Frozen Using behavioral design to overcome decision-making paralysis Doblin is one of the world’s leading design-driven innovation practices. Taking a user-centric, systematic approach, our multidisciplinary teams combine deep experience in strategy, research, and design to help clients set innovation strategy; to design, build, and launch bold break- throughs; and to become more effective innovators. Headquartered in Chicago with offices in New York, Toronto, Portland, Boston, Delhi, and London, Doblin is part of Deloitte Consulting LLP. www.doblin.com | @DoblinGlobal CONTENTS Introduction | 2 What causes consumer paralysis? | 4 Taking action: Getting past paralysis | 7 Taking action: Prompting consumer decision making and action | 11 Putting it all together | 13 Endnotes | 15 Frozen Introduction T’S a behavior that most companies and policy principles with customer-centered insights, compa- makers know too well: Often consumers—even nies can more effectively address and design for a Iloyal ones—don’t follow through on making pur- variety of behavioral challenges (see the sidebar, “A chases or taking action, like choosing a health care Deloitte series on behavioral economics and man- plan. Something happens along the way, even when agement”). Consider these two examples: the end result of making a choice would clearly be • Who wants to buy a car … during the in their best interest. So what altered their decision Great Recession? The economy in the fall of making? And why? And what can companies do to 2008 was in a downturn, and consumer fears reengage these consumers? of job loss prompted a severe slowdown in auto In the quest to prompt action, companies are em- sales. To help address the economic environ- bracing the field of behavioral design to craft solu- ment, Hyundai introduced the Assurance pro- tions that take into account how people actually gram, an innovative buy-back program that think and behave, rather than how they logically promised any car buyer who lost his job could should behave. By combining behavioral economics return the car, with Hyundai Capital America as- 2 Using behavioral design to overcome decision-making paralysis suming the difference in purchase price. While only 350 people took advantage of the offer over A DELOITTE SERIES ON BEHAVIORAL the life of the program,1 by reducing consumers’ ECONOMICS AND MANAGEMENT uncertainty and emotional barriers to action, Behavioral economics is the examination Hyundai converted job loss anxiety into car pur- of how psychological, social, and emotional chases. It sold 435,000 vehicles in 2009—an 8 factors often conflict with and override percent increase, when most other automakers economic incentives when individuals or groups make decisions. This article is part were posting sharp declines—in part by remov- of a series that examines the influence and ing the fear of job loss from the equation.2 consequences of behavioral principles on • Are you saving enough? Launched in 1998, the choices people make related to their Allianz’s Save More Tomorrow (SMarT) pro- work. Collectively, these articles, interviews, and reports illustrate how understanding gram was designed to help people more eas- biases and cognitive limitations is a first ily save for retirement. Grounded in an opt-out step to developing countermeasures that option that required participants to actively limit their impact on an organization. For dis-enroll, SMarT provided a manageable set more information visit http://dupress.com/ of fund options. Rather than reducing current collection/behavioral-insights/. take-home pay, the program incorporated an- nual increases automatically generated from employees’ yearly raises, rendering them nearly Specifically, three common hurdles emerge: Con- imperceptible. In its first three and a half years, sumers freeze when too many choices are present- SMarT boosted average savings rates more than ed, they strongly prefer present payoffs to future 350 percent, and of the 78 percent of partici- rewards, and, when presented with an important pants who joined initially, 98 percent remained choice, they are often overcome by fears of failure. through two pay raises.3 While many of the examples covered are specific Whether increasing car sales or personal savings, to consumers saving for retirement, the principles issues like these—and many others like them—re- gleaned from solutions to this classic financial ser- quire organizations to successfully solve for two dis- vices quandary apply in many other situations as tinct dimensions of the same behavioral problem: well. Learning from these examples can help com- helping consumers overcome decision-making pa- panies better identify causes of paralysis and ad- ralysis and commit to new actions. As the examples dress them in their own industries. above demonstrate, companies that deliberately This article will offer a behavioral-design inspired design solutions that overcome consumers’ inertia model that practitioners can leverage to help con- and indecisiveness can get more new customers in sumers overcome their decision-making paralysis: the door, grow their base by increasing consump- addressing consumers’ mind-sets in defining op- tion, and, consequently, move the needle on their tions, their perceived ability to make both confident bottom lines. and smart choices, and finally, ways in which they So what keeps consumers stuck in the status quo can be prompted to take action. and paralyzed by the prospect of embracing change? 3 Frozen What causes consumer paralysis? ET’S first explore why people get stuck in the tends to reduce consumers’ confidence in a decision first place: What contributes to choosing the they have made, and can prevent making one at all. path of inaction over that of action? There L Buying jam is one thing . but a similar tendency are multiple causes: an overwhelming number of has been shown to occur when people are choosing options with no clear way to gauge which is best; a retirement plan.6 Research shows that an inverse the tension inherent in being forced to make a correlation exists between the number of plans choice now, despite an uncertain future payoff; and offered and the likelihood of signing up. A 2001 fears associated with the idea of choosing poorly. study indicated nearly a 20 percent decline in Each of these symptoms can occur individually participation between plans offering two funds and or in combination, and certain cues can signal those offering 59 options,7 despite the common situations that have a high likelihood of potential perception that the presence of more choices consumer inaction. enables a “just for me” fit. The cognitive work required to parse and compare large amounts of Analysis paralysis: “There are information quickly spirals into confusion that too many options, I just can’t diminishes consumers’ ability to choose,8 even when people fully recognize the importance of saving for decide.” retirement early. Decision paralysis brought on by the inability to choose between options is typically the result of Facing the uncertainty of the cognitive overload and fatigue. The human brain simply isn’t designed to process and compare the future: “I know I should . sheer amount of information it is often given. While but that can wait.” consumers say they want choices, the need to select between endless options can become a cognitive In addition to the mental exhaustion caused by jug- burden rather than a delight. Without ways to gling multiple complex options, saving for retire- mentally manage or weigh the value of information, ment faces a second challenge that encourages pa- people struggle to decide and freeze.4 ralysis: Outcomes set in the distant future typically lack a sense of urgency in contrast with everyday In his book, Paradox of Choice, Barry Schwartz ex- needs, making it easy to defer decision making to a plained how the proliferation of choice overwhelms tomorrow that never arrives. The human tendency consumers’ ability to process information, prevent- to overinflate the here and now, known as the pres- ing them from making smart decisions. Similarly, ent bias, makes us regularly tip the balance in favor Columbia Business School Professor Sheena Iyen- of choices that benefit us in the short term.9 gar’s jam experiment5—in which shoppers were of- fered either 6 or 24 varieties of jam for purchase— This form of paralysis arises from conflicting val- revealed that more choice actually resulted in fewer ues between peoples’ present and future selves, in sales by a ratio of nearly 8 to 1, as potential purchas- which “the now” is concrete, but the future is uncer- ers struggled to weigh one option against another tain and difficult to plan for. In the context of long- and bought nothing. This state of choice overload term planning, today’s consumer has well-defined 4 Using behavioral design to overcome decision-making paralysis preferences but little sense of—or even empathy The impact of emotion on for—what her 80-year-old self will need or want.10 Not surprisingly, then, situations in which people behavior: “I worry about face major decisions that have uncertain down- failure, and I hate feeling stream implications, like saving for retirement, are dumb.” ripe for paralysis.11 Consumers also hesitate when they fear or worry This uncertainty about the future is compounded about the possibility of making a bad decision. when people have little exposure to or practice with Given the high levels of risk or uncertainty making a decision. Cognitive research has shown involved, consumers find retirement planning to that people often learn and make decisions using be unpleasant, and are often fraught with anxiety “case-based reasoning”—solving problems by recall- rather than focused on the anticipatory pleasure of ing previous situations and reusing that information the unknown. This, coupled with the fact that people as fodder.12 With no personal experience, feedback, tend to avoid what makes them nervous, explains or a memory of past reference points, consumers why they put off even thinking about funding their feel ill-equipped to make the right call; even after post-employment years.