App(lication)s of Behavioral Economics

By Francesco Amighetti and Beatrice Del Frate

The core principle that is at the heart of the nudge theory is that “change comes not from the inside, but the outside”, as clearly expressed by Dan Ariely – professor of psychology and behavioral economics and director of the Center for Advanced Hindsight at Duke University. For this reason, the great majority of nudge interventions consists in the re-shaping of the environment where crucial choices have to take place.

However, as the world and technology are constantly developing, so are the ways of implementing nudges. In days where everyone owns a smartphone and constantly uses it, a new and functional possibility to nudge without having to impact the outer environment comes precisely from smartphone apps. In fact, a large number of apps are nowadays being developed with insights from Behavioral Science, which contribute to make the apps we use smarter and more useful. These apps, in turn, help us behave in a smarter way in different aspects of our lives.

Two interesting examples concern the issues of following medical therapies more closely and saving more money. In both cases, choices are bound to our innate cognitive limitation in dealing with intertemporal choices, which makes it difficult for us to follow a greater goal in the future at the expense of a smaller but instant reward. Let’s see how apps can tackle this issue.

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A health-saving app: Wellth

According to the World Health Organization, patient nonadherence to therapy is a worldwide problem that should be taken seriously into consideration. 45% of the US population suffer from chronic pathologies and in developed countries only 50% of those patients take the medication they have been prescribed. Nonadherence is a costly issue: in the US it is estimated to cause 125.000 deaths every year and a national cash outflow of $289 billion.

While pervasiveness of technology and its user-friendliness are often exploited to improve healthcare services and their outcomes, behavioural economics innovations have been introduced only recently to tackle these problems. Wellth, a start-up based in Brooklyn, is a smartphone app that highlighted the opportunities coming from the connection between these two concepts.

Designed especially for heart attack post-discharge adherence, daily weight monitoring, diabetes care-plans adherence, and lung diseases self-management, Wellth combines technology with behavioural economics, leveraging financial loss incentives in order to change patients’ behaviour.

How does it work? The hospital deposits $150 into your account as soon as you start to follow your medication plan. Every day for 3 months, Wellth sends you reminders and monitors your adherence using the camera (e.g. taking a snap of you taking the pills). Any time you do not comply with the plan, you lose $2 per day.

In spite of appearing trivial at first glance, it brings consistent results: developers claimed that it is possible to obtain a 40% or better reduction to readmissions through the app, leading to higher-level patient satisfaction and greater cost savings for both patients and healthcare companies.

Wellth

A money-saving app: Qapital

Everyone wants to save money. But, everyone also finds it almost impossible to do so. Qapital is a Swedish startup that has developed an interesting app for this reason, with the investment and counseling of professor Ariely himself.

How does it work? The idea behind the app is simple: make something difficult easy and fun. More precisely, Qapital makes you save “just by doing the things you do”. In practice, this means that the act of saving is transferred into daily activities.

It all starts with setting a goal and the money needed for it, as a way to keep motivated. Afterwards, the app – which is connected with users’ credit cards – makes you set saving rules: mechanisms that allow the app itself to keep and save a set amount of money whenever performing a given action. For example, the “round up rule” saves 75 cents for every $2.25 spent for a bus ticket; the “spend less rule” asks you to spend less than $20 at Starbucks per week and keeps the rest as saving; the “guilty pleasure rule” holds extra money back whenever food is ordered online; and so on. Of course, rules are customizable in order to adjust to everyone’s daily habits and routine.

In practice, what Qapital does is nudging to break down a large saving into smaller day by day savings. In this way, it tackles the problem of intertemporal choice by making the goal closer and more achievable. It also reshapes the psychological perception of the act of saving itself, which goes from being an effort that requires great self-control to being something within everyone’s reach.