5 psychological principles from The Undoing Project

Last month, I wrote about the phenomenon of Decision weighting after reading the book Thinking, Fast and Slow, by Daniel Kahneman. Some friends then recommended another book featuring the work of Kahneman and Amos Tversky: The Undoing Project.

Book cover. The Undoing Project: A Friendship That Changed Our Minds, by Michael Lewis

The Undoing Project covers much of the same material as Thinking, Fast and Slow, but in an even more entertaining, approachable way. This isn’t surprising, considering who the author is. Michael Lewis also wrote The Blind Side, Moneyball, and The Big Short, all of which ended up as feature films.

This article is a visual summary of a few of the psychological principles that The Undoing Project touches on. I’ve drawn from sources including Kahneman and Tversky, as well as other studies that lend themselves better to data visualization. If this article interests you, check out the book for the fascinating story behind these concepts and the psychologists that pioneered them!

The endowment effect

In theory, an individual’s selling price should equal their buying price, which should equal how much they value the good.

In practice, people tend to over value things that they own relative to things they don’t yet own.

A famous example of this is the coffee mug experiment. Gather a group of people and give half of them a coffee mug. Then get these mug “sellers” to name a price. Also ask the people without mugs, the mug “buyers” to name a price. Sellers usually have a much higher price than buyers even though they were picked at random and have no sentimental value for these mugs. I’ve summarized this in the chart below.

Graph. The Endowment Effect causes people to over-value things that they already own. Some students in an experiment were given a coffee mug that they could sell if they chose to. 
Other students were given the opportunity to buy a mug.
If there was no endowment effect, both groups could be expected to place the same value on the mugs. Buyers' median mug price: $2.87. Sellers' median mug price: $7.12. Source: The Endowment Effect, Loss Aversion, and Status Quo Bias 
Kahneman, Knetsch, and Thaler, The Journal of Economic Perspectives, 1991

As a designer, you can use the endowment effect to your advantage. Let your customers customize their experience with your product so that they feel some ownership in it and therefore value it more. Also see the IKEA Effect.

The halo effect

It’s hard for people to judge traits independently of each other. For example, attractive people are often perceived as smarter, nicer, or more skilled than they should be.

As a designer, the key takeaway here is to make your software attractive! Not only will your users give you the benefit of the doubt in their perceptions, but they will also actually perform better. You can see the details from this 2009 experiment in the chart below.

Graph. Visually-appealing software has better perceived and actual usability than unappealing software because of the Halo Effect. 

Perceived usability: unappealing software: 5.32. appealing software: 6.14.

Perceived attractiveness: unappealing software: 3.15. appealing software: 5.3.

Task completion time (seconds): unappealing software: 198.5. appealing software: 147.7.

Number of errors per trial: unappealing software: 4.8. appealing software: 2.

For more examples of the halo effect in software, see Halo Effect by Nielsen Norman Group and The Halo Effect in Consumer Perception: Why Small Details Can Make a Big Difference.

The availability heuristic

Another interesting concept discussed in The Undoing Project is availability. The theory is that people judge how common something is by how easily it comes to mind for them (how available it is).

Humor me for a second. Don’t cheat and look ahead! In a standard English book, which is more common? Words that start with the letter K or words where K is the third letter?

If you’re anything like me, you might have thought of words like Kitchen, Knife, Kiwi, then maybe biKing, poKer, and that’s it. It was easier to come up with words that started with K than words with K in third, wasn’t it?

But that doesn’t mean that K words are more common than blank blank K words. In reality, the letter K is more common in position three than it is in position one in English words. Same as R, L, N, and V.

Tversky and Kahneman ran an experiment like this. Over two-thirds of their experimental subjects were fooled on the majority of these letters. See below.

Graph. When asked if the letters K, L, R, N, and V are more common in the first position of a word or the third, 105 people said first the majority of the time. 47 said third. The correct answer for all of these letters is third.

I can’t think of any obvious design implications of this but I found it fascinating from a psychology point of view.

Anchoring and priming

When presented with an initial number, people tend to skew future numbers towards it, even if it’s irrelevant.

This is shown in a 2003 MIT study inspired by Tversky and Kahneman, as described below.

Fifty-five students were shown six products (computer accessories, wine bottles, luxury chocolates, and books), which were briey described without mentioning market price. The average retail price of the items was about $70. After introducing the products, subjects were asked whether they would buy each good for a dollar figure equal to the last two digits of their social security number. After this Accept/Reject response, they stated their dollar maximum willingness-to-pay (WTP) for the product.

“Coherent Arbitrariness”: Stable Demand Curves Without Stable Preferences

Even though the social security number is completely irrelevant info, it had a measurable effect on how the students valued each product. Higher SSNs meant higher prices, as you can see in the graph below.

Graph. The Anchoring Effect is when people are influenced or primed by the first piece of information they receive. Participants in a study were first asked if they'd purchase various items for an amount equal to the last two digits of their SSN. They were then asked to name a price. Participants' actual prices strongly correlated with their SSN.

This is the oldest trick in the book. You can see this in brick-and-mortar and online stores when you can see the current sale price before the old, higher, pre-sale price. They could have just changed the price but instead they crossed it out so that you could still see it and realize how lucky you are to be paying so much less.

Peak-end effect

People remember their experiences considering the peak and the end of those experiences. This applies to both positive and negative experiences. They don’t consider the total sum of joy or pain.

Kahneman and his colleagues showed this in a 1993 paper, where they paid experiment participants to subject themselves to mild torture: In one round, subjects had to stick their hand in a chilly 14°C tub for a minute. In another round, they had to do the exact same thing plus thirty seconds of slightly less-chilly 15°C water. In the final round, they could pick their poison: Repeat the shorter or the longer round.

More subjects chose the longer round to repeat than the shorter round. The reason? The more-pleasant ending was more important to subjects than the longer duration. See the chart below.

Graph. 10 subjects chose the shorter round. 22 subjects chose the longer round. This demonstrates the Peak-End Rule.

Designers should keep this in mind when working on long and/or unpleasant experiences. If you sprinkle a little delight into your experiences, you can improve the peak that your users will remember. Counter-intuitively, making the experience longer may also improve users’ perception if the end of the experience is more pleasant than the rest.

Also see Nielsen Norman Group’s write-up on the Peak-End Rule.

Further reading

Books

The Undoing Project by Michael Lewis

Thinking, Fast and Slow by Daniel Kahneman

Online resources

For my one big takeaway from Thinking, Fast and Slow, see Decision weighting according to Kahneman on ShaneG.ca

For a delightfully succinct list of these biases and more, see Psychology of Design: 101 Cognitive Biases & Principles That Affect Your UX by growth.design.

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