You’re walking down the street. Consider two realities:

A: You unexpectedly find $10 in your pocket. 

You feel positively-surprised!

Or:

B: You left the house with $10 in your pocket.

But you reach in and it’s gone.

The pain you feel from its loss is greater than the good feeling of finding it.

Prospect Theory explains that our perceptions of value differ based on how something is framed, and losing things feels worse than getting them feels good.

As one of the grand concepts that underpinned a lot of the early ideas within behavioral science, Prospect Theory is a beast with many aspects to it, such as Loss Aversion, Framing, Certainty, and Risk.

But for now, take your practical understanding a step further by reading the Aggregation Effect and Segregation Effect Nuggets.

You’re walking down the street. Consider two realities:

A: You unexpectedly find $10 in your pocket. 

You feel positively-surprised!

Or:

B: You left the house with $10 in your pocket.

But you reach in and it’s gone.

The pain you feel from its loss is greater than the good feeling of finding it.

Prospect Theory explains that our perceptions of value differ based on how something is framed, and losing things feels worse than getting them feels good.

As one of the grand concepts that underpinned a lot of the early ideas within behavioral science, Prospect Theory is a beast with many aspects to it, such as Loss Aversion, Framing, Certainty, and Risk.

But for now, take your practical understanding a step further by reading the Aggregation Effect and Segregation Effect Nuggets.

Prospect theory is explained with a graph. Negative losses and positive gains recorded on the horizontal are set against a vertical intensity of feeling for those losses or gains.

As we gain more, we feel less for each gain. In contrast, even a small pain (shown in red) feels a lot more negative than an equal-sized gain feels good.

Package pain. Consumers will feel less overall pain from any costs incurred when you package and deliver them all together rather than when they're felt as separate, smaller pains.

Spread out rewards.

Instead of offering larger, chunkier benefits to consumers, break these down into smaller pieces, spreading them out across time.

$10 given 4 times feels more valuable overall than $40 given once.

Offer mixed product bundles.

We feel less good with each thing we consume. Therefore, the first can of soda tastes better than the fourth.

This means we'd get more complimentary value from a bag of chips instead.

Look for ways to offer relevant, mixed product bundles to offset diminishing consumer sensitivity.

88 students were told about an exercise training camp and split into 2 groups: either having a choice about  the four fitness programs on offer or having one randomly assigned. They were then asked to rate their anticipated satisfaction of the program out of 9.

Those given some autonomy reported higher levels of anticipated satisfaction than those who weren’t.

Choice = autonomy = certainty. 

For instance, giving people a choice to still use the old version of your software platform for a given timeframe will reduce anxiety and uncertainty.

Product type matters.

‍People desire autonomy for pleasure purchases (i.e. vacations) more than for practical ones (i.e. business trips).

Place more focus on the former in order to maximise feelings of control and consumer satisfaction (Botti & McGill, 2011).

Change behavior with the ‘4As’.

Feeling that any change originated from within is vital.

‍Ask about the behavior, advise them impartially of the facts and of better routes, but that they must make their own choice.

If keen to change, assist them to make a commitment to do so by a given date, and arrange a follow-up to support this behavior change.

Faced with a set of options, when we’re not sure what’s the “right” choice, Defaults offer a helpful guide.

They help people avoid expending vast amounts of cognitive energy to decide between what could be a large number of options.

This is especially the case for those who don’t know much about the products or services, where Default options can take away the fear of getting that first decision wrong.

They're also a powerful remedy to any potential Analysis Paralysis, and are particularly helpful when making multiple choices one after the other.

Consider that you’re buying a computer, with a range of possible customisations to various parts.

If there were no default choices set, we’d quickly become overwhelmed with what was the right choice in each step.

If you have complicated product ranges or customisations, are you setting helpful Defaults? If you are, think hard about whether these need improving to reduce effort further.

But also, a word of warning.

Defaults can be terribly misused to force people into decisions that they don’t want.

Take people down the wrong path and you’ll quickly trigger Reactance; an angry feeling where people will want to reclaim their independence, often doing the opposite of what you Default them to.

Ensure that your Defaults have peoples’ own intentions in mind and don’t deviate too far from what people would do of their own choosing.  

What Defaults are you setting? How can these be improved to help smooth out decision-making and guide people to better  outcomes, either for themselves (e.g. helping them save more money) or for the wider group (e.g. defaulting meeting times to 15 minutes instead of 30).

Defaults are set everywhere. They’re powerful and have a big influence on behavior with little effort.

Faced with a set of options, when we’re not sure what’s the “right” choice, Defaults offer a helpful guide.

They help people avoid expending vast amounts of cognitive energy to decide between what could be a large number of options.

This is especially the case for those who don’t know much about the products or services, where Default options can take away the fear of getting that first decision wrong.

They're also a powerful remedy to any potential Analysis Paralysis, and are particularly helpful when making multiple choices one after the other.

Consider that you’re buying a computer, with a range of possible customisations to various parts.

If there were no default choices set, we’d quickly become overwhelmed with what was the right choice in each step.

If you have complicated product ranges or customisations, are you setting helpful Defaults? If you are, think hard about whether these need improving to reduce effort further.

But also, a word of warning.

Defaults can be terribly misused to force people into decisions that they don’t want.

Take people down the wrong path and you’ll quickly trigger Reactance; an angry feeling where people will want to reclaim their independence, often doing the opposite of what you Default them to.

Ensure that your Defaults have peoples’ own intentions in mind and don’t deviate too far from what people would do of their own choosing.  

What Defaults are you setting? How can these be improved to help smooth out decision-making and guide people to better  outcomes, either for themselves (e.g. helping them save more money) or for the wider group (e.g. defaulting meeting times to 15 minutes instead of 30).

Defaults are set everywhere. They’re powerful and have a big influence on behavior with little effort.

161 people were told that they’d just moved to a new US state and that here, the default was (or wasn’t) to be an organ donor. They were then asked to accept or change this donation status.

Results showed that only 42% donated when the default was to opt out, but 82% when defaulted to opt in.

Defaults are powerful. They’re chosen because consumers take mental shortcuts (especially when tired) and because there’s implied trust that they’re the ‘right’ choice. Defaults also act as a reference point against better or worse options. (Dinner et al., 2011). 

Defaults can be set around anything: from the standard package you offer to new subscribers, to the pre-set top-up amount for your mobile wallet, to whether each order of pizza should come with salad. Each default can dramatically affect conversion levels and behavior.

Get the balance. Ensure your defaults feel natural and in line with consumer aspirations. The more extreme the default you set (i.e. defaulting to the most expensive option), the more effort consumers will expend weighing up the cognitive / emotional costs of not choosing the default, impacting their experience and reducing overall trust.

300 customers at a car wash were split into two groups and given one of two different loyalty cards for a free wash upon completion: either one with space for 8 stamps or one for 10 (with 2 spaces pre-stamped).

Despite both cards requiring the same amount of effort, completion of the non-pre-stamped 8 card over a 9-month period was only 19% whereas the pre-stamped 10-card was 34%.

Get them started. Endow progress with a fraction of points, stars or a brand-specific measure. Make sure you endow enough to motivate use, aiming for between 10-25% of the total effort required for the first reward.  As well as helping with initial effort, make the reward itself substantial and meaningful to assist habit-forming.

Never endow at the end. The closer we are to a goal, the more we value our own internal efforts to complete it. Doing so on their behalf will devalue existing effort, perceived reward value and reduce loyalty strength.

Make it seamless. In Christmas 2013, 1 in 8 Americans got a Starbucks Gift Card. On redemption they were automatically endowed with progress in the form of loyalty stars, creating 1.5m new loyalty members as a result. How can you seamlessly channel gift customers through to your loyalty scheme?