Financial services can be hard to understand when they are unfamiliar or novel. When we come across information that is difficult to process, we may give up and turn our attention elsewhere. And processing new or complex information uses up cognitive resources, leaving less mental bandwidth for decision-making. Making it easier to scan and interpret information frees up resources for decision-making and action. When it comes time for the consumer to make a choice, it’s important to structure the decision so that options are not overwhelming and are clearly comparable.
The ease or difficulty of processing information and completing a mental task can affect judgments and decisions in surprising ways. For example, we judge fluent statements that are easy to process as more true and likeable. We put off choosing or defer to the default when options are disfluent or hard to process. Many types of fluency can be at play, including linguistic fluency (e.g., words we know and don’t know), perceptual fluency (e.g., a blurred or sharp image), and conceptual fluency (e.g., ideas that are familiar or unfamiliar).Dive deeper
Fluency refers to the subjective feeling of ease or difficulty in completing a mental task. Perceptions of fluency affect the judgements and decisions we make in subtle ways.
For example, we see fluent, easy-to-process statements as more reliable and true. In one study, researchers provided participants with fictional stock indices with either fluent or disfluent names. People paid more attention to the ratings from indices that had easier to pronounce names. Fluency can also influence how we interpret the world around us. Researchers gave people a written prompt asking them to describe New York City. Those who were received the prompt in a hard-to-process font described the city more abstractly than those who received the prompt in an easy-to-read font. In some cases, disfluency can actually encourage slower, systematic thinking and attention to detail.
Many types of fluency can be at play, including linguistic fluency (e.g., words, sounds, and grammatical structures we know or don’t know), perceptual fluency (e.g., a blurred or sharp image), and conceptual fluency (e.g., ideas that are familiar or unfamiliar). By taking the potential impacts of fluency into account, we can help people process information and approach decisions with the right level of deliberation.
People judge statements that are easy to process as more true, more likeable, and more likely to come from a more intelligent source. Oppenheimer, D. M. (2008). The secret life of fluency. Trends in cognitive sciences, 12(6), 237-241.
Three different experiments found a negative relationship between word complexity and judged intelligence. Oppenheimer, D. M. (2006). Consequences of erudite vernacular utilized irrespective of necessity: Problems with using long words needlessly. Applied Cognitive Psychology, 20(2), 139-156.
It requires less cognitive effort to navigate an interface that is well organized. Eye-tracking research shows that Americans read in an F-shaped pattern and scan information rather than read in depth. Use common design patterns and plain language, label icons, and break text into sections with headers to help users quickly understand and absorb the key information.
Getting it right:
People scan web pages in an “F” shape, first scanning the top of the page horizontally and then scanning downwards. Lorigo, L., Haridasan, M., Brynjarsdóttir, H., Xia, L., Joachims, T., Gay, G., … & Pan, B. (2008). Eye tracking and online search: Lessons learned and challenges ahead. Journal of the Association for Information Science and Technology, 59(7), 1041-1052.
Three different experiments found a negative relationship between word complexity and judged intelligence.
Oppenheimer, D. M. (2006). Consequences of erudite vernacular utilized irrespective of necessity: Problems with using long words needlessly. Applied Cognitive Psychology, 20(2), 139-156.
Investors perceive disclosures written in plain English to be more reliable because they are easier to process.
Rennekamp, K. (2012). Processing fluency and investors’ reactions to disclosure readability. Journal of Accounting Research, 50(5), 1319-1354.
Empty form fields draw more attention than those with suggestion text in them, so suggestion text makes it easy to accidentally skip a field. Sherwin, K. (2014). Placeholders in Form Fields Are Harmful. Nielsen Norman Group, 11.
As humans, we are often attracted to situations that offer us many options to choose from. However, when we face a multitude of options or options that are hard to compare, we struggle to decide. In the end, we may fail to choose, postpone the decision or simply stick with the status quo.Dive deeper
Have you ever looked at a supermarket display and felt paralyzed by the sheer number of options available? How about the menu at a diner? The Netflix homepage? Too many choices can be overwhelming, and lead to choice overload. When faced with a huge range of options, many people fail to choose the best option or fail to choose altogether. Having more options often leads to less realized choices.
In one experiment, psychologists offered samples of jams to shoppers in a supermarket. On some days, there were 24 jams for sale, while on other days there were only six. More shoppers stopped by to try a sample of jam when there were more options, but, counter-intuitively, the more jams that were for sale, the less likely shoppers were to actually make a purchase. Meanwhile, the smaller selection of just six jams resulted in a tenfold increase in jam purchases. With two dozen jams to choose from, shoppers were paralyzed in an attempt to determine whether they liked the Strawberry & Champagne, Tiptree Strawberry, East Anglian Strawberry, or Little Scarlet Strawberry flavor most. The implications of this phenomenon are larger than people not getting the right jam – later work showed that as the number of retirement investment options a company offers increases, employee participation declines.
By taking steps such as limiting the amount of unnecessary information presented, decreasing the number of choices presented, and increasing the meaningful differences between them, we can facilitate decision-making and prevent the paralysis created by choice overload.
The option to delay choice or seek new alternatives is more likely to be selected when conflict is high than when it is low. Tversky, A., & Shafir, E. (1992). Choice under conflict: The dynamics of deferred decision. Psychological science, 3(6), 358-361.
Researchers found that the more options shoppers had, both among different jams and different chocolate bars, the less likely they were to buy one and the less satisfied they were with their eventual choice. Iyengar, S. S., & Lepper, M. R. (2000). When choice is demotivating: Can one desire too much of a good thing?. Journal of personality and social psychology, 79(6), 995.
In a real-world study of more than 800,000 employees, researchers found that those who were given only a handful of options for 401(k) plans were more likely to choose to participate in a 401(k) plan than employees given ten or more options. Sethi-Iyengar, S., Huberman, G., & Jiang, W. (2004). How much choice is too much? Contributions to 401 (k) retirement plans. Pension design and structure: New lessons from behavioral finance, 83, 84-87.
In theory, the most straightforward way to reduce choice conflict is to simply remove the choice entirely, effectively limiting choice for consumers. In practice, this is usually unrealistic or undesirable. Instead, structure the choice in a way that helps consumers decide, and highlight the most important attributes that drive the decision.
Getting it right:
Americans who were mailed direct comparisons of prescription drug plans were more likely to switch plans than those who had to actively seek out comparative information, and as a result they spent an average of roughly $100 less on their plan per year. Kling, Jeffrey R. et al. 2012. “Comparison Friction: Evidence From Medicare Drug Plans.” Quarterly Journal of Economics 127(1): 199–235. http://www.nber.org/papers/w17410.pdf
From organ donation to retirement savings, automatic enrollment or “default” options have won broad attention as a way to nudge consumers toward a particular outcome while giving them the opportunity to opt out. However, there are moments when providers may not be comfortable with defaulting consumers into a particular pathway (see Putting the interests of your users first). An alternative approach to defaults is an active choice framework, which requires the user to actively decide between options. An enhanced active choice framework goes one step further by requiring the user to choose, but also highlighting key attributes of each option.
Getting it right:
Enhanced Active Choice is a complement to automatic enrollment or when automatic enrollment is infeasible or unethical. Keller, P. A., Harlam, B., Loewenstein, G., & Volpp, K. G. (2011). Enhanced active choice: A new method to motivate behavior change. Journal of Consumer psychology, 21(4), 376-383.
Compelling new hires to make active decisions about 401(k) enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt-in enrollment procedure. Carroll, G. D., Choi, J. J., Laibson, D., Madrian, B. C., & Metrick, A. (2009). Optimal defaults and active decisions. The quarterly journal of economics, 124(4), 1639-1674.
People tend to read in an “F-pattern” and focus their attention on the top and left side of the page
“F-Shaped Pattern For Reading Web Content (Original Eye tracking Research).” Nielsen Norman Group. https://www.nngroup.com/articles/f-shaped-pattern-reading-web-content-discovered/ (February 1, 2018).
Technical language takes time and effort to understand. Most people will stop reading when they see jargon
Although people like having choices, they have difficulty choosing among a large number of options
Sethi-Iyengar, S., Huberman, G., & Jiang, W. (2004). How much choice is too much? Contributions to 401 (k) retirement plans. Pension design and structure: New lessons from behavioral finance, 83, 84-87.
People have difficulty choosing among options with a complex range of attributes
Kling, J. R., Mullainathan, S., Shafir, E., Vermeulen, L. C., & Wrobel, M. V. (2012). Comparison friction: Experimental evidence from Medicare drug plans. The Quarterly Journal of Economics, 127(1), 199-235.
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