Human Compliance and the Last Mile

Prof. Dilip Soman, Director, BEAR or Behavioural Economics in Action at Rotman, University of Toronto, is our Lumiere Learning Monday guest speaker on Monday 7th June 2021. He teaches a popular MOOC or Massive Open Online Course, Behavioural Economics in Action that has been attended by over 3 mn learners.

What is Behavioural Economics and what makes it so popular?

The new emerging discipline of behavioural economics is a combination of human behaviour, economics and various other areas of social sciences. It informs us about how people make choices and make decisions. It also helps understand the mismatch between what economic theory believes people do and what actually people do.

Everyone is in the business of changing behaviour.
Prof. Dilip Soman

Prof. Soman wants to make the world more behaviourally informed. He draws attention to the discrepancies between what organisations generally focus on versus what the consumers truly value.

Culture, Context, Compliance

Businesses operate in a borderless world. The same set of offerings and strategies may not work in every corner of the world, as they are affected by culture. People share social motivations of being connected with others and also being accepted by them. Nevertheless, the differences stand out a lot when they move to different geographies, and the way these similarities are manifested is also unique and distinct. Cultural differences, values, beliefs, affects many facets of human behaviour.

Human behaviour is hugely context based, so every solution needs to be created in that very context to get the right human compliance. To change human behaviour, communication alone is not enough. For example, during the pandemic, people would often forget to wear their masks before leaving the house. Coming up with innovative ways to get human compliance is more than merely communicating effectively. How does the government get citizens to comply?

The Last Mile

Prof. Dilip Soman’s thought-provoking book. “The Last Mile”, shows how organisations spend disproportional resources on early stage innovation, but often times relegate the last mile to unpredictable human behaviour. Organizations spend a lot of time and resources on first mile problems and not enough on the last mile

Where consumers come to your website
To your stores
Talk to your sales representative
Decide to switch to your product

The Last Mile: Creating social and economic value from behavioural insights

“The Revenge of the Nerds”

Gone are the days when organisations and market research companies conducted consumer segmentation on the basis of demographics. Several factors influence a consumer buying decision apart from age, occupation and gender.

Prof. Soman informs that the primary factor for segmentation should be behaviour in terms of product usage and consumption. It is necessary to understand that every individual varies in behaviour and decision making with respect to his/her time and situation of purchase as well as their responsiveness to their surrounding stimulus. Patterns emerging out of these factors would show far more promising results during distribution. Prof. Soman emphasises the importance of behavioural segmentation.

Tools and technologies like AI and Machine Learning are leveraged to cater to consumer needs to offer customised product and services. Organisations will hire talent with different skill sets with capability to code, the knowledge of machine learning, AI and human behaviour, to help accurately spot change in behaviour and even engineer behavioural change.

Defaults, Nudges, Disclaimers

Behavioural Economics has received attention thanks to the work of giants like Richard Thaler & Cass Sunstein, ‘Nudge’ (2008) and Daniel Kahnemann & Amos Tversky, Thinking Fast & Show (2011).

In his book, Prof. Soman talks about defaults with the example of the DMV and default options for organ donations and how differences in the incidence of organ donation depends not on generosity but a difference between whether citizens get to “opt in” or “opt out”. The default offers the simple way to get human compliance.

Prof. Soman explains the universal human need for loss aversion and how the medium size of a certain product, placed between large and small sizes, seems Goldilocks-style, “just right”

Humans like to exercise choice and an effective way of getting a toddler to wear a coat to school is not to ask them to wear a coat but get them to choose between two colours of coat. Behavioural economics not only has importance in building the right products/services but also in shaping strategies to create value for consumers.

Behaviourally Informed Organisations

Prof. Soman is passionate about creating social and economic value from behavioural insights, and his newest book, ‘The Behaviourally Informed Organisation” is about bringing this knowledge to organisations.