Software product management is a triad and has three fundamental pillars:
- Business strategy
- Technology
- Design
Then, what is Behavioral Economics?
Behavioural Economics is the subject of understanding the psychology behind human decision-making. Economists believe that Humans make decisions rationally from the logical mind. However, the truth is Humans make decisions emotionally or instinctively.
Gad Saad, Marketing Professor has described in his book that Men buy Ferraris and Women wear high heels due to biological instincts and not because of logic.
Here are a few more examples of human decision-making:
- Humans buy things considering the principle of scarcity and hence, software designers use this principle in designing Online Travel applications by displaying (Last few rooms left, and the last few seats left in Flights booking)
- There is a concept of the Theory of decision points in Behavioral economics that suggests that if you include an interruption in any decision-making, then the human mind slows down and tends to think rationally and can avoid wrong decisions. This concept is used by Zerodha to nudge its users from impulsive buying of penny stocks and prevent losses.
- Humans make decisions based on the comparison, so to influence users, you need to build features that can help users compare different options in your website or application. (E.g – Policy Bazaar)
- The decoy effect is another concept that is used in displaying price plans to users while making a purchase.
- We buy after looking at reviews. The principle of social proof is used to influence buying online.
Hence, As a product manager, it is important to understand the concepts of Behavioral Economics so that you can apply them in designing screens that help customers make better decisions.
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