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We are all being manipulated by behavioral economics

Ever notice how whenever you’re taking an Uber the driver usually gets another fare just before he (Uber drivers are overwhelmingly male) is about to drop you off? That’s on purpose.

Earlier this month the New York Times published an interactive feature describing how Uber uses behavioral economics (or psychological tricks) to encourage its drivers to work longer, take more fares, and so on.

Here’s a quick sidebar note about behavioral economics from Francesca Gino of Harvard Business School:

According to the traditional view in economics, we are rational agents, well informed with stable preferences, self-controlled, self-interested, and optimizing. The behavioral perspective takes issue with this view and suggests that we are characterized by fallible judgment and malleable preferences and behaviors, can make mistakes calculating risks, can be impulsive or myopic, and are driven by social desires (e.g., looking good in the eyes of others). In other words, we are simply human.

And now back to Uber. One tactic they use is goal setting. People are drawn to goals. This translates into driver messages like this one: “You’re $10 away from making $330 in net earnings. Are you sure you want to go offline?”

But the experiment I found most interesting from the NY Times piece is the one that Lyft completed where it discovered that showing drivers lost/dropped fares was a far more powerful motivator than showing completed rides. In other words: Look at all this money you’re losing out on by not driving!

This finding is in line with something I’ve written about a few times before on this blog: prospect theory. One of the tenets of this theory is that “losses hurt more than gains feel good.” We, humans, tend to focus more on the former.

Of course, Uber is not alone in employing behavioral economics. Every app on your phone is being continuously optimized so that it gets as much of your attention as possible. But where is the line between encouragement and manipulation?

If you’re interested in this topic, check out this HBR article called, Uber Shows How Not to Apply Behavioral Economics.

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