What’s so interesting about decision making is the variability. Change a condition change an outcome. Here are a few examples.
What would you do with $500? A grain-of-salt study because it asks about what people say they’ll do rather than what they will do. Notable is the role of time and quantities regarding promising windfalls.
They hypothetical prompt led one-in-five to say they would spend nearly five-hundred dollars. As the amounts offered increased, the amount spent increased, mostly in non-durable things. However, if people were promised the amount was coming in three months, seven-in-ten of that twenty percent said they would not ramp up spending.
Takeaway: to stimulate spending send larger sums faster.
In the red, the effects of color in investing. Thanks to Dan Egan for assisting researchers on the effect of color on investing. Through evolution and culture, people associate certain colors with certain meanings. To most Americans, red is bad. When researchers showed one anonymized stock line in red, rather than black, propensity to purchase fell by twenty-percent.
Communication with (LPs, or any stakeholder) is crucial and getting buy-in makes cutting checks easier. To paraphrase Seth Klarman, work with people who cash checks when you write them and write checks when you ask for them.
Takeaway: regular, consistent communication matters a lot, even in color.
Financial Incentives Beat Social Norms. Part of the problem of any ‘free’ service is getting people to use it. If needs aren’t salient people don’t do it. In this study, researchers looked at how to incentivize employees to select a 401k strategy. When researchers offered a chance to win a ~$25 gift card, employees logged in and investigated their plan options. That outperformed all social norm conditions.
Takeaway: whether dollars or feelings, incentives matter. In this case dollars proved more effective.
Researchers looked at how much people might save if they were to refinance their home. On average it was $160 per month. Even conservative estimates around taxes, moves, and options yielded re-fi savings over one-hundred-dollars each month.
Taking their research to the street, the researchers mailed homeowners a letter offering help (and no upfront costs, those would be rolled into the new loan) to no avail. A quarter failed to open he mail, a third planned to call but didn’t, and a third didn’t think the savings were worth it.
Takeaway: the less everyday salience a behavior has, the more effort it takes to make it seem important.
Businesses exist to serve customers. Bob Moesta’s JTBD (my overview) framework (push, pull, inertia, anxieties) offers a way to see things from the customer’s perceptive. Let’s test that framework using the re-fi ideas.
- Push. Often the current situation works—or else people would have already changed. It easy to think that a current budget, just is the budget. Things, are fine.
- Pull. How much does a customer want to make the change? Refinancing a home falls prey to the ‘Gas Price Delusion.’ Things that are salient, like filling up the tank and seeing price changes in two-foot numbers, matter a lot relatively but not a lot absolutely. Refinancing a home mortgage matters could be a large budget slice, but it’s also a quiet one.
- Anxieties. Will a re-fi affect my credit? How much is it *really* worth? What if I do change my choice to live here long-term? There’s probably a larger emotional weight on a place of residence than on most anything else.
- Inertia. It’s easy to just-keep-paying the mortgage. What would motivate someone to research rates, apply to a lender, fill-out-paper-work, go through another inspection and so on.