Understand psychology to guide user decisions

How anchoring, loss aversion, and framing affect decision making

Psychology was always a subject that grabbed my attention. Understanding human behavior better is a good way to be ahead in life and business subjects. Recently I have read the book — a brilliant one, by the way — by Daniel Kahneman, called “Thinking, Fast and Slow” which brings a lot of studies and surveys on psychological and economical fields that can be extremely useful when we are thinking about how to manage better user experiences with our products or services.

The book brings up some interesting concepts — some of them new, and others well-known — which I will put on the table to discuss how can we improve the user experience of digital products in order to get better results.

Sailor, throw your anchor

Anchoring effect is a well-known phenomenon, and salespeople and financial specialists take advantage of that. Usually it occurs when people have to estimate a value for an unknown thing. For example:

An average antivirus price is 100 dollars per year. How much would you pay to protect your computer?

If you don’t know the real price of that, you probably would say something close to 100 dollars. That happens because of what anchoring effect caused to your brain. An anchor is like a reference point for comparisons. Let’s see another example:

Imagine that you are asking donations for your crowdfunding new product. Now think about two possible scenarios A and B:

1. You set that the donations start are $100, $50, $10, other value.
2. You set that the donations start are $1.000, $500, $100, other value.

As for the open choice option, which one do you believe would earn an average higher amount of money?

The B scenario is more likely to receive higher amounts than the A because of the anchoring effect. It sets a higher amount as an anchor which will probably drive the person to make a bigger donation.

Besides the anchoring effect, another concept called Ordering will influence people’s perception and decision. The general idea is quite simple, the order of appearance of a list of things will play an important role on the user decision.

Imagine that you are managing an e-commerce of beer. How would you decide which beer appear first on your homepage list?

• Best seller
• Randomly
• By price, most expensive first
• By price, most cheap first

For most of the cases, if want to raise your average purchase value, it is a good idea to put an expensive beer on the top of the list because people read from the top to the bottom of the page and by doing that you set an anchor that people will use to compare against other beers.

As you may have noticed on the example above about crowdfunding, the first option of the list was the higher value, not by chance.

You have to choose it accordingly to your business strategy. But, they are both good concepts to apply in order to guide and persuade customers decisions.

Bad is stronger than good

The feeling of losing 100 in cash loom larger than the feeling of finding 100 in cash on the street. You probably know that, even if you had never ever thought about it. People have this mechanism that is with us since we were primates. It is natural human behaviour to protect what you have before trying to get something else.

This human behavior is called by Loss Aversion and is one of the biases of the Prospect Theory developed by Kanehman and his friend Amos Tversky. Based on studies, the biases show that people experience losses very differently than gains, research reveals that people experience about twice as much pain with a loss as they experience pleasure with a gain. You could imagine that this surely changes how people behave when making decisions.

Knowing that could be very helpful for your website communication and content strategy. Imagine that your website sells solar energy boards that reduce energy costs in a long-term period. Which approach you think that could be more efficient?

1. You will save money by buying our solar boards from the first month.
2. You will keep losing a lot of money every month if do not buy our solar boards

The second statement is more likely to get better results because it draws attention to the loss instead of to the gain. Imagine that is your last statement before that final purchase button or your ultimate call-to-action

The same idea may be used for avoiding any sort of losses during the customer journey on your website/app or product. If the customers feels for a second that they is losing time, money or anything, it will be much harder to make them get into the final goal. Understanding these biases might help you to persuade people to become customers.

Using frames to shape decisions

Check these sentences:

1. Our medicine has 80% chance of success of healing you.
2. Our medicine has 20% chance of failure of healing you.

Both statements are saying exactly the same, however, they evoke two totally different sensations on your brain when you are reading them.

Neuroscientists at University College London ran a study trying to understand what happens with ours brains when we face situations like this. They gave the respondents the follow scenario:

The sure outcome would be the same no matter what they had chosen. But, as you can imagine, more than 90% of the respondents chose to keep $20. As you can see, the language that we use can frame a decision in favor of or against of our goal.

We can translate this knowledge into our products. Let’s say that you are requiring your customer to fill a form where you want to know more about their interests. By the end of the form, you use a check box asking if they would like to receive emails with deals and updates from your products. You can either chose to leave the box empty or marked. Which option you think that can increase your opt-in results?

Probably leaving the box already marked will bring you more opt-in to your list. That happens because two mainly reasons: a) People rather keep something than losing it and b) We are too lazy to read and unmark it.

Now what?

Now you understand a bit more about human behavior and you can try to apply these “tips” on your business somehow. Of course that you should test it first before changing it definitely. Make some A/B tests if you can or try it on a less important or new product. You will have to find out if it works for your business and customers, even if it makes sense to you. At the end of the day, people have to be always on the center of your business goals, so it is always important to know them better than they know themselves.