How to change your behavior for the better

Hi.

You might have noticed
that I have half a beard.

It's not because I lost a bet.

Many years ago, I was badly burned.

Most of my body is covered with scars,

including the right side of my face.

I just don't have hair.
That's just how it happened.

It looks symmetrical, but almost.

Anyway, now that we discussed facial hair,

let's move to social science.

And in particular, I want us to think
about where is the potential for humanity

and where we are now.

And if you think about it,
there's a big gap

between where we think we could be
and where we are,

and it's in all kinds of areas.

So let me ask you:

How many of you in the last month
have eaten more than you think you should?

Just kind of general. OK.

How many of you in the last month have
exercised less than you think you should?

OK, and for how many of you
has raising your hands twice

been the most exercise you got today?

(Laughter)

How many of you have ever
texted while driving?

OK, we're getting honest.
Let's test your honesty.

How many people here in the last month

have not always washed your hands
when you left the bathroom?

(Laughter)

A little less honest.

By the way, it's interesting how we're
willing to admit texting and driving

but not washing our hands,
that's difficult.

(Laughter)

We can go on and on.

The problem, the topic is
that there's lots of things

when we know what we could do --

we could be very, very different
but we're acting in a very different way.

And when we think
how do we bridge that gap,

the usual answer is, "Just tell people."

For example, just tell people
that texting and driving is dangerous.

Did you know it's dangerous?
You should stop doing it.

You tell people something
is dangerous, and they will stop.

Texting and driving is one example.

Another very sad example
is that in the US,

we spend between seven
and eight hundred million dollars a year

on what's called "financial literacy."

And what do we get
as a consequence of that?

There was recently a study that looked
at all the research ever to be conducted

on financial literacy --
what's called a meta-analysis.

And what they found is that
when you tell people,

you teach them financial literacy,

they learn and they remember.

But do people execute? Not so much.

The improvement is about
three or four percent

immediately after the course,

and then it goes down.

And at the end of the day,

the improvement is about 0.1 percent --

not zero, but as humanly close
to zero as possible.

(Laughter)

So that's the sad news.

The sad news is, giving
information to people

is just not a good recipe
to change behavior.

What is?

Well, social science
has made lots of strides,

and the basic insight is that
if we want to change behavior,

we have to change the environment.

The right way is not to change people,
it's to change the environment.

And I want to present a very simpleminded
model of how to think about it:

it's to think about behavioral change

in the same way that we think about
sending a rocket to space.

When we think about
sending a rocket to space,

we want to do two main things.

The first one is to reduce friction.

We want to take the rocket
and have as little friction as possible

so it's the most aerodynamic possible.

And the second thing is we want
to load as much fuel as possible,

to give it the most amount
of motivation, energy to do its task.

And behavior change is the same thing.

So let's first talk about friction.

In this particular case study
I'll tell you about,

there's a pharmacy, an online pharmacy.

Imagine you go to your doctor.

You have a long-term illness,

your doctor prescribes
to you a medication,

you sign up for this online pharmacy

and you get your medication
in the mail every 90 days.

Every 90 days, medication,
medication, medication.

And this online pharmacy
wants to switch people

from branded medication
to generic medication.

So they send people letters, and they say,

"Please, please, please,
switch to generics.

You will save money, we will save money,
your employer will save money."

And what do people do?

Nothing.

So they try all kinds of things
and nothing happens.

So for one year, they give people
an amazing offer.

They send people a letter, and they say,

"If you switch to generics now,
it will be free for a whole year."

Free for a whole year. Amazing!

What percentage of people
do you think switched?

Less than 10 percent.

At this point, they show up to my office.

And they come to complain.

Why did they pick me?

I wrote a couple of papers
on the "allure of free."

In those papers, we showed
that if you reduce the price of something

for, let's say, 10 cents to one cent,
nothing much happens.

You reduce it from one cent to zero,
now people get excited.

(Laughter)

And they said, "Look, we read these
papers on 'free,' we gave 'free.'

Not working as we expected.

What's going on?

I said, "You know, maybe
it's a question of friction."

They said, "What do you mean?"

I said, "People are starting with branded.

They can do nothing and end with branded.

To move to generic, they have to choose
generic over branded,

but they also have to do something.

They have to return the letter."

So this is what we call
a "confounded design."

Two things are happening at the same time.

It's branded versus generic,

but it's doing nothing
versus doing something.

So I said, "Why don't we switch it?

Why don't we send people a letter
and say, 'We're switching you to generics.

You don't need to do anything.

If you want to stay with branded,
please return the letter.'"

(Laughter)

Right?

What do you think happened?

Lawyers, lawyers happened.

(Laughter)

It turns out, this is illegal.

(Laughter)

By the way, for brainstorming
and creativity,

doing things that are illegal
and immoral, it's fine,

as long as it's just
in the brainstorming phase.

(Laughter)

But this was the purity of the idea,

because the initial design was,
the branded had the no-action benefit.

In my illegal, immoral design,
generic had the no-action benefit.

But they agreed to give people
a T-intersection:

send people a letter and say,

"If you don't return this letter,

we will be forced
to stop your medications.

But when you return the letter,
you could choose branded at this price,

generic at this price."

Now people had to take an action.

They were on even footing. Right?

It wasn't that one had
the no-action benefit.

What percentage do you think switched?

The vast majority switched.

So what does it tell us?

Do people like generics,
or do we like branded?

We hate returning letters.

(Laughter)

This is the story of friction:
small things really matter.

And friction is about taking
the desired behavior

and saying, where do we have
too much friction

so it's slowing people down
from acting on it?

And every time you see
that the desired behavior

and the easy behavior are not aligned,

it means we want to try and realign them.

That's the first part.
We talked about friction.

Now let's talk about motivation.

In this particular study,

we were trying to get very poor people
in a slum called Kibera in Kenya

to save a little bit of money
for a rainy day.

You know, if you're very, very poor,
you have no extra money,

you live hand to mouth,

and from time to time, bad things happen.

And when something bad happens,
you have nothing to draw on, you borrow.

The Kibera people can borrow at sometimes
up to 10 percent interest a week.

And then, of course,
it's really hard to get out of it.

You live hand to mouth,
something bad happens,

you borrow, things get worse
and worse and worse.

So we wanted people to keep
a little bit of money for a rainy day.

And we thought about
what is the motivation,

what is the fuel that we need to add?

And we tried all kinds of things.

Some people, we texted them
once a week and said,

"Please try to save 100 shillings" --
about a dollar -- "this week."

Some people, we sent a text message
as if it came from their kids.

So it said, "Hi Mom, hi Dad,
this is little Joey" --

whatever the name of the kid was --

"Try and save 100 shillings this week
for the future of our family."

Right? I'm Jewish, a little bit
of guilt always works.

(Laughter)

Some people got 10 percent.

"Save up to a hundred shillings,
we'll give you 10 percent."

Some people got 20 percent.

Some people got also
10 percent and 20 percent,

but they got it with loss aversion.

What is loss aversion?

Loss aversion is the idea
that we hate losing

more than we enjoy gaining.

Now, think about somebody
who is in a 10-percent condition

and they put 40 shillings in.

They put 40 shillings,
we give them four more,

they say thank you very much.

That person gave up six.

They could have gotten six more
if they gave a hundred,

but they don't see it.

So we created what we call pre-match.

We put the 10 shillings in
at the beginning of the week.

We said, "It's waiting for you!"

And then if somebody puts 40 in,
we say, "Oh, you put 40 in,

we're leaving four,
and we're taking six back."

So in both cases, pre-match or post-match,

people get 10 percent.

But in the pre-match,

they see the money they did not match
leaving their account.

So we have text, text from kids,
10 percent, 20 percent,

pre-match, post-match.

And we had one more condition.

It was a coin about this size,

with 24 numbers written on it.

And we asked them to put the coin
somewhere in their hut,

and every week, take a knife
and scratch the number for that week --

week one, two, three, four --

scratch it like a minus
if they didn't save

and scratch it up and down if they saved.

Now, think to yourself:

Which one of those methods
do you think worked the best?

Text, text from the kids,
10 percent, 20 percent,

beginning of the week,
end of the week, and the coin?

I'll tell you what
the average people think.

We've done these studies of prediction,

both in the US and in Kenya.

People think that 20 percent
will get a lot of action,

10 percent less,

the rest of it will do nothing --

kids, coin, doesn't matter.

People think loss aversion
will have a small effect.

What actually happened?

Sending a text reminder once a week

helps a lot.

Good news!

This program lasted six months.
People forget. Reminding people is great.

Ten percent at the end
of the week helped some more.

Financial incentives work.

Twenty percent at the end of the week --
just like 10 percent, no difference.

Ten percent in the beginning of the week

helps some more.

Loss aversion works.

Twenty percent in
the beginning of the week,

just like 10 percent in the beginning
of the week, no difference.

And the text message from the kids
was just as effective

as 20 percent plus loss aversion --

which is amazing, right?

It's amazing how motivating
messages from kids were.

And one conclusion is,
we don't use kids enough.

(Laughter)

And, of course, I don't mean
in a child labor sense.

But if you think about
parents and their kids,

we are the best that we can for our kids,

and we think about the future,

and I think we should think

about how to use that amazing
source of motivation

to get parents to behave in a better way.

But the big surprise
of this study was the coin.

The coin basically doubled savings
compared to everything else.

And now the question is: Why?
What was it about the coin?

So I'll tell you how I started
thinking about the coin,

and then we'll come back to it.

So you know, when I do research
on, let's say, buying coffee,

I don't need to go anywhere.
I can sit in my office.

I've bought enough coffee.
I know how it works.

The details, I'm familiar with.

When you do research in some
of the poorest places in the world,

you have to go and visit
and see what's going on

and get some insight
about how the system works.

And on that particular day,

I'm in a place called Soweto
in South Africa,

and I'm sitting in a place
that sells funeral insurance.

You know, in the US people spend
crazy amounts of money on weddings?

In South Africa, it's funerals.

People spend up to a year
or two years of income on funerals.

And I sit in this place --

by the way, before you judge the South
Africans as being irrational with this,

I just want to remind you

that spending a lot of money
on funerals compared to weddings,

at least you know for sure
you only have one.

(Laughter)

OK, so I sit in this place
that sells funeral insurance.

And this guy comes in with his son --
his son is about 12 --

and he buys funeral insurance for a week.

It will cover 90 percent
of his funeral expense

only if he dies in the next seven days.

Right? These are very poor people,
they buy small amounts of insurance

and small amount of soap and such.

And he gets that certificate,

and in a very ceremonious way,
he gives it to his son.

And as he gives it to his son,
I think to myself, why the ceremony?

What is this father doing?

Now, think about the breadwinner
that decides on that particular day

to direct some money
into insurance or savings.

What is the family going to see tonight?

They're going to see less.

Right? At that level of poverty, there'll
be less food, less kerosene, less water --

something less tonight.

And what his father was doing
and what our coin was trying to do

is to say, yes, there's less
food on the table,

but there's another activity.

You see, what happened is, there are
many good, important economic activities,

like savings and insurance,
that are invisible.

And now the question is:
How do we make them visible?

So let's go back to our rocket model.

We have to, first of all,
look at the system

and see where there's little things
we can fix, with friction,

where is there
that we can remove friction?

And then the next thing we want to do
is to think broadly about the system,

and say, what other motivations
can we bring in?

And that's a much more difficult exercise,

and we don't always know
what would work best.

Is it going to be money?
Is it going to be loss aversion?

Is it going to be
something that is visible?

We don't know, and we have
to try different things.

We also have to realize that
our intuition sometimes misleads us.

We don't always necessarily know
what would work the best.

So if we think about this gap

between where we could be
and where we are,

it's a really sad thing to see this gap
and to think about it.

But the good news is,
there's lots we can do.

Some of the changes are easy,
some of the changes are more complex.

But if we'll attack each problem directly,

not by just providing
more information to people

but trying to change the friction,

add motivation,

I think we can ...

Can we close the gap? No.

But can we get much better?
Absolutely, yes.

Thank you very much.

(Applause)