Podcast Episodes

What is behavioral economics? Why does it matter to you?

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Podcast Episodes

What is behavioral economics? Why does it matter to you?

179. Sludge: What It Is and How to Reduce It, a Behavioral Economics Foundations Episode

The internationally acclaimed book, Nudge, has shaped a lot of the field of behavioral economics. It has also spurred a whole other area which one of its co-authors, Cass Sunstein, has written a new book about, called Sludge: What Stops Us From Getting Things Done and What To Do About It, which released in fall 2021.

Sludge is everywhere in our lives. So what is it and how do we reduce it? This episode of The Brainy Business podcast is dedicated to all things sludge to help you identify and reduce it in your business. In this episode you will learn about: what sludge is and isn’t; a customer facing example of sludge; a back-office example of sludge; how to quantify sludge; and how to get others on your team on board with finding and removing sludge.

No matter your size or industry, I guarantee sludge is a problem in your business. Find it, remove it, and enjoy the benefits. Listen to learn more about sludge…

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[00:06] Today’s behavioral economics foundations episode is all about sludge.

[02:23] Context and the way choices are presented make a huge difference in what we find to be most appealing. When the choices are presented in a different order we might choose something else entirely.

[03:32] When you use a tactic to influence choice, we call that a nudge.

[05:45] “Sludge is built into the human condition, and we need to start to remove it, piece by piece.”

[07:02] “Sludge hurts all of us, but if you are sick, old, disabled, or poor, or if you don’t have a lot of education, sludge is a curse.”

[08:07] Sludge is everywhere in our lives. Melina shares examples of sludge.

[10:34] “If sludge is understood to consist of frictions that separate people from what they want to get, the concept is not entirely mysterious.”

[11:16] Much sludge involves confusing administrative burdens requiring people to obtain information, to figure out whom to call, to find out exactly what they’re supposed to do.

[13:01] Sometimes it is good for people to be confronted with a little sludge to prove they qualify for a benefit or that they care enough to earn whatever is presented, or that they are a good fit for a position.

[13:30] In this episode I’m going to give you a back-office example, a customer-facing example, and some ways to think about quantifying the problem of sludge so you can know its real impact

[13:50] When it comes to customer-facing examples, I like to start with the “buy now” button from Amazon.

[15:12] In the buying process, questions like “Are you sure?” or extra fields or steps can act as partitions. Each new partition is a point where someone will evaluate if this is worth it or if they should bail completely or plan to “come back later.” Unfortunately, later often never comes.

[17:09] Removing the sludge so you only ask what is absolutely necessary can help a lot more people get over that first hurdle. Focus on each micro moment as it exists and what is absolutely necessary.

[18:23] You can turn the sludge up or down as needed, but again I want to stress that most companies have way too much sludge in the way of people doing business with you.

[19:41] My main piece of advice: find the least amount of items you need to get someone to move forward in this singular situation.

[20:21] Melina shares back office examples including expense reports, checking tools in and out, and signing off on a change.

[21:55] Melina shares her experience when she first started at the credit union and changes required a physical form to be completed by hand. (So sludgy!)

[24:15] In the back office, when you trust your employees, you can reduce the sludge and things get done faster, for a lot less money than if you don’t have trust. Work on trust and get rid of that sludge.

[24:47] Because people get stuck in the status quo, they often don’t feel like they can give up sludge.

[25:11] Sunstein gives an example of quantifying sludge with TSA Precheck and shares how quickly the value can add up.

[26:40] When you take a minute to quantify the lost sales or the minutes wasted by key staff members, the initiatives that couldn’t be completed because of wasted time, or anything else. It can add up incredibly quickly.

[27:21] Sludge is a huge problem in your business, I promise, no matter your size or industry. Find it, remove it, and enjoy the benefits.

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