(NOTE: This is part II in a series of behavioral economics lessons for product management. You can find part I, on the remembering self, here.)

In part I, I covered the remembering self: the term describing humans consistently biased process for creating memories of events/products/experiences. It’s a critical lesson because the human biases are 1) understandable 2) predictable and 3) most importantly, hack-able if you understand how your users are likely to think.

Another key behavioral economics insight is the affect heuristic: the tendency of humans to rely on emotions to supercharge the decision making process by putting a subconscious stake in the ground at the beginning of the process. It’s particularly powerful because it kicks in *right before* weighing the pros and cons, and thus influences (read: biases) how pro and con lists are constructed.

For example, if a friend asks you what you think of Nike’s new running shoe, the affect heuristic kicks in immediately, queries your memory, collects any related emotions (positive or negative) you have toward Nike, running shoes, or this particular sub-brand. Then your conscious, rational thought process will kick in to tally pros and cons. But the damage is already done. If your initial emotional response is favorable toward an idea/concept/product/technology, you’re systematically biased to overrepresent benefits (pros) and underweight risks (cons). If your initial emotional response is negative, the opposite holds true: you’re biased to overrepresent risks while neglecting benefits. That’s the affect heuristic in action.

Paul Slovic, an expert in psychological heuristics, has studied this in many forms and in one study asked participants to note simply whether they liked or disliked a series of new technologies. Participants were then asked to enumerate the pros and cons for each technology they previously stated an opinion on. Slovic and his team found “implausibly high negative correlation.” If a participant liked a technology, the stated risks were implausibly low. If a participant disliked a technology, the stated benefits were shockingly low. Participants’ pro and con listings were remarkably biased by initial opinions.

Slovic’s team took the study a step further. After the initial the pro/con exercise, participants were asked to read additional information on the technologies. Some participants received a blurb *only* discussing benefits, others received blurbs *only* discussing risks. After reading, the participants were re-prompted to provide their opinions. Unsurprisingly, participants that read about additional benefits were now more positive about the technologies. However, the critical finding was that the participants who read about additional benefits now also believed those same technologies to possess fewer risks. A rational participant should have only found themselves counting more benefits, not adding more benefits and eliminating risks simultaneously!

The affect heuristic was kicking in. Participants were simplifying decisions by letting positive emotions (triggered by additional information) create a world that was more black and white than reality. A favorable technology has lots of benefits and few risks while an unfavorable one has few benefits and many risks.

Why should I care?

1) Immediate emotional reactions will bias any conscious, rational thought. No matter how rational anyone is, his/her judgment will be immediately biased by sub-conscious emotional cues. If you’ve successfully appealed to emotion, you’ve given yourself an unfair advantage.

2) Well defined benefits will proactively minimize risks. If you can clearly communicate the benefits of your product and/or service, you get a double win: the benefits will go-up and the perceived risks will diminish significantly.

Examples of the affect heuristic in the wild

Dropbox is a fantastic example of a product well designed to take advantage of the 1st principle. Think about Dropbox’s competitors Google and Microsoft. Any rational comparison of the features largely favors big G and MS. Both companies offer more free space: Google offers 5GB and MS offers 7GB, compared to Dropbox’s 2GB. Google and MS are stable, cash rich companies with nearly unlimited resources to support any initiative they want. Dropbox has ~300 employees and $250M in cash; Google makes $250M every 2 days.

But Dropbox is winning. And part of it is definitely due to a positive outcome of affect heuristics. They’ve hacked the first impression to successfully appeal to potential users’ emotions. Ask yourself what you think of Dropbox’s homepage (below). Most people say “clean” and “simple.”

Now ask yourself what you think of Microsoft SkyDrive’s homepage. I’ve heard “confusing”, “cluttered”, and “Why is that girl in a tree?”

Now ask yourself what type of cloud storage solution you want. A confusing one (eg “girl in a tree?”) vs. clean and simple. When it comes to pros and cons, 7GB of free storage is less compelling under the specter of a confusing, cluttered experience. It seems that simplicity has resonated with users as well, it’s not the be-all, end-all stat by any means but the Google traffic for the various services is telling… 

Airbnb is a great example of a company that will benefit significantly from nailing the 2nd principle: clearly defining benefits to boost appeal and reduce perceived risks. They stand to benefit dis-proportionally more than other consumer services – eg Uber, Fab, Amazon, Netflix where the risks of poor performance are relatively low (eg my Uber cancelled on me or my movie isn’t playing) – vs. my vacation rental was unsafe or my home was vandalized.

This is particularly important in the latter case for host sign-ups where people are putting their most important and personal asset (eg home/apt/condo) up for rent to relative unknowns. As the “meth incident” highlighted, the risks to putting up your asset for rental are real. But there is no doubt that Airbnb also has very real benefits they can tout to counter the risks: 1) the potential to gain a serious revenue stream from an otherwise un-monetized asset (see screen below) and 2) the more nuanced, but powerful, promise of community / friendship that many Airbnb hosts end up building with their guests. Given their recent stats of 200K+ rentals listed, it looks like they’re on their way toward overcoming the hurdles by communicating the benefits.

There are no doubt numerous other examples which I’ve missed (please feel free to call them out in the comments!) but the key point is that it’s critical to think about 1) what is the immediate, emotional reaction users will have to my product and 2) how can I clearly hammer home key benefits, which will not only raise user awareness of benefits but reduce their perception of risks.