The Nobel lecture by the Economics Prize winner, Richard Thaler was held on 8th of December, 2017 at Stockholm University. When I decided to attend this lecture, I had mentally prepared myself to queue outside to get a seat and listen to a talk filled with scientific jargon that I may not understand. But I was pleasantly surprised when Professor Thaler delivered a presentation with relatable stories to explain 30 years of his research and even included a funny picture of Homer Simpson in his slides!
He started his talk with a story about cashew nuts in a dinner party when he had invited his friends over. The bowl of cashews on the table was being consumed quickly and as a responsible friend, he hid the bowl in the kitchen like most of us usually do with a packet of chips or a huge piece of chocolate cake in a party. Taking it away makes us feel relieved but he pointed out that from an economics point of view, taking away a choice shouldn’t make us feel good. This story and several other thought experiments led to Professor Thaler to research on ‘supposedly irrelevant factors’ (SIFs). There are a lot of these supposedly irrelevant factors that are in fact, not irrelevant. As humans with bounded rationality, unless we are influenced by nudges (like cashews being taken away), we tend to stick to the known and have an aversion for giving up what we already have.
At this point, you might be wondering how this fits into the topic of open and user innovation. During this talk, I realised that when we brainstorm for new ideas in our courses, we always assume that the potential users and partners will make a rational choice like downloading a new app which is better than all the existing apps, buying a new product with better features instead of using a poorly designed product that they already own. But we rarely pay attention to creating ‘nudges’ that can influence these potential users to change their existing behaviour without forcing them to do anything.
An example of a nudge mentioned in the talk was by the Swedish government which encouraged people through an advertising campaign to choose their own pension portfolio in 2000. One of the ads even have Harrison Ford recommending a portfolio. 75% of people enrolled themselves to a custom plan that year rather than using the default plan and the nudge has lasted for 17 years for these people.
Another interesting point related to open innovation was the use of open public data from Sweden and Denmark. The research by Professor Thaler on Swedish pension plan was using open data provided by the National Social Insurance Board of Sweden and the Premium Pension Authority. Another research paper mentioned in the talk was by Raj Chetty and colleagues using open data from the Danish government to prove that the impacts of retirement savings policies on wealth accumulation of people depended on whether they changed their savings rates by active or passive choice. This was done using 41 million observations on savings for the population of Denmark from 1995-2009.
If you curious, you can watch the entire recorded Nobel lecture here. There are lots of other great insights in the talk that I might have missed out in this post.