Behavioral economics - Why does it matter in digital? A technologist guide.

Matt McKenzie | April 17, 2020

These days, nearly every decision we make is influenced by the vast amount of technology around us, either directly or indirectly. Take, for example, online shopping. Have you ever gone to Amazon to buy something specific, and checked out with a shopping cart full of something completely different? Of course, you have; we all do it! What’s most interesting is knowing that there’s a science to influencing you and changing your mind.

Humans are amazing and complicated creatures, able to act both rationally and irrationally – occasionally at the same time. When we make decisions, we tend to act irrationally, motivated by our human nature and emotions. With most of our brands and product interactions occurring digitally, technology ultimately drives the bulk of our actions – and behavioral economics is the engine that powers it.

Supply and demand, supply and demand.

Early on in college, in an introductory course on microeconomics, my professor showed me a graph that you've undoubtedly seen before. It looked something like this:

Neoclassical economics demand curve

I was told that this simple concept of quantity and price could affect the demand for any product. To a certain extent, my professors were right, especially when talking about commodities like the wholesale demand for oil. Still, this “truism” doesn't hold true for most, if not all, of the day-to-day products we purchase.

It’s no secret businesses use branding and marketing techniques to change our perceptions of value, which has little to do with the price or quantity of something. However, there’s a much more powerful element at play, underneath those surface-level concepts. Something that tugs on your emotions in ways that are innate to being a human.

Behavioral economics in a traditional world

Behavioral economics - one part economics, one part psychology - is the study of human behavior and its effect on the decisions that we make.

Traditional marketers are no strangers to the concepts of behavioral economics

“LIMITED TIME ONLY!"

“TWO for the price of ONE!"

“FLASH SALE!”

How many times have you seen these phrases on banners, packaging, and signs? These tactics are just a regular part of any marketer's playbook because they still work. Even though we know they’re just marketing tactics, the science behind it – behavioral economics – shows us why we still fall for them over and over again.

Behavioral Economics in Digital & Technology

One morning in 2017, Robert Thaler, that author of Nudge, received a phone call from Sweden that forever defined his career: he'd won the Nobel Prize in Economic Sciences. What’s interesting about Thaler’s story is that most people who'd won the award focused on economic policy, markets, models, trade, and other neoclassical approaches. Only five different times in history has the Nobel gone to anyone like Thaler, a champion of behavioral economics, and got the world to focus on the one thing in economics that matters most: people.

In winning the award, a shot rang out to advertisers, marketers, designers, and technologists that will forever change the way we think about digital technologies. Human nature had been minted as the most critical element of all technology-based interactions.

Thaler and other behavioral economists such as Dan Ariely, Daniel Kahneman, George Akerlof, Elinor Ostrom, and Robert Shiller are transformative thinkers, but they are not digital specialists. In technology, we have BJ Fogg, who is the founder of the Behavior Design Lab at Stanford and the creator of numerous disciples who walk the hallways at Google, Facebook, Instagram, and Uber. From your Facebook feed to Amazon's one-click shopping, these large technology companies understand how to nudge you to take action or even in some cases, stay addicted. In essence, their behavioral-driven experiences are creating an unfair advantage over other companies. 

Companies outside of the tech industries are finding it hard to keep up the pace of behaviorally-oriented experiences. In some cases, traditional businesses are being threatened by disruptors who understand how to influence customers in new ways. At Alloy, we're working to change that by partnering with our clients to empower fearless digital growth, building technologies driven by behavioral science.

How can behavioral economics help my company?

Like Schoolhouse Rock taught us, knowledge is power. If you're looking to start leveraging this science-based approach to business, you'll need to understand the science, become familiar with tactics and techniques, find and work hand-in-hand with a UX/UI specialist, and prototype, test, optimize, and implement. 

As you can see, applying behavioral science isn’t a single discipline; it’s a grouping of high-level ideas that take time and experience to learn.

To understand behavioral economics, you'll have to start at the macro-level by understanding the basics concepts of influencing. According to behavioral psychologist Robert Cialdini, every form of persuasion can be traced back to one of six timeless principles: reciprocity, likability, authority, scarcity, consistency, and social proof. Understanding these critical factors in driving behavior will lay the foundation and framework for developing specific interactions within your design that influence and drives the desired actions.

At the micro-level, there is an infinite number of ways to build behavioral nudges or triggers into your user experience (UX), design, and messaging. At Alloy, we begin every digital experience with the end-user in mind. The starting block is understanding your end-user in as much detail as possible. This goal can be achieved by reviewing and analyzing existing user interaction data, understanding the value stream through focus groups, diving into specific user motivations with surveys, and leveraging any secondary research available.

It's also incredibly important to leverage the tribal knowledge of the organization by interviewing internal stakeholders who are close to your users or customers. We also enlist numerous other tools in the Alloy toolbox, including, but not limited to, segmentation, personification/personas, and empathy mapping. Once your organization has documented an intimate understanding of your end-user, you're ready to apply your science to the interactions that have the opportunity to drive the ideal behavior. 

Finally, when you think you've got it right - test, test, and then test again. An iterative approach is the only approach that maximizes success.

Where do we go from here?

If you think your business can benefit from technology powered by behavioral science, then your journey is just beginning. If you choose to dig deeper into these ideas, there’s a world of knowledge and resources available to you online that will set you up for success.

If you’re seeking a partner with years of experience and a deep understanding of how users are influenced, controlled, and satisfied through digital experiences, Alloy would love to talk to you. Feel free to reach out and tell us about your goals and vision.

Hire Us

Let’s create something amazing together.

We’d love to hear from you.

Whether you’re looking to update your current digital solution or just starting to explore, hit us up. We’re about solutions, not sales, and the path to results begins by getting to know each other.

Birmingham

101 25th Street N
Birmingham, AL 35203

Atlanta

118 Barry Street
Decatur, GA 30030