Choice architecture is the process of designing choices in such as way as to influence the decisions that we make. It is a topic considered in behavioral economics and the behavioral sciences more widely.Summary by The World of Work Project
Choice architecture is the process of designing the choices and options that people face. It is done to influence their decisions, or to nudge them towards a specific decision.
The tools of choice architecture are many and varied. They include varying the:
- Number of choices presented,
- Locations of choices, the descriptions of choices,
- Presence or otherwise of a “default” position, and
- Additional information about the choices, such as how popular they are.
Choice architecture is often used in retail to steer people towards specific decisions. These are often to get people to buy things. For example, placing something in the “medium” or middle position increases its popularity.
It is also increasingly the subject of discussion in social policy and behavioral finance decision making as well. For example, how can we change the choices we give people about their pensions so that they save more?
Choice Architecture in Action
Example 1 – Retail
To help bring choice architecture to life in the retail environment we’ve created the following fictional scenarios. In the first scenario, a consumer is offered a clean decision between three different purchases. You can see in the diagram below that they are simply informed of the products and their prices. In this scenario the consumer will probably make a decision based on their own assessment of product desirability, cost and quality.
In the second scenario though, choice architects have been involved and have manipulated the information that’s available to the consumer. The information that the consumer sees has been designed in such a way as to steer their purchase decisions.
In this example, the retailers have used techniques grounded in behavioral science to steer the consumer towards purchasing product B. Time pressure, price anchoring, product placement and social validation are all different techniques being used in this example. Where techniques like this are used, most consumers will purchase the product they are steered towards.
Sellers have a range of reasons for steering consumers towards specific products. They may be looking to steer sales towards higher margin products, they may be seeking to enter new markets or they may be looking to reduce excess stock.
Example 2 – Pensions Savings
We mentioned in the introduction to this post that choice architecture can use the existence or otherwise of a “default” option to influence decisions. Defaults are powerful decision architecture tools. This is because people are fundamentally lazy (or excellent at conserving mental energy) when it comes to decision making.
Changing default positions has been shown to hugely affect registration for things like organ donation and pensions schemes.
In scenario 1, below, a new pension scheme is being introduced, but the default position for employees is opting out of it. This means they need to take a specific, positive action if they wish to be included in the scheme. Since their default position is opted out, most people remain opted out and the enrollment rates in this scheme will be very low. It would not be surprising for enrollment rates in a scenario like this to be below 20%.
In scenario 2, below, a new pension scheme is again being introduced, but this time the default position is for the employee to be included in the scheme to the maximum level at which the employer will match their contributions.
As a result of being opted in, any employees who do not wish to be part of the scheme need to take a specific, positive action to opt out of the scheme. This need for action provides a minor impediment to opting out and, as a result, few people will actually opt out. In a scenario like this it would not be surprising for more than 75% of employees to remain enrolled in the new pension scheme.
Choice architecture has an important role to play in Nudging. Like persuasion, nudging can be used with more or less ethical intentions. When it is less ethical it is known as Sludge. There’s a nice summary of 10 Important Nudges by Cass Sunstein which brings more light to the topic.
Part of the reason that nudging is so effective is that we all have cognitive biases. We also have bounded rationality, limited ability to make really rational decisions. Similarly, the fact that humans have a dual process way of thinking plays into why nudging is effective.
Communication is another tool often used to change people’s behaviors. Ideas like the rhetorical triangle and the five canons of rhetoric shed some light on how this works. For a more detailed look at communicating for persuasion, explore Monroe’s Motivated Sequence.
Increasingly, products are also design to be persuasive, as it were. They are designed to create habits and drive increased use. Examples of this include Fogg’s model and the Hook model of behavioral design. You can listen to our podcast on this topic below.
The World of Work Project View
Let’s cut through this: choice architecture is just a way of trying to influence the decisions that people make. In most instances it is used for the benefit of the people providing the choices. However, In the retail domain it’s almost always used to increase consumption prices or volumes, or increasingly data transfer. In other domains it can be used for great good (e.g. setting organ donation or pension contributions as a default status and making people need to opt out if they wish to), but equally can be used for less benevolent outcomes.
As with all such things, choice architecture itself is neutral. It’s the way people choose to implement it makes it either beneficial or detrimental to humanity.
In our view, the best thing that individuals can do is to be aware that choice architecture exists. Other people are always trying to influence the decisions that you make, usually for their own benefit. Being aware that this is happening gives individuals a better chance of making the choices that are best for them and that they would make were they not subject to the influences of choice architecture.
Sources and further reading
Where possible we always recommend that people read up on the original sources of information and ideas.
This post is based on a wide range of sources. We suggest looking for further references and reading within our post on the subject of Nudging.
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