How can Behavioural Economics and LED lighting possibly be related? From an outsiders perspectives it looks like the lighting industry have been stuck scratching their heads when it comes to LED
The value proposition is clear significantly lower operating costs and a longer lifetime. The trade-off consumers need to wrestle with is swallowing a higher up-front purchase price for the light. When including the cost to power both lights the total cost of ownership is much lower for LED. The rational choice is to purchase LED lights and make the switch, however as any psychologist will tell you humans are not rational actors.
Traditional economists assumed for years that we always act in our best interest. Research from behavioural economics, a school of thought blending psychology with traditional economics, has found we are far from perfect decision makers. In fact when it comes to certain lines of thought we are actually pretty bad at making the optimal choice and need all the help we can get when it. We need to give a shout out to academics here. The work of the likes of Daniel Kahneman, Richard Thaler, Cass Sunstein, Paul Dolan, Dan Ariely and Tim Harfordhave all obviously influenced our thinking. Without their research we would not be taking this line of action.
We are going to cover some of these biases that lead us down the wrong thinking track in more detail. We will also outline how we think the industry can implement some best practice to help nudge consumers in the right direction. Furthermore at whichledlight.com we eat our own cooking, so we will share how we are applying our take on this research and in the future will share the data we pick up from our experiments.
The first bias is really easy to understand. The majority of people are humans are notoriously resistant to change. We prefer the current situation even if a better alternative exists because we perceive the alternatives as associate with an unacceptable level of effort. This is known as the Status Quo Bias and this may add fuel to the fire with the other cognitive biases we will cover.
Our goal is to break the status quo bias (i.e. continuing to use incandescent lights) by building enough mental pressure to motivate action. How can we do this?
Cognitive Dissonance can be understood as the mental discomfort created when opposing world views collide. Its thought this happens because we crave a consistent and accurate model of the world. If we encounter information contradictory to our current mental model then it means we are wrong. Presenting new information highly opposed to existing entrenched beliefs may spark cognitive dissonance. It is then down to the individual to understand if this information is a one off freak occurrence or our mental model is in need of updating. With this project we are trying to push our users into a state of cognitive dissonance by challenging existing beliefs about Lighting. We hope creating this state could spark the mental software update required to drive behaviour change and break the status quo bias.
So what other biases are we facing? Here is an example. Imagine you are in a shop; there is a bat and a ball that cost £1.10, the bat costs £1 more than the ball. How much does the ball cost? If you answered 10p then you have fell victim to the mental shortcut called Attribution Substitution. This occurs when an individual has to make a judgement that is computationally complex and so substitutes an easier (wrong) mental shortcut. So what is the answer here? Well the bat costs £1 MORE than the ball, the ball still costs something and that something is 5p. So if the ball is 5p then the bat costs £1.05 or £1 more than the ball. For consumers looking to calculating the total cost of ownership for LED lighting is like breaking down the cost of the bat and the ball complicated. Most people naive to LED lighting (or the mass of the market) don't actually understand what the total cost of ownership is. Its up to the industry to push this out as part of the marketing message.
Research suggests losses are motivationally more powerful than gains. Loss Aversion is a mental bias that means we are strongly motivated to avoid losses rather than making gains. For LED lights this means marketing the savings we can make by switching to LED may not be enough to motivate change. Linked to this is Sunk Costs consumers see their existing incandescent lights as a sunk cost and stick with the status quo being averse to the loss of spending on a bulb that hasn't blown yet. Both loss aversion and sunk costs relate strongly to another bias called Framing. Framing concerns the way in which we present information classically LED lights have been framed as energy efficient which will lead to money saving. The lighting industry is missing the potentially more motivating frame of losses consumers are losing money by sticking with the status quo of incandescent lights. The powerful message here is householders everywhere are losing money every month by paying nine to ten times more for the same amount of light as someone running LED lights.
According to Hyperbolic Discounting given two rewards, we show a bigger preference for one that arrives sooner rather than later. We also heavily discount the later reward by a factor that increases with the length of the delay. What does that mean for LED lighting? We need to find ways to bring the payback as close to today as possible. Whilst the big benefits of converting to LED lights may come ten and twenty years down the line, we need to communicate the immediate benefits that people can expect from day one and show just how much people will benefit down the line from the switch whilst emphasising the costs of sticking with incandescent. An example of this could be making sure the customer understands with a quality LED light once a retrofit is done - its done. We have seen this within the enterprise side of the lighting industry through the fit and forget ethos.
Anchoring is our tendency to use the first piece of information offered (i.e. the anchor) as the baseline when making a decision for subsequent judgements. After the baseline anchor has been set, we tend to use this as the reference point when considering other information within the context of the anchor. LED light virgins are normally shocked with the prices of LED lights especially when their only other reference point is the anchor price of a classic incandescent bulb. If you don't know, up-front prices to buy LED lights anywhere from five to thirty times more. This means the industry is often unwittingly nudging the majority of users towards considering LED lights as unacceptably expensive. The industry needs to work hard to reframe the anchor here with something relevant and comparable that positions the upfront cost of LED lights as acceptable. Or better still - desirable. We are currently looking at using the cost to power incandescent light bulbs as the anchor point on our results page, thus making the up front cost of LED lights acceptable.
Ultimately we see this research as a guide to help us refine our marketing message and user experience to accelerate the mass uptake of LED lighting. At whichledlight.com our mission is not simply to sell more LED lights. We are here to drive mass behaviour change helping our users make more rational choices when it comes to choosing how to light their home or business. We hope that using best practice from behavioural economics research will help us frame the information in the right way to help our users make the right choice. All this comes with the caveat we must apply: The No Free Lunch Theorem. The map is not the territory and a model is not reality. Our experiments are not conducted in a lab we cant control all the variables. Web data is noisy with analytical blind spots. Apparently Eugene Lewis is responsible for the quote assumption is the mother of all screw ups we take this to heart. Some assumptions must be made in order to make decisions and we are basing our hypothesis on solid literature however this doesn't guarantee success. Another saying springs to mind here In God we trust, all others bring data (thank you William Edwards Deming). We will continue to test our assumptions through data driven experimentation in order to optimise our user experience. We are also excited by what Gary Klein is doing with his input on naturalistic decision making to find insight in real world data and see what happens outside of the lab. Ultimately our goal is to help our users find some insight in order to make the mental switch to LED light being a loud and obvious yes.
We hope our service will leave our users happier, and wealthier. If we get it really right our users will also value the role they have played in fighting climate change.
We would like to see this approach drive a wider behaviour change across the rest of the lighting industry. If LED is such a no-brainer it doesn't take much of a brain to see uptake has not happened at anywhere near the rate expected. We would also like to see more action from the government and the broader international community to nudge our choices towards energy efficient technologies. There is a heavy political focus on generation through sexy renewable technologies but there are two sides to the energy efficiency balance. It doesn't take an academic genius to work out using less energy takes the pressure off production. A one time switch to LED lighting really is one of the easiest changes we can make at an individual level to play a part to help with the global climate change challenge.
If your interested in learning more about behavioural economics there are not many blogs around but we have found some good ones such as brain juicer and Stirling. If you come across any more please email them over because we love this stuff!
**caveat here: We are the first to admit we are not experts in this stuff so we we are off with any of our interpretations with the research let us know :) If you have an idea of how we can do this better we are all ears!
***note all this is said and done with the caveat that our site literally JUST went live so its going to take time for us to build these things into our user flow, trust us though, its coming!