laidlawscholars | The internet has been appraised by economists for reducing search costs and increasing market efficiency. This article argues that economists should adopt a more critical view of digital markets because only a small part of the internet is easily accessible to consumers through search engines and this information is easy to be presented suggestively. The digital choice architecture is explored through the concept of digital nudges, which could be used to guide people to make better choices in digital environments.
Digital nudge is defined as an aspect of a digital choice architecture, which alters people’s decisions online in a predictable way without forbidding any options or significantly changing economic incentives. This is a similar definition to how Thaler and Sunstein (2008) defined the general nudge. Weinmann et al. (2016) define digital nudges as “the use of user-interface design elements to guide people’s behaviour in digital choice environments.”
The goal of a nudge is to help people to make better decisions. However, often the elements of choice architecture lead people to make worse decisions. This kind of use of choice architecture is defined as “sludge”. (Thaler, 2018)
More and more decisions are being made online and these decisions can be influenced by considering psychological principles when designing the digital choice architecture. An excellent example of the use of the scarcity effect (Cialdini, 2007) is a hotel booking website advertising that you are booking the last room available. Similarly, the same site might benefit from the social proof effect (Cialdini, 2007) by saying that ten people are looking at the same room as you. A streaming service might attempt to hook you into watching multiple episodes in a row by automatically starting the next episode, which is an example of cognitive ease. (Kahneman, 2011) A smartphone might send out a notification informing you about a personal situation at a mobile game to lure you in with a method similar to nudging by presentation. (Thornhill et al., 2019; Acquisti et al., 2017)
Creating a digital choice architecture, where the user ends up making biased decisions is relatively easy and cost-effective. Our literature review found multiple examples of well-functioning digital nudges which show how digital choice architecture can impact people’s decisions online.
According to economic theory, reduced search costs will lead to improved and more efficient competition because comparing prices is easier and more information is available. Electronic marketplaces have been appraised for reducing search costs. (Petersen et al., 2002; Bakos, 1997; Goldfarb & Tucker, 2019) More efficient competition is good for the consumers because they can receive the best possible prices, quantity, and service.
However, the downside of electronic marketplaces is that altering the digital choice architecture is relatively easy making it possible to sludge consumers into buying your company’s product. Even though consumers might have access to more information online, the way in which information is presented also matters a great deal.
Another issue is with search engines, which can only access a small part of the internet. Furthermore, consumers are likely to click on only the first results offered by search engines.
Digital nudges
Multiple ways of digital nudging have been proposed. Already in 2002 Mandel and Johnson found that even changing the colours or background photo of a website can prime people to make different choices online.
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