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DECIDING
BORHADE
BHEDA
DOVAL H
RANE
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What is a nudge?
A nudge is any aspect of the design of a choicarchitecture)that alters peoplesbehavior in a predi
without forbidding anything or actually changing thall.
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Spock or Homer?
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There is no such thinganudgeless choice
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When do we especially need nudg
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When do we especially need nudg
When we see the benefits now, costs later
When encountering decisions we make infrequently
When feedback is not immediate
When it is hard to imagine the possible outcomes
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How to Predict Homers Actions
We have predictable mental biases
We predictably succumb to temptation
We predictably follow the herd
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So how to help Spock defeat Home
iNcentives Understand mappings
Defaults
Give Feedback
Expect Error
Structure Complex Choices
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How can we help in your FinanciDecision Making?
Savings
Choosing where to invest
Student Loans
Credit Cards
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SAVINGS
How much time do you spend?
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SAVINGS
What percentage of your current salayou save/want to save?
Pre-commitment : Save more tomor
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BUY OR SELL?
Stock A Stock B
Which stock would you buy and which would you prefer to
X
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BUY HIGH, SELL LOW!
People tendpeak and
This is thmaxi
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THE DIVERSIFICATION HEURIST
When in doubt,
diversify!
DIVERSIFICATION IS A POWERFUL CONCEPT BUT YOU MUST UNDERSTAND WHAT THE
I should have computed the historic co-varianc
asset classes and drawn an efficient frontier. Ins
I split my contributions fifty-fifty between bonds
equities.Harry Markowitz
LOAN PRICING
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LOAN PRICING
Fixed Rate loans
Variable Rate loans
Teaser rate (low initially and
increases later)
Prepayment penalties
Principal-free loans (genesis for
the sub prime lending)
Which one will you go
borrowing (say. $ 1000
1. Fixed rate (10% p.a
2. Discount rate (7.5%($ 1000)
STUDENT LOANS
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STUDENT LOANS
FEDERAL/ STAFFORD LOANS
Features:
Govt. pays interest while student is inschool
Govt. pays the lender if student defaults
Requirements
Very complicated application
Hundreds to question
Proof for family income
Approval from college
PRIVATE LOANS
Features:
Like buying a pizza Get loans within 15 m
Requirements
Proof of college enrol
Can be used for any p
Trick High interest rates
Misleading payment tconditions
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CREDIT CARDS
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CREDIT CARDS
Credit Cards
Mode of Payment
Ready Source of Liquidity
Food for your Thought:
1.4 billion credit cards in 2004 for 164millioncardholdersan average of 8.5cards per cardholder
In 1989 the average American familyowed its credit card companies $2,697
In 2007 that number had grown to about$8,000.
Study by Drazen PreDuncan Simister
Americans on an averpay twice as much to Boston Celtics basketcould pay with their cthan cash
Average Game Price: $
How much will they pmiles?
CREDIT CARDS
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CREDIT CARDS
Nudges that would help the users:
Electronic Version of Reports
2 Bills for Credit Cards
Summary Sheet and Informationregarding fee
User enforced Credit limits on specificsectors
Opt in to Credit Limit Increases
Message
For mortgages, school lo
cards, life is far more comit needs to be, and peoplexploited
Improve Choice Architecpeople fare better
THANK YOU!
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THANK YOU!
NUDGE!
XXXXX
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