The idea, elegant in its simplicity, earned him the Nobel Prize in Economics this year.
Traditionally, economists have argued that a person’s purchasing decisions are, overall, driven by logic. However, Thaler shows that this idea only explains ordinary, frequent purchases, like groceries. However, bigger, less-common decisions present us with new complexity revealing flaws in our decision making. The energy needed to tackle these decisions may explain why “people have a bias toward the status quo.”
However, overcoming this inertia requires leveraging enough influence to create what Thaler calls a “nudge.” Doing so is less complicated than one might think because, as Thaler explains, there are consistencies in the ways in which people exercise irrationality. For example, all people facing a decision are highly influenced by the way in which choices are presented. This phenomenon — called “framing” — is so common that Thaler uses the phrase “choice architect” to describe those who regularly influence others with framing. “If you are a doctor and must describe the alternative treatments available to a patient, you are a choice architect,” offers Thaler.
These findings matter in the world of sales because “if you are salesperson, you are a choice architect,” Thaler remarks. How can a seller put Thaler’s Nobel Prize-winning research to work? They can build a choice architecture that maps the solution to the customer’s specific needs. Thaler calls this “understand mappings.”
Thaler explains, “A good system of choice architecture helps people improve their ability to map and hence to select options that will make them better off.” This concept is a mainstay of the consultative sales process. Consider, for example, the “recommend” portion of the Consultative Selling model. Here, sellers position the solution by linking value to needs — they “map.” Effective sellers do this with a value statement.
A value statement calls out the customer’s issue, suggests an action, and then describes the value of the solution. For example, a seller might restate the customer’s primary issue (“You mentioned that time is a key factor.”). Then, they can move to a recommended action (“Because we already have significant research on retirement planning, we can quickly implement an enrollment program in one month.”). Finally, the seller moves to value, which underscores the benefits to the customer (“This way, you can start before your busy season begins.”). This process puts Thaler’s “mapping” to use.
“Mapping” has a lot to do with making information comprehensible, according to Thaler. Resorting to statistics and probabilities only complicates choices. Customers only need information that’s useful. This leaning towards relevance is the “saliency bias” at work. Information that stands out or seems relevant is more likely to affect our thinking and actions. Therefore, sellers should avoid using jargon when positioning their products. Instead, it’s better to use the customer’s words. This makes the information relatable.
This relatability appeals to both the rational and emotional mind. This is important because these are the two kinds of thinking that govern our decision-making process. Thaler calls these two the “Automatic” and “Reflective” systems. The Automatic System is fast, reactive, and “associated with the oldest parts of the brain.” The Reflective System is more analytical, more careful.
Sellers, of course, have no control over which of these two systems a customer is using to make a decision. In fact, they’re probably using both. For this reason, sellers must be careful to position the solution in a way that appeals to both “System 1” and “System 2” thinking, as psychologists sometimes call them. For example, using short sentences with visual language engages the customer’s Automatic System. Meanwhile, describing competitive differentiators and providing evidence to back up claims can appeal to the deductive characteristics of the Reflective System.
Thaler’s work reminds us that our choices are less predictable than we may think. Irrationality has a way of intruding. Fortunately, “nudging” reveals how even small changes in the way in which we present information can have enormous influence on decisions. “People are busy, they’re absent-minded,” remarked Thaler. “We should try to make things as easy for them as possible.” Effective sellers do this with a consultative approach that rationally embraces irrationality.