A Nudge too Far:

Predicting Behaviour - Are You Ready for the Future?

Patrick A. McNutt FRSA

Visiting Fellow, Manchester Business School, UKbusiness consultant, based in Dublin, Ireland.

www.patrickmcnutt.com

Follow on Twitter @tuncnunc

PREMISE: YOU ARE A PATTERN.

YOU HAVE A DIGITAL SELF.CAN YOUR PATTERN BE DECODED?

IF SO, CAN YOUR PATTERN BE CHANGED?

STEP1. YOU ARE IN THE FUTURE ALREADY!

STEP 2. ARE YOU READY FOR THE FUTURE?

STEP 3. PREPARING FOR THE FUTURE.

PATTERNS? AT THE LEVEL OF INDIVIDUAL:

‘A BEHAVIOURAL PROCESS, A SEQUENCE OF ACTIONS AND REACTIONS AT TIME PERIOD T WITH CONSEQUENCES AT TIME PERIOD T+1’

LETS TAKE AN EXAMPLE: THE DAILY ROUTINE

NOTE: OBSERVE THE SEQUENCE AS REPEATED ACTIONS IN ORDER TO DECODE THE PATTERN.

A PATTERN EVOLVES MONDAY, TUESDAY, WEDNESDAY, THURSDAY…

FRIDAY?

CAN WE PREDICT FRIDAY?

PATTERN EVOLVES WEEK 1, WEEK 2, WEEK 3…WEEK (N-1), WEEK N?

CAN WE PREDICT WEEK N?

DAILY ROUTINE ALGORITHM

STEP 1: YOU ARE IN THE FUTURE ALREADY!

SELF AS A PLAYER IN A GAME

Bt behaviour has a pattern: in The Daily Routine individuals outsource memory and

leave ‘breadcrumbs’ or ‘footprints’. Information is embedded in observed

behaviour Bt during the time continuum from t to t+1. .may be due to inertia or habit.

Bt+1 = Bt + Δ Δ is the nudge parameter that policy makers,

management, algorithms and strategists can influence.

Δ IS THE NUDGE PARAMETER

Patterns have a ‘game’ dimension - to make someone do something they would not otherwise do

Δ is the nudge parameter ..it is an individual’s change parameter

The future is t+1 and if the change from t to t+1 can be framed as a loss/gain it creates a change (loss)

aversion effect.

Individuals learn from observing the behaviour of others.

Individuals also learn from private information …I think-you think-I think loop

STEP 2: ARE YOU READY FOR THE FUTURE?

The gain from today’s decision in time period t depends on the one we shall make tomorrow in time period t+1

EXAMPLE 1: Leo the Liar, adapted from Chapter 1 in McNutt (2014): Decoding Strategy

Do you trust me? Do you believe me?

Focus on belief systems

EXAMPLE 2: Perfect murder = no trace, no fingerprints. But: Did you clean the bleach bottle?

Focus on the non-obvious data

EXAMPLE 3: Where to host the BBQ with a probability of rain?

Focus on experience: regret v disaster

SUN RAIN

HOUSE Regrets

OKAY & YES

Disappointment

GARDEN Preference Disaster

AVOID & NO

LOSS AVERSION: CAN IT EXPLAIN A BBQ IN THE HOUSE ON A SUNNY

DAY?

SCENARIO A: You enter the

theatre but you have lost your $10 ticket. Would you pay $10 for a new ticket?

TOTAL OUTLAY $20

SCENARIO B: You enter a theatre

to buy a stand-by ticket. But you have lost a $10 bill. Would you continue to buy the $10 ticket?

TOTAL OUTLAY $20

ARE YOU READY FOR THE FUTURE?WHAT IS THE OPTIMAL MOVE, GIVEN Δ?

Turing Test: adapted for homo ludens: ‘if a player convinces observers he might be rational, then it is fair to describe the player as rational’.

Cascade effect: at a point in time, observations and signals influence the belief system; examples

(i) ‘broken windows’ = signals disorder and

ii) queues for restaurant = belief system.

RELEVANCE in social media, Google searches, online and e-commerceWe are playing a game, so

1. Algorithms require ‘good’ signals from a Daily Routine

2. Data Analytics requires information on player type

TAKE-AWAY I

IN EXPERIMENTAL GAMES A TIME CONTINUUM

time (dynamic) inconsistency: The night before an exam date a student agrees to commit to paying £10 to postpone for 1 day. A month before the same exam date a student would reject the offer.

underestimate future gains in t+1: When individuals are asked to choose between a piece of fruit and an unhealthy snack for a meal tomorrow, the choice is influenced by (i) their preference today; (ii) observing others as a norm.

NUDGING BEHAVIOUR & PLAYER TYPE

SCENARIO C: Departing for the

airport, Mr R informs you that in your absence, he will burgle your home. If you pay him £200 he guarantees no burglary.

Accept or Reject the offer

In C there is a presumption that you have a secure house alarm and that you believe that Mr R is bluffing.

What if, Mr R had burgled before? He has a reputation? Do you Accept or Reject the offer?

OBSERVED BEHAVIOUR & PLAYER TYPE

SCENARIO D: You are travelling

business class. However you must pay a small nominal fee in order to access wi-fi on board.

Do you pay the fee?

SCENARIO E: Share prices have

fallen 50%. Your capital gain is eroding.. There is a CGT liability of 40%.

Would you sell your shares?

DIALOGUE

Step 3: Preparing for the Future (via Experience &

Belief)

Consider your response to a few simple behavioural

experiments…….

FIRST EXAMPLE

SCENARIO: As predicted you are in your favourite Costa having a coffee. You sense you are being watched. You notice Mr G wearing the new google digital glasses. He is looking at you and a red dot is on.

How do you react? A. You think: ‘I should go to the bathroom and freshen

up my look’ B. You approach Mr G and introduce yourself. C. You think: ‘There ought to be a law against that’.

.

SECOND EXAMPLE

SCENARIO: After listening to a game theorist, you begin to realise that your favourite loyalty card provider has been capturing your daily routine and buying habits and trading your data with third parties.

How do you react? A: You are amazed at the advances in technology and

think about your data as a tradable asset. B: You are interested and take a course in data analysis

and gaming. C: You are nervous about the privacy issues and become

more circumspect about your habits and patterns

.

THIRD EXAMPLE

SCENARIO: Preparing for the BBQ, you are having a glass of wine in your garden and you hear a buzzing noise. Oh no, wasps! But soon you realise that your wealthy reclusive neighbour is operating her small drone.

How do you react? A: You are amazed at the continued advance in

technology but relieved it was not wasps. B: You wave at the drone ‘look up there’ and continue

drinking your wine C: You are annoyed so you decide to confront the

neighbour and request her to stop.

FOURTH EXAMPLE

SCENARIO: You have just returned from your ‘honeymoon’ with your new partner. You realise that you have lost your gold wedding ring.

How do you react?

A: You stop and think: ‘Thankfully, I did not lose my iPhone6’.

B: You are so happy that you did not lose your iPhone6.

C: You are sad and depressed and full of regret and remorse.

SCORECARD: PREPARING FOR THE FUTURE

(ADAPTED FROM STANLEY BING)

If you ticked all A’s then you are in the future already and it is not what it used to be!

If you ticked a combination of A’s and B’s then you are ready for the future.

If you ticked all C’s then you are not ready for the future.

TAKE-AWAY II

IN EXPERIMENTAL GAMES EVERYTHING IS CHANGING

What should I do?

With all the chaotic information available ‘what you are’ and ‘who you are’ defines your Daily Routine and converts it into information = a valuable tradable asset, so Stop and Think.

As a rational individual take note of the coincidences after the facts but observe the facts before the change or an action at time period t. Observe but do not judge.

Thank you for listening………

‘Habit is a great deadner’

Samuel Beckett

Waiting for Godot Act II