ways to be a choice architect:– Provide some context– Organize the options– Give a starting point

Choice architecture

• Provide some context• Organize the options• Give a starting point

Provide a comparison

Provide a compromise

Which “costs” more?

Choice architecture

• Provide some context• Organize the options• Give a starting point

Which would you rather buy?

Popcorn #1 Popcorn #2

Large-size kernels Medium-size kernels

Only pennies per serving! Only pennies per serving!

As many calories as a slice of bread As many calories as a tablespoon of sugar

Light corn and grain flavor Easy to swallow

Not too salty Not too salty

Easy to prepare Easy to prepare

Tastes just a little bit sweet Difficult to burn

Includes waterproof wrapping Very tender

Pops in its own bag Requires separate microwaveable bowl

Stays crunchy for at least 24 hours Stays crunchy for at least 3 hours

Zhang & Markman, 2001

Which platform to use?

Medicare Part D

Choice architecture

• Provide some context• Organize the options• Give a starting point

Change the order

Downs et al., 2009

Change the order• The candidate listed first on the ballot receives

on average a 2 percentage point advantage—enough to flip a close contest

• Why?– People are often drawn to the first thing they see or

try—it just sticks in their head– Voters may not have a preference stepping into the

booth—pick the first name they see• Some states go alphabetical by name or party;

others rotate by precinct• Worst: when officials are allowed to pick, they

often put candidates from their own party first

Change the default

Madrian & Shea, 2001

The power of defaults

Opt in Opt out

Johnson & Goldstein, 2003

The power of defaults

• At the time of the study, the standard auto insurance policy in New Jersey did not entail the right to sue for pain and suffering from minor injuries, although that right could be obtained by purchasing a higher priced policy– 20% opt for the higher-priced policy

• In Pennsylvania, the standard auto insurance policy entailed a full right to sue, although a cheaper, “limited rights” option was available– 75% retain their full rights (i.e., opt for the higher-

priced policy)

Johnson et al., 1993

The power of defaults

• Customers in California currently enjoying perfectly reliable electric service were offered somewhat less reliable service for discount on their monthly bill– Almost no one said yes

• Customers with somewhat unreliable electric service were offered more reliable service for a monthly surcharge (equal to the discount above)– Almost no one said yes

Why do defaults work?

• Status quo bias—people stick with the way things are, and don’t like to change– Some of it is information—if it’s the way things

are, it must be okay– Some of it is loss aversion—it’s harder to give up

something than gain the other option– Some of it is endowment—if it’s mine now, it’s

special and I don’t want to give it up

• Laziness, anxiety, and other barriers to action

Why is choice architecture effective?

• Structure – Guide for decisions

• Flexibility– People still get to choose, it’s just easier

• Simplicity– Easy to enact, little effort required on part of

decision makers

The paradox of choice

• Our options are ever increasing– In products: 19 different kinds of Hershey’s Kisses

have been on the market; 24 kinds of Oreos– In careers: College education allows people to

consider careers inaccessible 30 years ago– In love: Relationships that aren’t given a second

thought today would have been unthinkable to our grandparents

Is choice a good thing?

• When asked, people believe that more options is better– Free society implies the freedom to choose– Everything in life is a choice• Some choices are ingrained and so no longer seem to

be a choice• Some seem to be unimportant or irrelevant

– These choices are implicit and psychologically unreal

Is choice a good thing?

• Implicit choices make our lives easier—can you imagine explicitly making every choice we encounter during the day?

• The increase in number of choices is turning some formerly implicit choices into explicit and burdensome ones

• Each individual choice is not bad—it is the cumulative effect that leads to problems

• Some argue we are trapped in “the tyranny of small decisions”

Is choice a good thing?

• Even big choices are often threatening or burdensome– 65% of people say they would like to choose the

course of cancer treatment before they are diagnosed, but only 12% wish to choose after diagnosis

– As the number of mutual funds in a 401(k) plan goes up, the rate of participation goes down, even when employers match funds• 10 more mutual funds = 2% less participation

Number of options

Number of options• Alternatives– While it seems like choosing from a larger array of choices

should lead to better decisions, it appears that choosing from smaller arrays actually leaves people happier with their choice

– For example, a study done at Stanford showed that people who taste 6 different jams are happier with their favorite flavor of jam and are more likely to buy that type of jam or any jam than those who taste 24 different jams

– People are happier and actually write better papers when they are given a small number of topics to choose from than a large number

– People are happier with a chocolate when they choose it from an array of 6 chocolates than when they choose from an array of 30

Number of options

• It appears that a larger number of alternatives leads to more regret with the final choice

• The quality of the top two or three options can be much closer than in a smaller array– “Out of 24 jams, there must have been one at least equally

as good as the one I chose.”• The options you did not choose are much more

salient yet less distinguishable when the array is larger

• The pressure to make a good choice is also greater with a large choice set

Summary

• Careful design of options can make choosers happier with their decisions– Give them some context– Organize their options– Give them some place to start

• Watch out: too many choices can be a bad thing