In this video, Columbia Business School’s Norman Eig Professor of Business Eric J. Johnson shares insights from his research into how the structure of choices affects outcomes.
Watch the video above and read the transcript below.
CBS: What is choice architecture?
Eric J. Johnson: I'm Eric Johnson. I'm the Norman Eig Professor of Business at Columbia Business School. I teach marketing in a course called Behavioral Economics and Decision-Making. Think about the last choice you made. It might have been buying a ticket on an airline website or talking to your spouse about where to go out for dinner. In either case, somebody has actually made a set of decisions about how to present that choice to you. Those people, who I call designers, have influenced what it is you will choose. And choice architecture is the study of how those people, those designers, influence our choices.
CBS: How has choice architecture evolved?
Johnson: I studied decision-making for a lot of years, and a way that we studied this was we would show people a choice, framed one way, described one way, or give them the same choice but described differently. And interestingly, they would often choose different things. And this was usually taken as evidence that people weren't so good decision-makers. They were less than rational. You could use that, how you frame the choice in a way to get people to pick the option that was better for them, that, in fact, you would take what looks like a weakness and make it a strength. And that really was one of the first examples of choice architecture.
CBS: Tell us about your latest research.
Johnson: We became interested in how people made health insurance decisions, and we were doing this about the time when the Affordable Care Act was first implemented, or as many people call it, Obamacare. And what was interesting is that most of the people making those decisions had very little or no experience making health insurance decisions. And these are pretty tough. You have to do a lot of math. You have to figure out what the premium is, the fact you'll pay it 12 times a year, think about copays, think about deductibles. It's tough math. Now, what's interesting about that is when we gave that choice to people, they actually didn't do very well. They actually did just a little bit better than chance, and they were actually making sizable financial mistakes. So this gave us what we thought was an interesting idea, that if that's the barrier, maybe we can build into the websites calculators that actually tell you how much a given policy is going to cost you.
CBS: Where has choice architecture been most impactful?
Johnson: Here at CBS, a lot of people have become interested in climate change, and I'm part of a group of scholars who are actually looking at how consumers can change their carbon footprints. One of the ways that choice architecture has been used is to actually help people choose more sustainable electricity. Roughly speaking, there are two kinds of electricity: green energy, which is from hydro, solar and wind, or gray energy, which is from non-sustainable sources. Now, many people, including people in New York state, have a choice. What has been done by some utility companies is they actually have one of those, the green energy, be the default, the one you get if you don't make an active choice. Now, what's interesting about that is you end up getting a huge effect. Lots of people who wouldn't have otherwise used the green electricity choose it, and amazingly, they stick with it over the years. So this is not only one of the biggest effects in choice architecture, but it also saves enormous amounts of carbon emissions.
CBS: How can we use choice architecture to help people make better decisions?
Johnson: I think there are three questions that are important. The first one is, how many and which options did you present? You don't have to present everything that's out there. People will end up using bad rules of thumb to make those choices. A second thing is, how do you describe the options? Do you use pictures, charts? Do you talk about price? Do you talk about quality? You get to decide, and that's going to influence what people choose. Finally, there are a lot of details about the place you present choices. It's a website. You get to decide how are things sorted or what attributes do you talk about first. What colors do you use? All these things are going to influence choice. And finally, there's another important question should ask yourself: where can I find The Elements of Choice?
So we're all choice architects, whether we realize it or not. We're doing that when we're talking to our direct reports, our kids, our spouses, our bosses. We are structuring choices that will influence what they choose. And it's important that our students at CBS understand that they actually are having this influence. So you have a choice. You're going to either be an intentional choice architect and influence people in ways that you understand, or you can do it haphazardly. The choice is yours.