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The Applied Guide: How Behavioral Economics Makes Everything Better, Vol. 2, Part 2

The Applied Guide: How Behavioral Economics Makes Everything Better, Vol. 2, Part 2

Author: Jordan Birnbaum

Set the Default to SUCCESS

In Part 1 of this post we described a few foundational ideas to provide context for why the default option is so important and so effective as a tool to drive behavior.

So if the terms “System 1 and System 2 thinking,” “mindless choosing,” “choice architecture” or “libertarian paternalism” sound new to you, either give Part 1 a quick read or just take my word for it. Setting the default option (aka what happens when people make no proactive choice) to the desired outcome is probably the most effective tactic in behavioral economics.

To demonstrate, let’s consider the subject of organ donation, a concept that many people support (at least in theory). In the US, 85% of people say they are willing to be organ donors. However only 28% actually give their consent by signing a donor card. Is this evidence that Americans are disingenuous on the subject of organ donation?? No! It’s evidence that the US organ donation community has yet to understand the power of defaults. Let’s look to Europe for proof.

Germany and Austria are separate countries, yet with fairly similar cultures. It would be surprising to see a massive difference in their attitudes on most topics, including organ donation.

Germany, like the US, requires people to opt-in to becoming an organ donor when they get or renew their driver’s licenses. In other words, when people take no action, they do not become organ donors. The sign-up rate for organ donation in Germany is 12%.

Austria, on the other hand, requires people to opt out of becoming an organ donor when they get or renew their licenses. In other words, when people take no action, they do become organ donors. Care to guess the sign-up rate for organ donors in Austria? It’s 99%!

The conclusion? If you’re ever going to need an organ, it’s better to be Austrian than German. The other conclusion, though, is that we should all be using “opt-out” rather than “opt-in” whenever possible.

It’s important to clarify that using an opt-out default is NOT intended to fool or trap anyone. In fact, to use an opt-out default, you have to make it explicit, and allow for frequent and easy opportunities to unsubscribe. Failure to do so will create far more problems than it will solve. Yet so long as the power to choose is easy and transparent, you are going to end up with significantly higher results using an opt-out approach.

So let’s close with a recent personal story about the power of the default option.

In 2016 ADP introduced an internal program called Leader Compass to provide feedback to managers via confidential and anonymous survey. The idea was to use this feedback to lay the groundwork for managerial development.

However, we worried that the mere provision of a feedback report would be insufficient to drive true behavioral change. So we created multi-week email-based coaching curriculums for each item that was measured, with the intention of providing coaching on the subject for which the recipient received the lowest score.

(By the way, there’s a lot of behavioral economics principles baked into the coaching itself, which I’ll be describing in future posts.)

While we were very excited about the content we developed, we were left with an important decision. Should we make the coaching opt-in or opt-out? In other words, if people took no action at all, should they receive the coaching?

We decided to go with an opt-out approach, being sure to be transparent, and making it easy to opt-out and unsubscribe.

The results? 99% of leaders signed up for coaching (about 5,000 managers), and over the next twelve weeks, less than one half of one percent unsubscribed.

In surveys and interviews following the administration of Coach, more than 75% of end users said they wanted to work with Coach again, 80% said that working with Coach increased their motivation to improve as a leader, and 89% described Coach as either meaningful or enjoyable. Most importantly, though, leaders saw their scores on the coached subjects improve 27.8% in a subsequent assessment.

These were spectacular results for a freshly conceived idea, so we are now working on a version of the product for our external clients. Many things had to go right for this to work. Yet I would say that the decision to make the coaching opt-out was the most critical to the success of the program.

Had we made the coaching opt-in, it is extremely unlikely that we would have gotten even a 20% sign-up rate. So the other 79% of recipients would never have even seen coaching, much less come to enjoy it.

I realize that the use of the best default option is hardly a revolutionary idea, but it’s clear that people use this technique far too infrequently. I hope that this post brings the importance of the default sufficiently to the front of your mind, so that the next time you have the chance to design a choice, you’ll set default to success. After all, it worked for us!

 

Jordan Birnbaum is VP and Chief Behavioral Economist at TalentX, an ADP Venture.  In his role, Jordan is responsible for the integration of behavioral economics into software design and marketing communications of new talent-based products. Jordan has more than 20 years experience as a start-up specialist and entrepreneur, as a Founder / Senior Vice President at Juno Online Services and Founder / CEO of The Vanguad, Los Angeles.  Jordan holds a BS from Cornell University and a Master’s degree in I/O Psychology from NYU.

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