🔑 Incentivizing 101, The 3Bs of behavior change, ...
I listen to 10 hours of podcasts a week, so you don’t have to.
This is the 30th edition of Best 3 Podcasts of the Week 🥉🥈🥇, featuring Nudge, Lenny’s Podcast, and My First Million
What you need to know
🤳 Playing on people’s personalities
🅱️ The 3Bs of behavior change
🔑 Incentivizing 101
BONUS segments
✅ The right for wrong action
📈 Index fund for stock options idea
🤳 Playing on people’s personalities
🥉 Third place (3 min read vs 21 mins listening)
Ever heard of the Barnum effect? Me neither. Fortunately, we’ve got Phill Agnew to thank for teaching us this psychological phenomenon on his podcast, Nudge.
The Barnum effect occurs when people believe that a statement is written specifically about them, even though it’s broad and could be applied to most people.
What they say
The Barnham effect explained
After learning about the Barnum effect, I became really interested in all of the different ways it could be applied.
I found this great study where the researchers wanted to see if the Barnum effect could increase how likely someone was to say yes to a survey.
Researchers tried to stop you in the street. They asked for a few minutes to answer a survey but only 29% of people agreed to participate.
The researchers then used the Barnum effect. They stopped a second sample of individuals and began the interaction with the question ‘Do you consider yourself a helpful person?’
Nearly everyone said yes. In that moment, after the subjects had confirmed their helpful nature, the researchers then asked if they’d take part in the survey. Now, 77% of people volunteered.
You can boost survey participation by 3 times simply by asking a Barnum effect question.
But that’s just survey respondents. I wondered if it can get people to actually try a new product.
It turns out it does. In another study from Robert Choudinis’s book pre-suasion, two scientists found that it was possible to increase the willingness to try an unfamiliar consumer product by asking a Barnum inspired question.
Phill Agnew
What I say
Why it matters: Fortune tellers use the Barnum effect to make their generic advice feel personal. Honestly, I think they’re full of shit. But, it’s fascinating how fortune tellers have survived 6,000+ years by playing on our inflated sense of self.
You too can play on people’s cognitive bias to get what you want. This sounds evil, but it’s what great marketing and product leaders do. By first asking a question that feels personal, your second question is more likely to be seen as correct or the right thing to do. You can use this to improve:
Conversion rates for your surveys, quizzes, forms, products, and services. Start by asking a question that forces your customer to either go against how they described themselves in their answer or take your desired action i.e. Ask ‘Do you consider yourself to be health conscious?’ before a customer buys vitamins.
Customer onboarding engagement. Start by asking ‘Do you consider yourself to be an early adopter?’
Quantity and quality of reviews. Start by asking ‘Do you consider yourself to be a supportive person?’
CTRs for your paid search and social ads. Phill increased the CTR of his Reddit ads by 15% by turning a statement into a question.
Between the lines: It’s natural to be unaware of the cognitive biases we all adhere to when making decisions. One of the best ways to recognize when you’re being duped is to learn from others, even if you don’t like or believe what they do.
🅱️ The 3Bs of behavior change
🥈 Second place (5 min read vs 56 mins listening)
Behavior change is hard. Whoever tells you otherwise is lying. That’s why this episode ranked so highly. Kristen Berman is the CEO and co-founder of Irrational Labs. She is an expert in behavioral design research and has helped companies like Google, Airbnb, PayPal, and Microsoft to improve their products. This is a must listen for anyone working or interested in product.
What they say
Introducing the 3Bs
Once you understand the psychology of human behavior, you start to see patterns.
Behavioral economics shows people act in irrational ways but we do it in predictable ways.
Our team created a model of behavior change we call the 3Bs. We’ve used this at Google, Microsoft, LinkedIn, so all the companies that we work with.
Kristen Berman
Pick your behavior
The first B is behavior. In order to change behavior you have to pick a behavior you want to change. This is the thing you want someone to do.
Example. If I’m Pelaton, I’d say something like 'Within 7 days of somebody starting the app, they do 2 10 minute workouts with 2 different instructors.’
We need to get uncomfortably specific. If you don’t define the behavior you’re going to change, you can’t define the psychologies that affect someone’s decision making when doing that behavior.
Kristen Berman
Reduce any barriers
The second B is barriers. You need to reduce the barriers that prevent a person from doing the behavior. We look at two types of barriers.
(1) Logistical barriers. This is the stuff in our way. It could be entering a credit card or form field.
(2) Cognitive barriers. This could be uncertainty aversion, optimism bias, status quo.
Kristen Berman
Reward with benefits
The third B is benefits. This is where you want to increase the immediate benefits of doing something.
We are all present bias, which means we prioritize our present self over our future self.
There are plenty of reasons someone should take an action but you have to give them a reason to take an action today.
An example is if you’re Asana and you’re trying to get someone to log a task, the right thing for them to do is log the task because it helps them get the project done on time.
One of the real reasons we’re going to log a task is completion bias, we want to see the checkbox. We may log it because of social desirability bias where other people see that we’re getting our work done.
These are the immediate benefits that we need to build into products or features in order to drive use.
Kristen Berman
What I say
Why it matters: Kirsten’s simple framework for changing behavior can be applied to so much more than just product.
Sales can use this to improve their conversion:
Behavior - Leads have a 15 minute call with a sales rep within 24 hours of submitting their interest
Barrier - Remove the logistical barrier of scheduling time to talk
Benefit - Proactively call new leads within 5 minutes of receiving their interest and send an SMS with a calendly link if they don’t answer
Finance can use this to improve the timeliness of receiving receipts:
Behavior - Receive receipts within 24 hours of any spend being incurred
Barrier - Remove the perception of receipts being deemed low priority
Benefit - Reimburse expenses within 2 weeks instead of 1 month
Between the lines: With hindsight, the times when I’ve struggled to enact behaviour change are the ones where I’ve ignored rewarding customers with immediate benefits. I’d hazard a guess that many of us overlook benefits and myopically focus on reducing barriers instead. This is certainly eye opening for what I can do to improve.
BONUS segment
✅ The right for wrong action
When we think about right for wrong, we're helping people do the right thing but the reason is probably not related.
One of the big voting interventions is to have pizza show up at the poll line. You’re motivating people to go vote, not because they want to contribute to democracy but because there’s pizza.
We’re giving people some other reason to do a thing that they want to do but they may not necessarily have the motivation to do it right away.
Kristen Berman
You enjoy this newsletter. You want to see me achieve my growth goals. But, you haven’t had the motivation to tell a friend to subscribe. And that’s ok.
Everyone likes to get in early. You get an unofficial badge of honor when you’re one of the first to discover a new song, SaaS tool, or newsletter.
Well my friend, I’m giving you the chance to do a right for wrong action. If you tell a friend or colleague to subscribe, I’ll give you a shoutout in next week’s edition.
You’ll have your name in lights by having the historical record say that you were early to Best 3 Podcasts of the Week. All I ask is a reply with a screenshot of your referral.
🔑 Incentivizing 101
🥇 First place (5 min read vs 57 mins listening)
Money talks. Or so they say. The right incentives can align people to the right goals. But, the wrong incentives can have unintended and devastating consequences. Sam Parr shared a bunch of insights on incentives on My First Million.
What they say
Successful ways to incentivize people
I was researching incentives. Charlie Munger said ‘Show me the incentives and I’ll show you the outcome.’
You can do clawbacks. You get 50% of a bonus upfront and if you don’t achieve the goal, then I’m going take that money from you. Loss aversion performs better.
The problem with incentives is (A) To change them, you have to be bold and (B) Oftentimes, it’s not always straight forward. Tracking the results is a huge task in itself.
Sam Parr
An interesting incentive example
Do you know what’s a really fucked industry? Private prisons.
You’re incentivized by how many beds you fill. That doesn’t align with what we want as a society.
What it should be is you’re paid a little bit of money for how many beds you fill. If the inmate goes back to prison in the next 4 years after they get released, you’ve got to give me that money back. If they stay out, I’m going to give you the second half of your payment.
Sam Parr
Learn from India on second-order effects
Why are there so many cobras in India?
At first, there was a little bit of a cobra problem. India said something like ‘Hey everyone, we’re going to give you $50 for every dead cobra you bring to us.’
They thought they’d have no more cobras when in reality the schemers were like ‘Oh, let’s breed cobras, kill them, and bring them to you. This is free money. It’s awesome.’
There’s now an overpopulation problem of cobras. I have no idea if this is a true story or an urban legend.
[Note, this is in fact a true story according to Wikipedia]
Sam Parr
What I say
Why it matters: Beware of second-order effects. Take Babylon GP at Hand as a warning. They’re an NHS doctor service in the UK. They created a beautiful app with almost unlimited availability of doctor appointments - all at your fingertips.
Things were going swimmingly. They grew their customer base at a rapid pace with an irresistible service offering. Then the penny dropped. Utilization increased to unsustainable levels to the point that they lost money on every patient. In an attempt to offer best-in-class access, they eroded their margins and destroyed their model.
Between the lines: Always think about 2nd order effects. I used to think uncapped bonuses were a great way to incentivize sales teams. If they exceed their stretch goals and the business thrives, it’s a good problem to have to pay 6 figure bonuses.
Now, I’ve had a U turn. How would other employees feel if word got out? Would this encourage leaders to set lower goals? Would people become more aggressive with potential customers to secure outsized bonuses?
Maybe. Maybe not. But it’s worth considering the impact of the incentives you give to your team, your suppliers, and your customers, because they may have undesirable consequences.
BONUS segment
📈 Index fund for stock options idea
It’s pretty unfair that employees at tech companies don’t have a portfolio approach. It got me thinking. We talked about Sara’s List.
If you pick one of these companies that’s going to 4X over your 4 year period, you can become a self made millionaire without taking huge entrepreneurial risks.
But, you’ve got to pick right. My idea is this: You take a job at a tech company. You get your stock options. You can then pool it with other companies that are equally risk weighted.
Let’s call it 40% your stock and 60% becomes a blend of other stocks that you get to either pick or index into out of the startup community.
You get de-risked a little out of your one thing because maybe you’ve got a crazy CEO.
Let’s say you’ve got Adam Neumann. You thought WeWork was a good idea. Now, 3 years later your stock options are worthless. They’re underwater. That’s how the game works. But does it have to be that way?
Shaan Puri
Shaan points out the legal obstacles
To launch this, you’d have to create some financial contract that basically says ‘I pledge my shares to this portfolio.’
In exchange, you receive shares of the portfolio and there has to be some kind of consequence if you renege.
I’m going to wave my hands in the air right now. What I’m doing is legal financial magic. That part is done. Now, we just need to start the company and have it take off.
By the way, that’s how I run my businesses. I go and talk to the lawyer or accountant and say ‘I’ve already agreed to this deal so you’ve got to figure out how it works.’
Shaan Puri
Genuinely, this is a genius idea. Of course, there are major legal obstacles to overcome, but it’s one of those where you’re like ‘Huh, how does this not already exist?’ If you’re a developer / lawyer / sales person with deep fintech experience, please start this company. You’re welcome.
Shoutouts
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Note, these quotes were pulled at different points of the episode. Some sentences were left out to make the narrative clearer and more concise. Podup is not associated or affiliated with any podcast (unless otherwise stated). All roundups are independently written and do not imply any sponsorship or endorsement by the podcast.