- So I'm going to discuss how we can change
people's saving behavior over the long term
using behavioral economic theory and applying that
to user interface design.
There's one particular case where saving over the
long term is important when you make repeated saving
decision-making investments,
and that's for retirement.
When most people think of retirement
you might think of sitting on a beach and never having
to work again, or maybe you're thinking about pursuing
your passion in your golden years of becoming a winemaker.
Whatever that may be, there's a lot of money in
retirement accounts, in the US there's close to
$20 trillion in these accounts, and yet most
Americans are underfunding these retirement accounts and
education levels don't seem to matter because, for example,
University professors, they don't do much better than
the public at large.
What does this mean?
A lot of people, especially in the United States,
they're going to end up working in their retirements,
and it's getting more expensive, companies are getting
rid of pensions, healthcare costs are going up.
It's becoming a lot more important to save for retirement.
And yet, most people, when they think about saving
for retirement in the present day,
they all maybe log on to their retirement savings account
once or a couple times a year and look at something
that looks like this.
This is a screenshot from Vanguard.com and it shows a
portfolio of stocks, bonds and cash and so on, and
how much money you've saved to date.
People know that they're supposed to save for retirement
but they only think about it a couple times a year if that.
Why is saving so hard?
Well, you have to make repeated decisions about asset
allocations of stocks and bonds and cash over time.
Your risk in these investments has to decrease as you age.
It's hard to think about the effects of multiple
decisions over time, especially with respect to compouding
interest, and people don't think about probabilities
and risk very well.
A common mistake is to try to maximize the amount of money
you make by putting all your money into stocks, or
conversely trying to minimize the volatility of your
retirement portfolio account by putting all your money
under your bed and losing out to inflation.
Can we use HCI informed by behavioral economics to help
people save more since a lot of saving today is done
online through these user interfaces?
Research has already been done in the HCI community
and in persuasive design with respect to changing people's
behavior, with respect to sustainability, and in
healthcare informatics in repeated decision-making
scenarios and getting them to make comparisons and so on.
In behavioral economics we can look to prospect theory
and there are two parts of prospect theory
that can especially help us.
The first is loss aversion, which is to say that if you
lose something, it feels twice as bad as
the good feeling you get from gaining something.
The second thing that we can look towards is
endowment effect.
Which is to say, if I give you something, you become
mentally invested in it.
Think of any conference you've gone to in the past
and you probably get a coffee mug or a water battle
or whatnot.
It's actually kind of hard to get rid of that,
because you become invested in it as an object.
We have to research questions: the first was:
Does applying endowment effect and loss aversion to user
interface design improve saving?
And second: Can we get people to better reach a savings
goal if they understand the impact of their present-day
savings decisions?
To test that we created a retirement portfolio simulator
that's very, that's similar to what you would find
on Vanguard.com and we used real stock market and bond data
to test a simulation over 34 years, where we gave people
$ 10.000 each year to reach a goal of saving $1.5 million.
They could change the percent of stocks, bonds and cash
that they allocated each year,
and on the right they could see how much money they'd saved
to date.
There were two conditions we tested as I mentioned:
Endowment effect on the left, and we showed them their goal
and depending how they changed their asset allocations
we showed how they differed from that goal.
In the endowment condition, we presented it in such a way
as if we were giving them $1.5 million and
how they adjusted it, if they deviated from that, they'd be
taking too much risk, or taking too little risk and
we did this on Mechanical Turk, and if they reached the
$1.5 million goal, they would receive the maximum bonus,
if they did not, they would get less.
If they took too much of a risk we would give them
less of a bonus, if they took too little risk we would
give them less of a bonus as well.
On the right is the loss aversion condition and
we showed them how a $10.000 investment would perform
through the end of the study.
You can see, they could see the best case and worst case
scenarios and how much money they would potentially
be losing if they made the wrong decisions.
What we found was that the endowment effect had the
strongest influence in how people invested,
and here I show how far people are from the goal,
so the gap from the goal of $1.5 million.
In the endowment effect condition they were closest
to the goal, in the control condition they were furthest
from the goal, loss aversion was somewhere in between.
We also looked at the number of asset allocation changes
people made in the study,
and the mean yearly change percentage-wise in their asset
allocations, and in both cases the endowment effect,
it influenced them in such a way so they would make more
asset allocation changes and the percentages between
year to year were greater as well.
The control condition had the least amount of effect.
We looked at risk over time as well,
and these dots you see represent the percentage they
had invested in stocks for each of the 34 periods.
In the endowment effect condition you see this trend that's
they took more risk because we gave them a riskier goal,
than in the control condition.
The downward slopes show how you're supposed to think about
retirement decrease risk over time.
Showing an endowment does indeed motivate people to
preserve that endowment, we explained the loss aversion
effect being weaker because it only showed the impact
of one year's worth of investment versus this entire
retirement pot that the endowment
effect showed at $1.5 million.
User interface is informed by behavioral economic theory
really can help people save more money, it increases
the likelihood of people reaching that savings goal.
As I said, endowment effect was the most effective,
loss aversion also did have an effect, both kept people
on track and we believe that financial firms and regulators
can help the public if they make these small
design changes to their user interfaces and save people
quite a bit of money and help them reach their goals.
Thank you.
(audience clapping)
- [Voiceover] I was wondering about the last one, you think
financial firms want to help the public?
- This is also applicable to regulators,
regulators could potentially enforce this.
Financial firms, there are a variety of companies
out there today that are already helping people reach these
goals through automated investment techniques,
and they benefit from it in such a way where they
charge some fees to do the automated investing for you.
But the fees they get from automated investing,
are less than what they would get through traditional
investing, so yeah, it's a good question whether or not
they would be motivated to make these changes, but
they can get the benefit of people adding more money
to their accounts, yeah.
- [Voiceover] Hi I'm Jasmine from the University of Michigan
my question is when you're evaluating both the HCI,
like the design of the interface and the theory that
you're testing, how do you determine whether it was
actually the theory that was being proven or disproven
in this case or whether it was whether the interface was
good or bad?
- Yes, we did have the control condition
and we've actually tested this interface using a variety
of different techniques, we tested it using persuasive
design modification, changing the labeling and such.
We do know, given the other tests we've done,
that behavioral economics does have an impact,
and presenting the information this way does have an impact.
I guess we could sort of change the layout of the page
in some way of showing behavioral economics manifested
in another way, maybe that would have some sort of
difference, but we feel like the significance of the two
different conditions that we tested was great
enough such that it's more than what you would find
from just changing the layout.
- [Voiceover] Thanks.
(audience clapping)