Welcome to The Brainy Business Podcast – Episode 20: The Power of Defaults
Melina Palmer: Welcome to episode 20 of The Brainy Business, understanding the psychology of why people buy. This Behavioral Economics Foundation’s episode is focused on defaults. Ready? Let’s get started.
Announcer: You are listening to The Brainy Business podcast, where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brainy friendly. Now here’s your host, Melina Palmer.
Celebrating Episode 20 and Listener Support
Melina Palmer: Hello everyone. My name is Melina Palmer and I want to welcome you to The Brainy Business podcast. Today’s episode on defaults is going to absolutely blow your mind. You may think you know how defaults work, but you will not believe how they impact you, your business, and really everything. It’s amazing. Before we really dig into the concept, though, there are a couple of big milestones to note. First and foremost, this is episode 20. Can you believe it? On the one hand, it feels like I’ve been doing this forever in the best way possible. I can’t really remember a time before I had weekly podcast episodes to write for and when I did not have so much content to create and share on social media and when I’m interacting and speaking, speaking with people. But on the other hand, I just have to say I am so humbled and amazed by the response to the podcast, especially so early on. To each and every one of you in the nearly 80 countries who have downloaded well over 8,000 times. Thank you to everyone who has rated and reviewed and shared and subscribed. Thank you means more to me than I can say. And I promise to be around for much more than 20 additional episodes.
Listener Shout-Outs and Reviews
Melina Palmer: And, speaking of ratings and reviews, we have two new five star ratings and reviews of the podcast in iTunes. The first is from Pool Jeff and is titled thought provoking. The review reads, Melina takes material that you would expect to be dry and boring and makes it interesting and relevant. You can tell that she takes her time preparing for each episode. Keep up the great work. Thank you. Jeff. I really appreciate you taking the time to review and that you can tell that I put a lot of time and care into each episode to make it so they’re not dry and boring and that they’re interesting. Every minute, hour, and late night are so worth the results. And people like you who leave reviews make it so easy to stay consistent and know how important it is for me to put high quality content out every single week. I appreciate you and everyone else and I looked through social media and I can’t find a place where we are connected already, so I don’t have anything to link to in the show notes. So Pool Jeff, if you hear this and want to connect with me on social media where you can find me as the brainy biz B I Z on Facebook, Instagram, Twitter, etcetera, please do so and I will give you a shout out and link in the show notes of a future episode. Thanks again for your stellar review.
Melina Palmer: Next is from Brittany Joyner and is titled interesting and enjoyable content. The review reads, love this show. Such an educational and interesting way to think about how we behave with money. Melina does a great job. Thanks Brittany. I appreciate you listening and taking the time to do the review as well. It means a lot to me as I’ve already said, and I know we have also connected on Instagram so I have linked to your profile in the show notes so people can check it out. Brittany’s profile says she loves marketing and personal finance. No wonder you like the show Brittany. And she has many adorable pictures of her pets which appear to be a schnauzer and a very cute black and white cat, though there are several other cats in the mix, so I’m not sure how many pets, you actually have. How many are yours? Let me know on Instagram if there are any pets I may have missed in my scan and everyone else can check them out for yourself on Instagram. Thanks again for the review, Brittany and for listening to the podcast.
Melina Palmer: I also want to give a shout out to Neil Hopkins who is interactor on Twitter. We first connected on Twitter a couple weeks ago when he tweeted
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for anyone else on the Be 101 x behavioral economics course. I’m just getting into the Brainy Biz podcast and cementing the course topics and he shared a link to the first episode unlocking the Secrets of the brain. This was of course incredibly exciting for me and we’ve had many conversations since then. He’s doing a self paced program through eDX online and is one of the many listeners from the UK. One of the most interesting things I’ve learned about Neil is that he’s never eaten cotton candy, so he found the cotton candy grape story from episode two to be particularly interesting since he says his other half insists that they taste just like cotton candy, but he doesn’t have the right frame of reference to know for sure. I look forward to meeting in person one of these days, Neil. I’m sure it will happen as we will be in the same circles and conferences over time. I can tell you have a real passion for behavioral economics and I look forward to continuing to keep in touch. I have of course linked to Neil’s profile on Twitter in the show notes, and also to edX online for anyone who’s interested in looking into a self paced program on behavioral economics. I don’t know much about the program myself, but now we know it exists and you can check it out if you’re interested.
How to Access Show Notes and Free Resources
Melina Palmer: All right, now that I’ve mentioned the show notes a couple times, I want to make sure you know what they are and where to find them. I’m probably not going to mention them again, but know that anytime you think, hey, I should make a note of that so I can look it up later, you should check the show notes first because I have anticipated your needs and linked everything there for you already. You can find the show notes within the podcast app you’re listening to, or by visiting thebrainybusiness.com/20 because this is episode 20. Hooray. In addition to the links, to those people who just got shoutouts on the episode, you will also find links to any referenced or relevant studies in case you want to dig into those, as well as any past episodes that are mentioned so they’re super easy for you to find and listen to again. And because this is a foundational episode, there’s a free worksheet available for you to download on that same page of the website, thebrainybusiness.com/20. Just click on the image near the top of the page. You can download it now and follow along as you listen, or grab it later if you’re out and about. Whenever you get it, know it’s going to really help you reinforce and apply the lessons of defaults into your business, which is why you’re here listening to the episode and why I took the time to make it for you. And if you’re already subscribed to The Brainy Business email list, there’s a direct link to that freebie in your weekly email from me, the one that had the episode in it. And to save you the time of having to download lots of freebies, I have created a special page on the website for anyone who’s already a subscriber, so you can get them all at once. I was noticing people would go in to download a freebie and I would get notifications to say, you know, person M A has downloaded episode two and they’ve downloaded the freebie for episode five and the freebie for episode nine and the freebie for episode eleven. And so to keep you from having to go and take a lot of repeated action, because I know you’re having to break free from the default and status quo of your brain as you’ll hear about on this episode. To take the time to sign up for a freebie, I want to make it very easy for you to get those so that the default is that you get an email from me with all the information and it makes it easy to get that and that you can just click on the freebie link and get them without having to sign up a bunch of times because that’s no fun. That link is now in any of the weekly emails you get and it makes it simple and easy on you. If you’re not yet on that list and you would like to be, you just have to break free from your default one time and sign up for either the freebie of this episode or any other episode, or for downloading the free ebook which is available on the homepage of the website whenever you sign up for any of the freebies. Anytime you sign up for a list, you’re going to get put into that automatic email list. So then you’ll just get everything from me. But of course you can opt out at any time. Again, the freebie for this episode is at thebrainybusiness.com/20 and if you’re in the States and want to sign up from your phone even easier, simply text the word brainy. Brainy 234-5345 to get
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on the list and have that ebook sent directly to you. And then you’ll automatically be on the weekly email list and you can get all the freebies super easily and see all the new content and everything that comes out every single week.
Brainy Business Workshops and Future Offerings
Melina Palmer: Okay, one last thing before we get digging into defaults, I have to talk about the other exciting thing that I said was going on this week. Of course, this is episode 20, which is exciting. But also last week was the very first brainy business workshop where Brayden and I had a fantastic time working with seven amazing women to help find ways to incorporate behavioral economics into their businesses. Their backgrounds were diverse and so were their questions, but there was great interaction and it was so interesting to see how they worked together and asked great questions of each other to help everyone in the group see their businesses differently. And while this group happened to be all women, that is by no means a requirement of a workshop. Everyone is welcome and there are many more coming in the future. I have had requests to come to Phoenix and to do another workshop in the greater Seattle area and I want to come to you as well. If you want a workshop in your area, send me an email. Melina@brainybusiness.com so we can start a conversation. If you know people who might want to attend as well, we can build a workshop around you and your schedule. I’m happy to travel for these, to help more people to get amazingly applicable information on behavioral economics in their business. I’m also working on creating more specific workshops, like on, perfecting your pricing strategy, refining your message, building products, launching a podcast, and more. I’ve also had requests for online courses, and I appreciate that you want more content from me as I’m working to narrow down and choose where to start. Because as much as I would love to do everything at once, there’s only so much time in a day and only one of me. So if you want to be a big advocate for a particular avenue where I should, maybe you’re really excited about an online course of how to launch a podcast and think I should start there first, let me know again, send me an email to Melina@thebrainybusiness.com, or reach out on social media where again, you can find me as the brainybiz and let me know what you would be most interested in and where you think I should start. I look forward to hearing from you and I just need to give shout outs to the amazing women who came to the workshop. You were the first, and I will forever be grateful to each of you for making this workshop the amazing day it was. I’m going to briefly tell you all who they were, but know they’re all linked in the show notes so you can check them out and dig a little bit deeper. They’re doing amazing things, and I can’t wait to see how they’re going to incorporate behavioral economics into their businesses.
Featuring the First Brainy Business Workshop Attendees
Melina Palmer: All right, here we go. In no particular order. First is Debbie Mycroft, who I mentioned on last week’s show. She owns Memories Worth Telling, where she helps families to preserve their legacies with really beautiful books. Next, Alice Cooter is a real estate agent who is getting ready to launch a really cool company called Just In Case, which will help people to have customized disaster kits in their homes so they’re actually prepared for emergencies. It’s a space that’s really full of behavioral economics potential and understanding why people put things off that are in their best interest, which is hyperbolic time discounting and defaults and status quo really all tied together. So that’s a very interesting business to me. Then we have Kristin Heffley of, Caffeinated Communication Studio, a graphic and web design firm who helps to take the difficult out of design. Love that. Next. Kate Fessler’s company is called First Class Life Solutions, and she has a podcast where she helps people to step out of average and define what their own first class life would look like and then really live it. That’s awesome. I was a guest on Kate’s podcast a few months ago, and I’ve linked to our episode in the show notes, if you would like to give it a listen and check her podcast out. Laura Brodniak is a realtor and an amazing copywriter who helps people to write amazing bios and about pages and blogs and all sorts of great stuff. You should check her out. Amber Peterson runs Cheers Weddings and is the co founder of the Gadget Wedding Society. She’s also getting ready to launch a podcast to help people in the wedding industry
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use Pinterest. Not the brides, obviously. They know where to find Pinterest and how to use it, but for people who sell in the industry to use it effectively. While working on the description for her podcast, which was, her question when we were going through the workshop, we found out she helped one client go from zero to 700,000 monthly views on Pinterest in less than six months. And that’s just one success story. Whoa. Be on the lookout for the Grow your wedding business podcast coming in 2019. Lastly is Tiffany Batura of Flower, and Girl Bakery, and she’s also head of marketing for Dynamic Solutions International, an engineering firm that helps map the flow of water and use software to determine who’s responsible for cleanup, how populations are going to impact the flow of water. It’s really fascinating stuff. It was interesting to learn about that during the workshop. As I said, this is an amazing group from this first workshop, and you should check out each of these ladies and their work. There are links in the show notes and, to each of you. Thank you so much for being part of that first workshop. I appreciate you all.
Understanding the Ubiquitous Power of Defaults
Melina Palmer: All right, now let’s get into it. Let’s talk about defaults. I touched on this topic a little bit in last week’s episode on herding, but today we’re really going to dig into the concept, because this is a reasonably common term, you probably think you already know all there is to know about defaults. You know what a default is, and presumably you know how they impact you, right? Oh, no, no, no, no. As I said at the top of the episode, I’m going to blow your mind here today, which I’ve sort of gotten in the habit of doing. So hopefully I blow your mind a little bit every episode. But this should be a fun one too. You probably don’t realize it, but defaults are everywhere. And seriously, I mean everywhere. Sure, there are default settings when you install software, and I’m going to get into more detail on that later in the episode. But what about every other choice you make? Basically, every choice has a default. Think of the default as what happens if you do nothing or if your customer does nothing. This is the default choice. More often than not, when presented with a series of options, people will go with the default, whether this is a pre selected option or the doing nothing and not choosing anything. This gets combined with something called status quo bias, which I talked about in episode seven on change management. I’ve also relinked to the article on the endowment effect, loss aversion, and status quo bias, which I discussed in that episode, but know that there will be a future episode dedicated specifically to status quo bias. Essentially, people are more likely to keep things the way they are, maintaining the status quo, and not take an action to change things. Which means defaults, which are what happen if you do nothing, are more likely to be chosen whether they’re good for you or not. And even if someone does not make an active choice or realize all the consequences of their action or inaction, they are still essentially making a choice. The choice to do nothing and go with the default is still a choice for that reason. In business, when you are presenting options, it is critical that you consider what the default is and what is going to be the most likely choice. This is getting into choice architecture, which is going to be the focus of a series of episodes later on which I’ve already mentioned before. It’s really complex and definitely includes defaults, which is why we’re starting here. I did have I had an entire class dedicated, to this topic of choice architecture, if that helps you to understand how robust the topic is. It’s fascinating and amazing. And again, defaults really tie into that. But defaults are the way our brains really can showcase just how lazy they are. This is where all the shoulds of the world come to die. Status quo bias and defaults. Sure, everyone should put enough money into retirement to be able to sustain them when they stop working someday. Everyone would likely agree that they would like to finish working eventually
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and be able to enjoy a retirement where they can live better than they did as a poor college student, or not have to live in a cardboard box. But does everyone put enough money away? Of course not. One big influencer of this is defaults. You may be thinking to yourself, come on, Melina. What does retirement saving have to do with defaults? The truth is a lot. And there’s a ton of research into this. Do me a favor. Imagine you are in the HR department, and it’s your job to choose a default option for a retirement plan. You have several choices, and I’m going to just outline three of them for you here. Option one, you can make it so every year, people need to opt in and make a new choice for how much to put into retirement. If they do nothing, the default will be zero, regardless of what they did the year before. After all, who’s to say they have the same financial situation this year as previous? Maybe they don’t want to be locked in. And given the choice, they could opt to put more in, right? Okay. Option two, you make it so every year, people are automatically going to put in what they did the year before, but they have the option to change if they want. This is good, because people should be watching what they do. There’s that word again, should. And knowing how status quo bias works, what happens if someone stays in the same job from the time that they’re 18 years old, if they selected to do no allocation, or a very small percentage when they did not have the means, and now they’ve been in a job for 20 years and have never made a change. That wouldn’t be good. So let’s look at option three. You give people the ability to opt into a program where every year when they get a raise, a portion of that raise is going to be automatically put toward retirement. The default is they will be increasing their contribution unless they choose to do otherwise. So which do you choose? How do you choose? Let’s break it down a little further. Options one and two leave defaults that are consistent with past behavior instead of considering the future, which is a problem for the human brain. That’s time discounting at work. And I promise that episode is coming soon. As you now know, people will opt for the status quo even if they have good intentions. One study found that 86% of people who said they were planning to change their retirement allocations in the next few months had done absolutely nothing. Four months later, would they have benefited from a better default? Studies say yes. Richard Thaler, the Nobel laureate, did a study called Save More Tomorrow back in 2001, which took the approach outlined in option three. You have people commit, when they’re in a cold state, to pledge some of their future earnings to retirement. It’s an easy commitment for the brain to make because of that time discounting I just mentioned, and because of status quo bias and this now becoming the default, they’re less likely to opt out than they would be to opt in, even though they know it’s in their best interest to do so, and, that they could afford afford to do so. This integrates loss aversion as well. Once they can see, feel, and touch that raise and start to think about what they can do with it, once the brain takes perceived ownership over each and every dollar, it’s really hard to overcome the status quo, to give away money it wants to use and spend today for some future benefit. If you have not yet listened to episode nine on loss aversion, there’s a link in the show notes.
The Impact of Save More Tomorrow on Retirement Savings
Melina Palmer: So just how impactful was Save More Tomorrow? Incredibly, as it turns out, 78% of people opted to use the program when it was offered to them. So that’s a very vast majority. And 98% percent of those people were still in the program after two pay raises, and 80% were still in after three pay raises. The average savings rates for participants increased from 3.5% to 11.6% in just 28
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months. Amazing. Do you think those people will be happy with their choice as time goes on? Will they be happy this default existed when they get ready to retire? I’m guessing yes. And as you see, people have the option to opt out if they wanted to. This is a really creative solution that could be applied in many other areas to help people to have better lives, doing all the things they know they should do and that they really want to do, but have a hard time overcoming their status quo bias to get past the default option.
The Disconnect Between Conscious and Subconscious Brain
Melina Palmer: I’ve said this before many times, but I really think this is a point where I have to bring it up again. Too many programs and approaches are trying to get people to change their natural tendencies, telling people they need to do better, be better, think different. It doesn’t work. The problem is this disconnect between the conscious and subconscious brain. We can consciously say we want to change, we want to save more or be better, but when push comes to shove, who’s making the decisions? That’s right, the subconscious. And it has a rule for that. It knows to go with the default. No reason to flag the conscious brain, because I, already know what to do. We can deal with that thing later because it isn’t important. Why would your subconscious change what has been learning works for hundreds of thousands of years, just like you can’t untrain your subconscious to disassociate the concept of red from the word apple, you can’t tell it to not be subject to defaults and status quo bias. So if you know people will make errors, what can you do to help them do better? This is where choice architecture nudges and smart defaults come into play. And I will, of course, give many examples in this and future episodes. And if you have not yet listened to episode one, unlocking the secrets of the brain, I recommend checking it out for more insights on, the subconscious and conscious brain and how they work.
Defaults and Regret: The Stock Market Example
Melina Palmer: Okay, I’m going to go ahead and step off that soapbox for a little bit. Let me give you another example of defaults and how they impact you. This one comes from Kahneman’s Thinking, Fast and Slow, which I’ve mentioned many times on the podcast. I’m going to give you two scenarios, and I want you to really listen to them and their differences so you can answer the question I’m going to pose to you after. Ready? Okay. Paul owns shares in Company A. During the past year, he considered switching to stock in Company B, but he decided against it. He now learns that he would have been better off by $1,200 if he had switched to the stock of Company B. Here’s scenario two. George owned shares in Company B during the past year. He switched to stock in Company A. He now learns that he would have been better off by $1,200 if he had kept his stock in Company B. Who feels more regret? If you are like 92% of the population who responded to this question, you would agree that George, the one who moved his money away from stock B, would feel more regret. Is that what you said or thought? Here’s the thing. They both missed out on the same amount of money because they had stock A instead of stock B. They are essentially in exactly the same situation. So why would they feel differently? This is the power of the default. Remember when I said the default is always what happens if you do nothing? If you own a stock, what’s the default? The default is to keep it. Every day you don’t sell, you’re sticking with the default. You have to make a choice, take action, and move away to sell, which means you evaluate your choices and decide to take an action. If that ends up being the wrong choice, you will be kicking yourself for messing with a good thing or meddling when you didn’t need to, when you could have waited and reaped the rewards. What about Paul? He didn’t take any extra action. He did what his subconscious wanted to do, and he knows
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that most other people would have done the same thing. It takes effort and there’s a risk to make a change, and he can keep that in mind next time. But for now, he knows that he did what basically everyone else would have done. Do you remember last week when I said, if you make a bet and come up wrong, but everyone else did too, you are much less likely to be ridiculed than if you went against the herd and made a, losing bet that no one else made. This default example is showing exactly that, how herding mentality ties into defaults and the status quo to make you feel a different amount of regret, even when you have exactly the same outcome based on the choices you made. The study and science of regret and its impact on the brain is also an incredibly fascinating topic, and there will be an entire episode dedicated to your brain on regret.
Regret and Action: The Blackjack Example
Melina Palmer: But for now, let’s keep on going through the default episode. So, interestingly enough, studies show it doesn’t really matter what the option is. If people make a choice and step away from the status quo, which is the doing of nothing, and they lose, they feel increased regret. One study had people playing blackjack on a computer. Half were presented with the question, do you wish to hit? And the other half had the question, do you wish to stand? Regardless of the question they were asked, people felt much more regret when they said yes than if they said no and had a bad outcome. Crazy, right?
Defaults in Business: Subscriptions and Automatic Payments
Melina Palmer: So this brings me to a question about your business. Are you ready? In your business? Is it the default for your customers current or potential to do business with you? Or are you asking them to change their behavior to buy? If you’re like most of us, the answer would be the latter. You are asking people to change their routine to buy from you, even if they’re repeat customers, and the default is not to buy your product or service. So how can you change that? And the deeper ethical question, of course, is, should you? But for the sake of this episode, let’s assume you should, and that you’re going to do that responsibly. Consider subscription services to really anything in the world. Most notably, of course, would be magazines. How many people have subscriptions to magazines they don’t want or read anymore and thus actually want to pay for? The answer is a lot. Paying for and having the subscription has become the default, and it’s likely on auto renewal. The act of turning off the auto renewal or canceling the subscription would require taking an action going against the default, and the pain of the payment is often not enough. To overcome status quo bias, you might see the charge and think, shoot, I need to cancel that before it comes out again next week, month, year. I’ll add it to my to do list and take care of it before that comes up again. Yeah? How’s that working out for you? Many companies have adopted this model for this very reason, including gym memberships, Netflix, Stitch Fix, Rent the Runway, Mailchimp, Recurpost, Xbox Live, and all sorts of apps that now offer these regular memberships you have to opt out of, and if you don’t, they automatically charge your card.
Melina Palmer: This also gets into habitual buying, which is going to be next week’s episode. And it’s important to know that habitual buying and defaults go deeper than the products and services I just mentioned. Remember, if every decision opportunity has a default, how is the default impacting your business and the well being of your customers? Setting up automatic payments for mortgages, insurance and auto loans are defaults that really benefit everyone. People pay their mortgage on time and they get to stay in their house. They’re not at risk of forgetting and being late causing additional fees because of the extra workload on the financial institution. If the default is instead to remember to write and mail a check on time meaning you have to buy stamps and envelopes and drive to the post office, there’s a lot of opportunity for late payments and status quo bias to take over when it automatically comes out of the account. Most
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people appreciate not having to think about the payment and remembering to make it, and the financial institution gets paid back quicker and easier. Win win. Automatic payments are great defaults in many cases, but I caution you to make it easy for people to opt out if they want to. When you have a system that makes it unbelievably difficult to opt out with a bunch of ridiculous hoops to jump through, it will leave a, bad taste in the mouth of your customers. And as we know, people are more likely to talk about bad experiences, especially blasting on social media, than good ones. So it can just be bad all the way around. Know that most people will not put in the effort to cancel, but you want to make it so they don’t want to cancel. Make a great service, provide great value for the money so it’s convenient and they like their default payment to you. Again, win win. So with that in mind, what sort of service can you provide that includes a regular automatic payment to you as the default? Is there a way to make buying from you the default? Before you say no, remember all the companies I’ve named who have found a way to do it and all their diverse products, services and price points. What would it look like if the default was to buy from you? Use the free worksheet at thebrainybusiness.com/20 to help you work through it. Even doctors have to consider defaults when prescribing treatments. If the default safe method is not looking like a great option, but the only other option is untested and risky, do you take the gamble? If you choose the riskier, less tested option and are, right, you could be a hero. But if you take the gamble and use this untested option and fail, that could mean regret, blame, and even some massive lawsuits, or in an extreme case, losing a license. Even if the untested option could have better results, many would go with the more common recommendation, the default, and save the potential negative outcome to themselves, which is potentially at the risk of the patient. It’s just transferring risk. There’s a lot to consider. There’s a lot of weight that comes with defaults, and we really need to be more conscious of them when we’re planning them out, which is what I’m trying to help you with here in the episode.
Default Settings in Technology: Google vs. Bing
Melina Palmer: So let’s get back to default settings because it’s not always about buying, as I said in that doctor’s example there. So looking at settings, your computer likely goes to a screensaver or to sleep after a certain period of time without you using it. Do you know how long it is? Did you set the screen saver or did you just go with the default settings when you got your computer? I’m sure you can guess that most people use the default settings. Think back to when you first got your computer, or really anytime you’ve installed anything and you have the option to use the recommended default settings or to choose the custom installation. And very likely that recommended setting was already preselected for you. They recommended you use the default because there are a ton ton of choices in there and you’re likely not an expert in computer programming or this specific update. So it’s better to be able to go with the recommendations of the people who built the thing. They know how it works best, and if anything doesn’t suit your style, you can always change it, right? But will you? Will that thing bug you enough that you will actually change it? Now that Google has become a verb? Actually, the definition of Google in Webster is quote, to use the Google search engine to obtain information about something or someone on the World Wide Web, it’s safe to say that this is likely the default search engine for most people and likely a setting that you enjoy having on your computer. I know I do. When you open up a new tab in your browser, what’s the website that comes up first? Did you choose that or was it a default setting on your computer? Mine is Google and I like it that way. I do a lot of research so I use Google a lot for the podcast and all sorts of things, so it’s nice to have that easily available. Though. I remember
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once when a default setting came back to haunt me. I downloaded something from Microsoft and agreed to the default settings. I’m sure I clicked through too fast and didn’t uncheck a box that I should have for myself and what I wanted. And then all of a sudden, without warning to me, my default landing page was Bing. No way. Sorry, Bing, but you can’t interject yourself to become the default choice that easily, not when Google has become a verb. They might have thought they could slip through the cracks and get that by users, but I’m guessing I was not the only one to go in and change that setting immediately, even though it meant stepping out of my status quo bias and taking action. And it has left a really bad taste in my mouth that I really never, even if I would have had to use Bing. I always remember that and I get irritated with Microsoft, but so you know, I’m not picking on Microsoft. Google has its own slew of default choices, some of which I don’t really love. I use Gmail and I cannot for the life of me find how I can turn off my calendar from automatically setting up every meeting with more than one person to set the location as Google hangouts. Honestly, how many people choose to have their meetings in Google Hangouts? I’m guessing it’s not a lot. Most of the people I know use GoToMeeting or Zoom. I don’t think I honestly have ever been invited to a meeting that uses hangouts, and if you use them, more power to you. But I don’t want this to be my default, especially in a world where technology automatically syncs to my calendar. I spent half an hour today, literally today, trying to find out how I could turn this off, and I’ve tried more than once and all the suggested places where it should be are not there. So I’m pretty frustrated with Google’s defaults right now too, and it’s making me so irritated that I’m considering going back to Outlook. So know that a really badly placed default, and one that is difficult to undo can make people get out of their habits and want to change everything like I’m experiencing right now. And because I know there are a lot of very smart, talented, and amazing people listening to this podcast. If you know how I can turn this off, please email me. Just don’t send a meeting invite because then we might be forced to meet in Google Hangouts to turn off the setting of Google Hangouts. Anyway, my email is Melina@thebrainybusiness.com if you know how to turn off this very annoying default. Thank you in advance.
The Ethics of Defaults and Choice Architecture
Melina Palmer: So this is a very gentle way to introduce you into the ethics of choice and defaults. There is a lot of debate in behavioral economics about the right way to use defaults and choice architecture in a world where we want people to be able to choose, but we know people will make errors and often make no decision. When that’s the default, is it our responsibility to help them with a well created default? And how do we really know what’s best for them? There are people on both sides of the argument, of course, and I’m not going to really get into the politics of the debate. We can have a conversation about that offline if you want, and I can help fill you in. Again, reach out to me. But I will say this as I mentioned a few minutes ago, you want to make it so people still have a choice. Whatever you do when using defaults, you should make it so people have the option to do something else, to choose something else, and they will not be harmed if they go with the default. Tricking people with defaults that do not suit them is bad business and bad karma. So, as with everything I talk about on the podcast, please use these powers for good and not for evil. Thanks, we all appreciate it. So if you have a complicated product or service, consider adding in some sensible defaults. This is where having a most people do this, which is hurting again, can help show a, default. If there’s a list of options for people to choose from, know that having an option preselected means most people will choose it. And remember, you are not required to preselect options for people. Also know that what is presented first will be more likely to be chosen. This goes for everything from survey question answers to pricing packages. And that is how anchoring an adjustment works in
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many ways as well. Several years ago, regulations changed so financial institutions could no longer assume consent and automatically opt people in for overdraft protection, giving them the option to opt out if they didn’t want it. This means to get overdraft protection, something a lot of people want and would benefit from if they ever need it, and something that doesn’t cost them anything if they don’t use it. People now need to make a choice to opt in for it, which goes against the status quo bias and is asking them to change a default, something we know the majority of people will not do even if it serves their best interest. But there were many people who got in trouble with overdraft protection. So there’s an argument it should not be the default if people don’t understand it. And of course, that’s the decision that the government made. So if this was up to you, how would you choose which is the best for most people, and how do you get to determine who’s most and what is best?
Defaults in Public Policy: Organ Donation
Melina Palmer: Next, let’s look at another topic, one that’s actually a little bit more controversial. According to organdonor.gov, 95% of adults in the United States support organ donation. Do you know how many are signed up as donors? 95% of adults support it. You should have about 95% that are signed up, right? Unfortunately, not, only 54% are, actually signed up as donors. States have opt in rules, and the default is that you are not an organ donor unless you go against the default, and you have to opt in to be an organ donor. And that’s how you end up with such a small percentage of actual signups versus intent. This is because of inertia and status quo. Some states are considering switching to opt out organ donation, which is also called presumed consent. This would mean that unless you specifically say otherwise, you are an organ donor. However, it would be easy and possible for anyone to opt out at any time. This, of course, raises concerns and controversy, which I’m not going to get into here. I’m simply presenting a situation to show how complex these issues and choices can be. And so, you know, this is not an out of the blue initiative. 25 European countries already have presumed consent in place, and the difference in donation rates is really. It’s staggering. They’re typically over 90% in countries with presumed consent and often below 15% in countries with opt in laws. So the question is, of course, what should the default be, and who gets to choose? And why is our default what it is? How would we feel differently if it had always been an opt out scenario? There’s a lot of power in defaults and many questions to be asked for your business. Remember that you have many defaults impacting your customers and how they interact with you at every turn. For a very sort of silly and extreme example, if you were in a restaurant, the default is to order what is on the menu. The way that it’s presented there, that’s the default option. And if you ever have to ask for anything special, it maybe feels a little bit uncomfortable because you’re going against the status quo and the default. If you were given complete choice and there wasn’t a default, you would essentially be expected to tell the chef exactly how to make everything that you need and give them a recipe every time you’re looking to order from a restaurant, which is absolutely ridiculous. That is an area of, having no defaults. Theoretically, the default is you get no food, they have no recipes, and that would be completely silly. So, understanding that defaults truly are everywhere and in everything, how do you incorporate them properly into your business and be more aware of them as a customer? And are you considering how all those defaults make it easier or harder for people to work with you? Are you taking them for granted? Are your defaults making it so less of your employees will save enough for retirement? Or are you helping them to accomplish their goals in a way that works with their brain and its natural tendencies? While it’s a bit nerdy, I
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do feel compelled to end this episode on defaults with a Spider-Man quote. You likely know what it is and can say it along with me. With great power comes great responsibility. Please use defaults responsibly now that you know how they work and just how prevalent and powerful they are. I hope you enjoyed this episode on defaults and learning about just how much they impact us all day, every day. And hopefully you realized how much you’re impacting the choices of others, your customers, employees, or family members. By the way, you have set up defaults, intentionally or not, when you look at your business, how can you use defaults to benefit your company and your customers? I would love to help you work through it. First, download the free worksheet at thebrainybusiness.com/20. But if you want to work through the concept with an expert, since there’s so much power and potential for risk there, let’s have a conversation. I can help you incorporate the behavioral economics concepts of defaults along with other concepts like herding, loss, aversion, framing, and habits like we’re going to talk about next week. So you can confidently know you have these set up to go into 2019 and beyond in a way that’s best for you, your company, your customers, and your employees. Go to my website right now, thebrainybusiness.com and click on work with me to book your strategy session. We’ll start with a free consult call to set a plan of action, make sure it’s a fit, and then I will help you tackle those tasks one by one. Again, go to thebrainybusiness.com and click on work with me to get started.
Conclusion and Upcoming Episode
Melina Palmer: Alright, that’s it. Episode 20 on defaults is done. Don’t forget to get your free worksheet at thebrainybusiness.com/20 and I hope you got lots of great value from this one. Next week on episode 21, as you know, we are going to talk about one of the concepts I have been hinting at a lot in this episode. Habitual buying it will take defaults a step further and show more ways to apply the concepts you heard about today, so be sure to tune in next week. Until then, thanks again for listening and learning with me and remember to be thoughtful.
Announcer: Thank you for listening to The Brainy Business podcast. Melina offers virtual strategy sessions, workshops and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.
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