5 Practical Tips to Design Better Products Using Behavioral Economics
Shyvee Shi
Product @ Microsoft | A forward-thinking product leader combining creativity, user psychology, and AI to drive growth and scale communities | ex-LinkedIn
Welcome to the latest issue of the Product Management Learning Series - a series of live streaming events and newsletter articles to help you level up your product career! 🚀
In our 15th installment, our speaker was Kristen Berman , co-founder of Irrational Labs, a behavioral economics product consulting and design company, with author and professor Dan Ariely. She was on the founding team of the behavioral economics group at Google, a group that touched over 26 teams across Google, and co-founded a Duke University program called Common Cents Lab focused on improving financial health for low-income Americans.
If you missed the event, you can watch the full event recording here and if you want to keep up with behavioral insights to improve your PM skills, sign up for the Irrational Labs newsletter here.
Below are the main takeaways from my conversation with Kristen:
What is behavioral economics?
Pure economics assumes that people make decisions rationally. The expectation is that we choose what’s best for us. But this totally ignores psychology, which absolutely affects our behavior. So behavioral economics combines the two and says: people often make decisions against their own best interest, but they do so in predictable ways. If we understand those errors in decision-making, we can change how people act. Behavioral economics studies the gap between what people say they’ll do and what they actually do.
When it comes to applying behavioral science to product development, think about the psychology behind a user’s action.
Kristen shared one case study where she applied behavioral economics to design a better product experience for Steady, a company that helps gig workers find jobs and manage their income.
One Irrational Labs team, led by Richard Mathera, built an income tracker for Steady from the ground up. However, many users didn’t use the feature even though it was widely requested. The low adoption was due to the friction in syncing bank accounts: users had to input their bank account password. The number one lesson from behavioral science here? People usually take the path of least resistance. That is, users will do what’s easiest for them in the moment. So when designing something that helps people get through a high friction moment, we have to think creatively about what is the psychology that could help them get over that friction.
In Steady’s case, there were three conditions to help people get over the hurdle of syncing their bank account to the promised land of an income tracker: (1) Continue or Maybe Later, (2) Accept or Decline the feature, and (3) Complete. Condition (1) gives users a reason to procrastinate and exhibit our natural tendency to do nothing (status quo bias). Condition (2). Meanwhile, asks users to make a decision in the comment and that increases the mental friction. Both conditions worked better than the control (1), but condition (3) proved to be the most effective option. Completion gives people an immediate benefit and boosts their motivation. This is also why marathon runners speed up a little when nearing the finish line, and that is why Kristen does not propose a progress bar at the beginning of a workflow, because people can lose motivation, but as people get closer in, having a progress bar can help increase the motivation to finish.
Evaluate the environment of decision-making to figure out what are all the things going on in the environment that would influence people’s decision-making.
Customers can’t always accurately tell us what they want, so reading too much into their preferences to predict what they would do in the future can be misleading. Kristen shared another example where her team was helping a company redesign their cafeteria. Asked whether they like apples, 60% of employees answered yes. However, when apples were put out, zero people chose them. Why the discrepancy? Because in the moment of deciding whether to take an apple, there might be other things happening—for instance, there could be fries next to the apples. The interview question didn’t ask people to decide between fries or apples. People may like cut-up apples more than whole apples because they’re easier to eat. And again, the interview question didn’t ask people which they’d prefer. Interviews are generally happening in a vacuum, and to truly understand human behavior, we have to study the environment in which the decision in question is actually made.
Start with defining the “uncomfortably specific behavior” you want your users to do to drive real behavior change.
Kristen uses the 3B framework with Google, Microsoft, LinkedIn, and hundreds of startups to help them drive real behavior change for their products. The first B stands for Behavior - the uncomfortably specific behavior that you want your user to do. Product managers are usually so good at thinking about business outcomes, such as active use, retention, and engagement, but spend far too little time thinking about the actual behavior they want people to do. What’s the first thing you want your users to do after they log in? This behavior should correlate with driving the desired business outcomes. Kristen used Peloton to illustrate what she meant by defining “uncomfortably specific behavior”: within 7 days of starting Peloton, I want my user to do at least two 10-minute workouts with different instructors. This specific definition (vs. a vague definition of “help people work out more”) makes it easier to design a system that gets people to do this specific thing.
Remove the barriers in your product to create the path of least resistance that leads to your desired key behavior.
The next of the 3B’s is to reduce the Barrier to that Behavior. This can include both cognitive friction and logistical friction. The previous example of not taking apples when they’re next to fries, the friction is logistical. Other examples of friction could be uncertainty aversion, regret aversion, and optimism bias. These aren’t logistical frictions, but these cognitive frictions could get in your head and prevent you from making the decision in the moment. So after you define what behavior you want someone to do, the next question you want to ask yourself is: how do I reduce barriers to that behavior?
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Amplify the immediate benefits to increase user motivation to act.
The third B in the 3B framework is Benefits, and more specifically, immediate benefits. This is a really important step to help increase user motivation. Kristen continued to illustrate the concept using Peloton: the app celebrates your accomplishments based on how often you work out (streaks), calls you out if you are joining the class repeatedly, and sends you high fives. This is an example of using confirmation bias and social norms to boost motivation.
Additional gems from Kristen:
💎 Kristen’s favorite product is the Marco Polo app, a video messaging platform that Kristen uses to show her friends what her newborn baby is doing (and congrats on becoming a mother!)
🍒 Kristen shared that many product leaders have influenced her career (besides Dan Ariely): Kelvin Kwong, Chris York, and David Packles. You can learn more about these leaders’ work through Kristen’s Science of Change Podcast (and her interviews with David Packles of Peloton and one with Kelvin Kwong of Big Health).
🍪 The last two pieces of advice from Kristen include a recommended book list from her on behavioral economics, and her favorites are Darwin Economy by Robert Frank, and Predictably Irrational by Dan Ariely. Kristen’s second and final piece of advice to product managers is to stay curious and study the environment of our decision-making. She argued that we are potentially more impacted by our environment than by our attitudes, preferences, and beliefs. Be humble and understand that it's not necessarily how much your customer likes your product; rather, it's how you designed your product to make it easy for them to enjoy using it and how the product fits into their current life.
To learn more about behavioral science, check out:
As a courtesy to all viewers and readers, join the Behavioral Design Online Bootcamp and use the code "LinkedInLearning" for 10% off!
🎉 Special kudos to Anusha Kovi for drafting this article.
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Learn more about the Product Management Learning Series and view past recordings here.
Procurement & Commercial across all technology sub-categories | all parts of the lifecycle | wide variety of industries both public & private, all sizes | Outcomes as Leader or Expert
2yNataliia Roskladka this is more helpful - a colleague of Dan's. But you get the idea. nothing special, just googled.
Business Analysis | Implementation | Product Management
2yThanks for the article! It spurred a couple ideas for me to apply to one of the products I manage!
Try Topmate! Will eat one bhut jolokia chilli if you don't like it 😊
2yShyvee Shi Those tips are superb 👍 when implemented without getting influenced by our own obstructing thoughts and approaches.
Freelance Writer (Freelance)
2yExcellent tips!!!
Product Manager | Delivering products 0-1 | Fintech, Digital Banking, Lending, Payments, B2B & B2C
2yIt was a very insightful chat. I love how she described the fact that interviews are usually based in a vacuum (the apples example was great 😂) and how it's super important to evaluate the environment of decision making. Good to keep in mind when we are conducting user interviews and/or analysing feedback data to make decisions!