Cognitive Design

Lottery tickets are one of the best examples of cognitive design that we have.  After all, they have transformed something consumers hate to do (pay taxes) into a multi-billion dollar form of entertainment.  The design features and why they work  (leverage cognitive biases, low cognitive load, high visceral impact, etc.) will be covered extensively in this blog. 

For many buying a lottery ticket is an easy thing to do. It gives a sense of hope and momentary excitement that is sometimes shared with friends.  These are powerful mental states – hope, excitement and connection all for a dollar or two!  If that is what consumers really want when they buy a lottery ticket then they pay off every time.

The information design of financial products and services is very sensitive to the cognitive biases of consumers. A great example of this is the payment/interest rate bias.   Because of this bias most of us will tend to underestimate the interest rate on a loan when we are given information about the monthly payment and duration – or the stream of payments we have to make to repay the loan.

So in practice, we tend to take higher interest rate loans if we are only (or mostly) shown information on monthly payments and duration.   A  study  by two business professors from Dartmouth show just how far this effect can go:

 ”Firms provide frames that cater to bias, and biased consumers sort into different contracts than unbiased consumers. This leads to segmentation across firms in how they present information to consumers, which customers they attract, and equilibrium prices”.

 The market segments by cognitive bias!

 This effect was found, according to to study, in non-banking lending practices only. 

Systematic bias in perception, memory, interpretation and reasoning is a key aspect of cognition. These biases are used to explain seemingly irrational behavior (e.g. buying a lottery ticket), improve decision making (e.g. training against the “beautiful works well” bias in hiring), the design of financial products (I will save more tomorrow) engineering safety procedures,  crafting magic tricks, developing advertising messages and a host of other applications.

Designing to enhance and support cognition (or cognitive design) means understanding and managing (i.e. overcoming or paternalistically leveraging)  the cognitive biases at work in your design.   To get an idea of the cognitive biases that may be impacting the effectiveness of your design check out the great list on Wikipedia.