A couple years ago, Washington State switched the default rule on state park fees that drivers pay (or don’t pay) when they renew their licenses. Reader Steve Loeb nicely captures what this switch looks like on the Washington State Department of Licensing site.

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The Nudge blog sat down (electronically) with John Kenny, Senior Vice President of Strategic Planning in Draftfcb’s Chicago office, to explore whether behavioral economics is just a fad in marketing or a legitimate tool to help the industry perform better. Starting with the Institute of Decision Making, Draftfcb has been one of the leaders in thinking about how to incorporate the discipline of behavioral economics with the practice, and business, of modern advertising and marketing. Recently, Kenny has put together a set of video lessons that serve as a guide to using behavioral economics in their work. The interactive guide, called “Marketing to Crazy People,” can be found here.

Nudge Blog: Behavioral economists have long looked at marketers and advertisers as people who have been applying behavioral principles for years. With the rise of behavioral economics as a recognized discipline, how would you say marketers and advertisers look at the work behavioral economists do?

John Kenny: Your point about marketers having used behavioral principles for years is a critical one. Most marketers are looking at behavioral economics as something that will transform what they do, but in truth it helps them understand better what the best creatives have always understood, albeit unwittingly: That people are not rational. The best creative has always been built on that insight, and is inevitably more creative, more breakthrough, more persuasive and more effective. Behavioral economics helps us understand why great creative works. That’s a huge competitive advantage, but it’s a mistake to see it as changing what we do. It’s more about making us more effective at what we do.

NB: The term behavioral economics has been floating around the industry for a couple years now, and more marketers are familiar with books like Nudge. Is behavioral economics just going to be a fad? If it’s here to stay, what is the next step for behavioral economics in your industry?

JK: If anything, behavioral economics impact will only grow in the future, because it works hand in glove with the growing centrality of digital solutions in marketing. You can’t understand the success of digital platforms like Amazon, Facebook, Farmville, Nike Plus, and Groupon if you don’t understand behavioral economic principles like social proof, the impact of variable intermittent social rewards, feedback loops, and scarcity. Behavioral economics will increasingly be providing the behavioral insight that drives digital strategy.

NB: It can be easy to think about the relationship between behavioral economists and advertisers and marketers as a one-way street. Do you think marketing professionals can offer insights and lessons to behavioral economists?

JK: Where we’ve seen it work as a two-way street is when we invite academics into the marketing process. What they tell us is three fold. First, marketers give behavioral economists access to huge behavioral databases that scream for behavioral analysis. Second, marketers can give academics great opportunity to test their insights. Public policy is a tough place to try something new, whereas marketers will inevitably have far more license. Finally we find ourselves invited to give a lot of presentations at universities by academics. Marketing is a great way of introducing students to the pervasiveness of behavioral economics in the messaging that surrounds them every day, and get them interested in the field.

NB: Draftfcb launched the Institute of Decision Making in June 2010. Can you give us an update on its work over the past year? What’s on tap for the fall?

JK: When we started the Institute, our goal was to build bridges between academics and our clients, and that’s been a huge success. Now, coming off that, our focus in the coming months will be ensuring that behavioral economics is not see as a separate skill set, but one that all departments in the agency are familiar with, and that our planners see as a core skill set.

NB: What behavioral economics concepts have you found to be most relevant or powerful in your work? What value do you think BE brings to your work?

JK: When we first started applying behavioral economics to marketing problems, initially we thought it would be most appropriate in developing offers, but very quickly we realized that it was applicable to nearly every marketing problem, from driving engagement, consideration, conversion and loyalty, so it’s hard to single out one principle as more useful than others. Right now, one of the areas I most excited about is working with our mobile marketing practice and combining the opportunities available with mobile technology with our “addiction to now.” But come back in 6 months and I’ll probably be raving about another principle.

NB: How have you incorporated BE into some of Draftfcb’s campaigns? Any favorite examples?

JK: Three favorites come to mind: Probably the first time I realized that behavioral economics could drive big creative ideas, was when one of our creative teams brought us an idea for a client’s free WiFi offer, called “free WiFi in places you’d actually want to go” built off the insight that people will go to crazy lengths to get something for free, a key behavioral economic insight, but one that we hadn’t considered until one of the creative teams brought it up.

Within the digital space, one of my favorite applications has been in the area of couponing, which is typically very rational. But what we’ve been finding is that by making couponing social, people will eagerly share a coupon with friends even if it sacrifice a coupon’s face value.

(Note: Draftfcb combined a standard financial discount coupon with a lottery prize that had a social component. The marketers found that the lottery component made people far more willing to use and share the coupon, even though sharing it reduced any single person’s odds of winning.)

However, if I had a favorite, it would be the negative social proof leveraged in the campaign “Your Mom Hates Dead Space 2.” For guys the best way to persuade them that a video game is cool is to tell them their mom hates it. Really simple insight, but that’s the power of behavioral economics

NB: What has been the reaction to introducing BE concepts into pitches from chief marketing officers?

JK: Some are very interested, but ultimately what the care about is the work. Is it insightful? Breakthrough? Does it shift their business? That’s all that matters, the work. The fact that we are increasingly getting that work from starting in behavioral economics is interesting to them, but secondary. In marketing no one ever asks to check out the bibliography.

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Courtesy of computer security provider Lavasoft (spotted by a sharp behavioral graduate student at Booth).

Yes, you can click the grayed-out button on the left and “update” to the free software.

 

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Hat tip: Matthew Buechler

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It goes by the name “Smart Disclosure,” in an announcement to the heads of federal departments and agencies.

The term “smart disclosure” refers to the timely release of complex information and data in standardized, machine readable formats in ways that enable consumers to make informed decisions. Smart disclosure will typically take the form of providing individual consumers of goods and services with direct access to relevant information and data sets. Such information might involve, for example, the range of costs associated with various products and services, including costs that might not otherwise be transparent. In some cases, agencies or third-party intermediaries may also create tools that use these data sets to provide services that support consumer decision-making. Such decision-making might be improved, for example, by informing consumers about the nature and effects of their own past decisions (including, for example, the costs and fees they have already incurred).

Pdf of announcement is here.

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Nudge blog note: Last night’s Republican debate prompted Richard Thaler to weigh in on Rick Perry’s handling of an HPV vaccine executive order, but not the policy itself. Also, Thaler recently started tweeting. Follow him.

By Richard Thaler

In the Republican Presidential debate last night at the Reagan library a question emerged about Rick Perry’s now famous 2007 executive order requiring all Texas girls to receive a vaccine against the human papillomavirus (HPV) before entering the sixth grade. Perry said during the debate that his order was not a “mandate,” which is grounds for treason in Republican circles, since there was an opt-out provision. (The issue became moot since the Legislature over-ruled him and the shmandate was never imposed.)

These kinds of issues are well known to nudgers. There is not a bright line distinguishing a mandate from a nudge; the question becomes one of costs. In the case of a default option, the question is how costly is it to opt out. As we have often said, the ideal nudge has “one click” as the cost of opting out. And the button to press for that click should be easy to find. Mandates are also not all equally offensive. In Romneycare, for example, there was a fine for not having health insurance, but the fine was pretty small — around a couple hundred dollars — at least initially.

If it is sufficiently onerous to opt out of a default rule then it effectively becomes a mandate. Conversely, if the fine for violating a mandate is small and/or unlikely to be imposed, the mandate is rather mild. (Consider the mandate to clean up dog poop. Have you ever heard of anyone being busted for this?)

The actual facts of the Perry inoculation mandate are summarized well by Politifact Texas. They assigned a “mostly false” verdict to Perry’s claim that his policy was not a mandate. This verdict was based on the fact that parents would have to request and file a conscientious objection affidavit form, the same form that is used if parents want to opt out of other health mandates such vaccines for measles or polio. Apparently few parents elect to fill out this form, though the reasons are unclear.

We don’t know whether the form is hard to get, hard to fill out, or whether most folks want their kids to get their shots. I conjecture that one reason might be the name given to the form. I am guessing that the term “conscientious objector” is not highly regarded in Texas. A “hell no, I ain’t goin’ along with this” form might have gotten more take-up. Politifact also notes that Catholic schools do not accept these forms, presumably because the Church is in favor of strict mandates.

Politifact’s verdict might be a bit harsh. On the Nudge-Mandate continuum, Perry’s policy was somewhere in the middle. There is an opt-out, but it is clearly more costly than one click. Still, I am guessing that Mr. Perry will not be endorsing libertarian paternalism any time soon.

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The problem with this sign is that the best yard sale goodies were probably available “yesterday.” You’re down to the dregs today. Better to post a sign that is fuzzy with time and refers only to “today.”

Hat tip to photographer Mary Ann Henningsen.

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“I hate losing more than I even wanna win.” – Oakland Athletics General Manager Billy Beane (or some creative Hollywood writer channeling Billy Beane)

Around 40 seconds in.

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Hat tip: Brad Bennett

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NBA legend and recreational gambler Charles Barkley is presented with the following hypothetical on ESPN radio: You are winning big at the poker table when a beautiful woman sits down next to you. “Do you stay with the hands or do you leave?”

Barkley: “Bro, gambling is so fickle, I love to gamble, when you on roll, you ride it out, bro. First of all, you don’t even let people sit down with you that you don’t know. I don’t play with random strangers.”

The interview is here.

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