A decision and its consequences are often disconnected, says Warren Cormier, founder and president of Boston Research Group, in San Francisco.
This is particularly true when it comes to retirement planning. Rarely can people immediately discern an impact after making a decision about their retirement plan portfolios, Cormier notes. This is where behavioral economics can play a critical part in helping plan participants understand their own actions, by helping providers come up with technology that uses this understanding.
“The key is to engage the player or plan participant by making this more personal, more consequence-driven,” Cormier tells PLANSPONSOR. He says the use of games, or gameification, can help make the connection between decisions and consequences for participants.
The portion of the brain that is stimulated when people think about themselves 40 years in the future is the same portion that is stimulated when they think about a stranger, according to an interesting finding of behavioral economics. This is yet another factor that can make it difficult for participants to comprehend the impact of their decisions and to peer into their financial future, Cormier says.
Retirement planning asks participants to not just connect current decisions with future impact, Cormier points out, but to somehow make a personal connection to a future self who is basically a stranger. “We want you to defer gratification today to benefit someone 40 years from now, that your brain processes as a stranger,” he says. It’s a difficult leap for many people to make.
This disconnect between present and distant future means that the use of games to engage retirement plan participants can be an effective technique to change thinking. Another way behavioral economics has helped retirement plan providers to bridge the gap for participants is through the use of face-aging software that can help people create more empathy for their future selves.
“By using more of an ‘if/then’ model, you are making decisions much more real, and you start to internalize more information,” Cormier says.
“When we do research with kids playing video games,” Cormier notes, “the character goes into overtime, gets more weapons, strength, or wealth because of the player’s actions, and when their character dies or they lose the game, they talk about how they feel depressed and are emotionally affected.” This invested feeling is not confined to young people who play games, Cormier says. The caring and empathy occur in players of various ages.
As people are bombarded with more information, the use of games to help engage them is also on the rise, says Charles Berman, senior vice president at Fidelity Investments. The games may lean on different concepts, but sites from LinkedIn to those that book hotels use scarcity (only three left at this price!) or competition (see what your contacts are up to!) to get people to participate or make a purchase.
The technique may seem manipulative, but Sean Belka, senior vice president at Fidelity Investments, sees it as a win-win. “If there is only one [of a given product] left, and I want it, then the information that supply is limited is valuable to me,” he tells PLANSPONSOR.
The technology and the discipline of behavioral economics work together to take what’s interesting and fun and turn it into tools and research to help participants in decisionmaking, Belka says. Fidelity works with the Education Arcade at MIT, along with a number of other universities, to research and create strategies that seek to understand how participants think.
People who learn differently and want to engage differently are well served by these techniques and games, Berman says, and the provider can create tools that address varying learning styles and levels of engagement. The games complement a retirement plan: “Better savings behavior is about better engagement,” he tells PLANSPONSOR.
Fidelity has rolled out a number of tools and games that hinge on behaviorism and use peer comparisons, for example, to motivate participants by showing them what their peers are deferring. In a recently released game, called “In the Cards,” players choose a character and make financial and lifestyle choices. Berman explains that the point of the game is not to simply accumulate the greatest amount of money—instead it's about setting goals and making smarter choices.
That de-emphasis on accumulation was a central idea of the game, Berman says. “It’s important to be responsible and save for a certain lifestyle, while protecting against occasional challenges such as the need to purchase health insurance,” he says.
A key part of the game is also to allow the character to do things that are fulfilling in reality. “It’s a wider set of choices,” Belka explains, “like, ‘Should I have a roommate, go backpacking or get a job?’” Berman notes that most people are interested in things that are meaningful beyond their financial value. “The act of being financially responsible is about tradeoffs,” Berman says.
Technology, data and behavioral economics can also be useful for reaching plan sponsors, and Fidelity is working on leveraging data to bring better peer comparison capabilities to this constituency, Berman says. Much as peer comparisons can work for plan participants to motivate better behavior, plan sponsors can also be sparked to meet their objectives.
“You can look at how your plan is doing and benchmark against companies similar in size,” he says. Predictive modeling can shine a light on participant performance, and it can also show institutional clients the impact of changing a default by 1%. “What’s the outcome,” Berman asks. “What does it look like against other companies of similar size or industry?"
The deeper neurological explanation, Cormier says, is that most people find the best and most engaging stories are the ones about themselves. The technology in game-playing does not rewire people, he says, but it allows us to use the wiring that is there, helping us to connect more emotionally to what we are doing, which is useful in abstract financial situations, where people may in fact find they are emotionally disconnected from a portfolio.
“Technology can help us do things like help us relate to our future selves,” Cormier notes. People can see the potential consequences of decisions that in real life would be a slow-motion movie that plays out over 40 years. “With technology, you can see it in a matter of nanoseconds,” he says.
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