What is bounded rationality & why should you care about it?
It’s a thin fine line between “creating urgency” & the users hitting a “zone of bounded rationality battling indecisiveness” & here’s how you steer clear of that…
Working the MATH in that quote the intelligence percentage could be well below 1% for a sample space in the millions (1415 for a sample space of 2 million).
The advent of PLG (Product Led Growth) has pushed orgs. to channelize their energies towards putting up a product that’s good enough for the users to find their way around it, employing it to achieve their outcomes reaching that WoW moment and perceiving the value on offer, which is a pretty obvious route towards retention.
But having said that, one doesn’t have any control over the collective wisdom of the users / markets given how the time taken for each of them to realize the value could vary even to polarizing levels factoring the worst-case scenario in.
So, what appears simple for some may as well appeal as entirely fuzzy or totally complex for others putting them in that “zone of indecisiveness”, which is never a comfortable feeling for any user to be in. And what happens after that is anyone’s guess eventually proving to be a throw of a dice, the probability of which could end up being lower than 16% (1/6 being the probability of getting a number of your choice on a dice throw) for landing a favorable outcome.
Let’s first get familiar with what bounded rationality is and how its natural course affects the decision making at the user’s end.
Definition:
“Bounded rationality pertains to a decision-making pattern that lands one with substandard choices when forced to act immediately in a constrained (bound) environment which then tends to defy perfect economic rationality”
In a state of perfect economic rationality, we tend to pick the options that could land us the BEST financial outcomes, an idealistic realm to say in the least.
For ex:
I’m sure you remember a viral video that asks random people on the street “if you were given 2 options, 1 – to receive 1Mn. right now, right here & 2 – receive 10K per day for the rest of your life which one would you pick?”
And surprisingly enough most people pick the first option - “to receive 1 Mn. right then & there”. But given the average age group of the participants ranging between 28-35, if they had chosen option 2 they’d have amassed ~4Mn. by the time they turned 60-65 backed by statistics of average life expectancy from insurance companies, also that is sans factoring the endless possibilities of investing the money wisely or playing compounding to your advantage here.
That’s a perfect example of bounded rationality when the users settle for a substandard choice when the clock’s ticking fast on them and they ought to arrive at a decision and make a choice instantly.
Well, as for the video nobody seems to lose any material wealth as there is no real evidence of money exchanging hands. But if that were to be & prospects were pushed to make a choice, everybody involved might have lost a great deal more than what they could imagine. The users may have opted for something only to eventually realize it doesn’t fit their requirements anymore leading to CHURN & a sour tinge when the org. may have lost a prospective customer and all the follow-up business that relationship might have brought in or an entire community / persona in the worst case given how they’d strike off the opportunity & stop pursuing it thereof.
This obviously calls for structured approach which doesn’t only help understand but also factors constraints & pitfalls that affect decision-making.
BALANCING URGENCY
No, urgency isn’t bad at all. It has been widely employed over product marketing to drive up conversions & lead to sales closures, more so in a PLG setup with SaaS products. But one of the direct consequences although unplanned and unwarranted for is how it could lead to bounded rationality pushing one into that zone of indecisiveness.
Creating urgency would work well provided it leads to an unambiguous choice and intern helps in driving those outcomes. But the same thing would just fall apart when the choices are plenty, like for instance fronting the users with a TIER pricing model with no focus on one single option and then pushing the users to decide, like so:
If this was you am sure you’d be lost looking at the options, reading through what’s on offer, going through each of the particulars in there in spite of the timer on the top reading “DEAL ENDS” leaving you with just under 2 minutes to land a choice. The urgency doesn’t and will most certainly fail to apply here in this case affecting conversion percentages adversely.
On the contrary here’s an example from the biggest metal festival in the world – “Wacken Open Air” and how they are wielding that “50% SOLD” message to convey how seats are filling fast & one may have to act quick if they’re keen on locking their tickets in for the forthcoming 4-day concert.
CHOICE ARCHITECTURE & NUDGES
Coined by Richard Thaler and Cass Sunstein in their book “Nudge: Improving Decisions about Health, Wealth & Happiness” choice architecture is touted as one of the best routes to combat bounded rationality. It is the methodical process of understanding and plotting the context in which decisions are made by the masses regardless of whether it is done in a wise, structured manner or otherwise. And a “Nudge” essentially an integral part of the architecture that influences & helps alter or tune people’s behavior inducing subtle manipulations whilst maintaining status quo over the choices on offer.
Here’s an example of nudges being employed over a tier pricing model.
The nudge here is implemented across 2 different areas:
1. The 39.99 pricing is struck off with a new offer preceding it now dropping the price down by another $4.99
2. The timer on the top is ticking to enforce an action by the user to make a choice right there within a given timeframe barring which they’d stand to lose the deal
And that’s one way to help users stray away from that zone of indecisiveness and ensuring that the resultant of bounded rationality lands them in a state where they stand to benefit (& also heavily) from.
Also, nudges are commonplace and find their way in product management across other domains just as much.
Take the case of RETAIL Stores. I am sure you have heard the story of how those Vanilla Ice cream family packs had made their way to the front shelf at Walmart stores owing to its popularity. Think of the shelf carrying a subjective discount coupon applied to it for a limited period and that could very well classifies as a NUDGE. And incorporating such nudges into the store layout was made possible only when the strategists dealt with the problems of customers empathetically & methodically whilst also being absolutely clear over a specific goal they had to optimize for.