Choice Architecture for Strategic Decision Making - Five Principles

Updated: Jun 1, 2020

by Gautam Jayasurya

Image Courtesy: OptiMonk

Doors with giant handles with ‘push’ written on it, we instinctively go for pulling it. Is it absent-mindedness or is there something more?

The instinct that drove us to push the big door handle that has ‘Pull’ written over it is known as an automatic system. When we are forced to fight our automatic systems to achieve the desired results, we experience a lot of stress and even failure. The experience that we are going through is known as stimulus-response incompatibility.

In decision-making situations, especially in ones that involve factoring in multiple variables, our choices reflect individual negative tendencies at the cost of overall social good. For instance, while filling up a form for availing a service, convenience dictates that we will more likely let the default option remain rather than changing it. This may not always be an ideal choice for us in the long term.

Our decisions are the results of our Decision Pathways. Decision Pathways are a series of steps taken instinctively or deliberately to achieve an end result. When creating Decision Pathways one of the core tenets is to reduce this friction as much as possible. When we use giant door handles, the instinctive mental pathways do not always let us follow the rational route. This could be due to our social conditioning or our preference for convenience.

How do we create decision pathways that reduce friction and enable ourselves to engage with a system to achieve desirable results? The answer lies in Choice Architecture’.

Our pursuit for excellence in our personal and professional lives will never reach its intended destination if we are constantly making sub-optimal choices. For instance, if we are consistently overshooting our shopping budgets by buying more than what is required, we have to find ways to resolve this. Let’s find the steps to rectify our choice architecture:

  • Reassess all steps of the decision-making process to achieve the end goal, which in this case is limiting shopping items bought.

  • Identify the stimulus that triggers that automatic action of shopping extra can be altered.

  • Change the stimulus to get the desired end-state. It could be as simple as taking a smaller trolley or carrying the exact amount of cash for things you require.

We need to know the core principles which will help us create and manage effective decision-making pathways. Let’s explore five key principles of choice architecture:

1. Setting the Right Default Option

We often encounter applications (medical insurance, investments) that demand us to go through a highly complex set of options before submission. We end up confused due to a plethora of choices and its unknown consequences. Being forced to choose after reading an incomprehensible manual ends up confusing the target group. This is where a sensible default option makes a lot of sense. Three most common default options are:

  • Opt-in: When a participant has to deliberately opt-in for a service failing which he or she doesn’t receive the service.

  • Opt-out: When a participant doesn’t have to deliberately opt-in for service as he or she is by default enrolled in the most generous one. Participants may deliberately choose to opt-out of the service during the application process.

  • Mandated Choice: There would be no default choice. The participant will have to go through all the available options. The choice architect can force the choosers to make their own choice.

2. Create Choice Systems That Preempt Human Errors

That lost ATM card! That day when we locked ourselves out! How much we panicked when we left our original certificates in the copying machine after getting our copies!

We are prisoners of our absent-mindedness. Some of these absent-minded choices can lead to disastrous consequences. Seemingly minor incidents such as leaving the gas cap of a vehicle can turn fatal. We make post-completion errors when we have finished our main task and we tend to forget things relating to previous steps. To overcome these errors, we need to carry out the very step that we omit first before we achieve the result. This solution calledforcing function’ is applied in cases of ATM cards, where in order to get your cash, you have to remove the card. Thus, there is a zero percent chance that you will forget to do so. An example of choice architecture based on this principle can be found in the petrol pumps. The nozzles that deliver diesel fuel are too large to fit into the opening on cars that use petrol, so it is not possible to make the mistake of putting diesel fuel in your petrol-powered car (though it is still possible to make the opposite mistake).

3. Create Choice Systems That Provide Feedback

We often struggle at being attentive. In an age when distractions are aplenty, there is always a better choice out there. So, it is possible that one may skip the feedback of their actions due to lack of time or attention. This risk of not receiving the feedback reduces our chance to improve upon our choices. A simplistic example of this would be to have a laptop that doesn’t warn us when our battery is low. How embarrassing it would be to have it shut down when a client presentation is on. The battery warning systems as feedback mechanisms nudge us to make the right choices. Thus, decision pathways with an integrated feedback system become highly effective in prompting us to make the right decisions.

During the creation of decision pathways, it is important to take into account how critical the feedback is and how it can impact the overall outcome. In the context of the delivery of a service, the customer’s feedback would be crucial since it allows the employee to improve his performance before it affects his ratings. If there is no feedback capturing mechanisms embedded in the service delivery systems, it may lead to employee complacency, customer churn, and employee dissatisfaction in the long run.

To avoid this from happening, choice architects along with embedding feedback within customer decision pathways, need to train the employees with the skill of visualization. The skill of visualization can help employees to interpret feedback and make adjustments to their behaviour. In time, the customer’s ideal experience of ideal service experience will be aligned with the employee who delivers it.

4. Creating Choice Systems Breaks Down Complex Choices

How do we wish our Income Tax Return forms were simpler!

We live in a world where we are confronted with complex choices and numerous variables that control the outcome.

If the objective of a system is to ensure that every individual makes an optimum choice, the system needs to be simple enough for a reasonable person to understand. It might sound like the most obvious principle but it’s easier said than done. When we are confronted with choices on the basis of numerical information which are not related to our real-life use, it becomes difficult for us to make an informed choice. Be it mortgages, cell phone calling plans, and auto insurance policies, as designers of decision pathways, it becomes critical for us to convert numerical information into real-life relevant units. It allows the users to compare the entities and make an informed choice based on parameters that are important to them. While doing so, there are two widely followed methods:

  • Compensatory Approach: Where one parameter is of so high value for a choice, it compensates for other parameters. E.g. While choosing a home to stay in, the large and luxurious interiors of a home compensates for a noisy neighbourhood and a long office commute.

  • Elimination by Aspects: Where the most important parameter overrides the less important ones. E.g. while choosing a home to stay, one may filter out all choices based on a cut-off for a particular parameter. E.g. all houses which fall within 30 minutes commute range.

5. Create Choice Systems with Incentives to Act

We all need a little push to make choices, don’t we?

The question ‘what’s in it for me?’ governs every little step we take in these times where time is money. Good choice architects are mindful of incentives of their target group. They embed incentive systems within their model so that there is an equal or higher return to every decision the user makes. One good instance is that of Netflix. We are adding whether we liked the film or giving it ratings so that we get better recommendations. This method of collaborative filtering is based on the principle of incentives.

Like in Netflix’s collaborative filtering, good choice architects create systems that direct people’s attention to incentives. A similar instance would be that of telephones used in INSEAD School of Business in France, which display the running costs of long-distance phone calls. This ensures that people are mindful of the cost they are incurring. A similar thought process can be applied in the case of other daily appliances to incentivise energy savings. Air conditioners and thermostats that show the watts used, in cost terms, can act as an incentive to decrease the use of electricity. This system will function even better if we can create a display panel that compares one’s energy use with their neighbours.

Government of the UK utilised the power of nudge a while back by adding a single line to their existing organ donation application form. This statement - ‘Thousands of people who see this page register for this programme’ pitted the contrary opinion of the individual against the collective willpower of the public who signed up for the programme, thus, leveraging the power of social norm and herd mentality to achieve a noble objective.

What does the future hold?

Local governments, national governments and private organisations are frontrunners when it comes to adopting nudge-based choice systems. Multi-national organisations like Pepsi-co have drawn inspiration from Richard Thaler and Cass Sunstein’s bestseller ‘Nudge- Improving Decisions about Health, Wealth and Happiness’ by setting up predictive behavioural labs. Governments systems using nudge have identified themselves as liberal paternalists - governments guiding their citizens to make the right choices like a parent is expected to guide their child. Invariably, this rationalization is bound to raise a question of free will and ethics among the participants. With increasing debates and discussions on the morality of governments and organisational nudges, they might be ‘nudged’ to put limitations on the use of choice architecture to serve their needs. The flipside of nudging is also minimizing non-compliance or dissenting voices that don't meet the norm. It is a possibility that norms itself are outdated or illegal either due to majoritarianism or illegal intentions. In a situation like that, it may not be in the best interest of democracy to give free rein to choice architecture.

As managers, leaders and consumers of the 21st century, we need to acknowledge the power of nudging over our choices. It provides each of us remarkable power to change behaviours through cost-effective actions. Fighting epidemics, climate change, upholding of civil rights, correcting social and economic inequality, the opportunities are endless. The only thing you’ve to do is choose right!

‘Choices are sacred. If you get those in the right order you can nudge the world a little’

Mr. Jayasurya is a Management Consultant and a Development Sector and Public Policy enthusiast. The opinions expressed in the article are personal view of author.

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