Behavioral Economics Can Boost Business—Just Don’t Copy Uber’s Approach

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In recent years, behavioral economics has found a zeitgeist.

Understanding the fallibility of individual choice and the role of biases and heuristics in tempering the consumer mindset, has allowed ventures to better understand their users, nudge them towards a direction, and strategically plan their businesses accordingly to grow. Though powerful in fostering a user experience tailored to the needs of the consumer, there exists an issue with the perception of applied insights from behavioural economics.

The New York Times recently published a story on Uber and its use of behavioral economics to nudge its drivers, creating questions over the practice of applied insights. Is this effective behavioral science or unethical manipulation?

Uber has lately received a slew of bad publicity. The recent article by Noam Scheiber arguably has added to the bulk of bad news. When taken at face value, if not questionably unethical, there seems to be something troubling going at Uber.

In the effort to keep their drivers working, it was found that the application nudged them using attainable monetary wage goals for their work. Essentially saying, “you have worked (x) hours and are only a few rides away from earning (y) dollars! Are you sure you want to log off?” This practice effectively highlights the use of goal-setting, perfectly in the purview of behavioral science.

Where the story seems to go of the rails is when you deduce that in by nudging drivers to work longer hours that held little margin value for them, in turn held big value for their employer. Even more so, the New York Times noted that the application used female personas to engage with the largely male driver base.

Furthermore, as reported by NPR, Uber questionably has utilized behavioral nudging on the consumer side too. Using internal research, Uber has found that its users are more likely to pay for surge pricing if their battery is running low on their smartphone.

So how does Uber know when your running out of juice? The app knows when you have initiated the low power mode. Though the company has said that they do not use this insight to set prices, understandably the overall perception of behavioral economics is not looking great, thanks to the practices of Uber.

What is important to understand in what has been seen with Uber is that it represents the exception, not the norm. As a golden rule, all agents need to ask themselves if they are promoting legitimate action and negating any sort of harm. Behavioral economics when used responsibly has ability to attain positive metrics and gain the extra mile, allowing startup ventures to help people make smarter and healthier decisions for themselves. The challenge in framing a good and strong perception of the practice is solely for the architects promoting the behavioral nudge, and for them to stay loyal to the underpinning theory of the science, and to respect their customers.

In their influential book, Nudge, Richard Thaler and Cass Sunstein highlight the importance of the overarching philosophical school of thought inherent to behavioral economics, that being “libertarian paternalism.” While the idea has grown to adopt asymmetric information structures, the philosophical reasoning promoted the adoption of behavioral economic techniques that not only preserved individual freedoms and retained choice preferences, but also importantly worked to expand upon these freedoms, and to not coerce action where people have already been accounted for in not seeking their rational self-interest.

In Nudge, Thaler and Sunstein decisively noted three rules to frame the work of a nudge architect. First, they argued that all nudges should be transparent and never misleading. Second, any nudge should allow the individual to easily opt out. And lastly, all designed nudges should be proposed and applied under the belief that they unequivocally improve the welfare of the person.

The defense of behavioral economics rests in the fact that its proponents have instituted a framework for positive action. Thaler and Sunstein’s end rule is always: nudge for good.

Can nudges be designed to manipulate and take advantage of our cognitive limitations? Sure they can.

But given the overwhelming benefits of applying behavioral science to fostering an active and engaged user base, to help stabilize a venture during scaling, and to seek efficient gains, the onus rests on the architect behind the nudge to adhere to theory and act responsibly—for good.

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