Selling Vitamins through Boosts

As many of you know, human behaviour and psychology have always been a passion of mine. Few things motivate me more than trying to understand why we do the things we do and how we can use technology to help us make better decisions individually, collectively, and for our environment. This is what led me to pursue my doctorate, work as a researcher for MIT and start Franc.

Over the years, I’ve seen that we often don’t make decisions that are in our best interests. Either because we’re blinded by short-term benefits or are unable to appreciate something’s present value because of innate biases (known as hyperbolic discounting). In simple terms, given two similar rewards, we show a preference for a reward that arrives sooner rather than later. Researchers have shown that we discount the value of the later reward by a factor that increases with the length of the delay. In other words, the further away the reward is, the more we discount it.

A friend and founder of JupiterSave, Luke Jordan, made some interesting insights into the emotion and savings behaviour of their users. Unsurprisingly, they identified the importance of giving immediate positive feedback to users once they have made a deposit. What was very interesting was their observation that the type and the size of the reward didn’t really matter. The timing of the reward was the most important factor.

Obviously, when it comes to investing for long-term growth, this has a material impact on how people choose to save and invest. More often than not people will choose to “invest” in such a way that gives them an immediate reward, which typically plays out by investing in very risky or highly volatile things like bitcoin, single stocks or forex. It is well established that day trading has the same dopamine profile as gambling at the casino. If we win, we feel that we’re more likely to win again (known as the Hot hand fallacy) - another tragic human bias. Trading can and does lead to addiction that can have drastic social and financial consequences. There has to be a better way, right?

So the question I’ve been stewing on is how can we turn investing for the long-term,  something that is arguably boring and has little to no immediate reward, into something that you want to do every day. In other words, how can I sugarcoat the vitamins we offer our users?

In essence, the major challenge we’re trying to solve is what makes people save more. The question is relevant for ordinary people, communities and governments. And it’s the core problem Franc is trying to solve. This post is a demonstration of my commitment to sharing with the broader community what we’re learning. Some might think that risky but we believe in openness and being frank about all things, so we’ll take the risk.

Here’s what we know about saving more:

Reward: If you give people a direct and immediate payoff to saving, even if small and primarily emotional, you significantly increase the chance that they respond to a future prompt or offer to save, and you make it much more likely they become frequent savers. In effect, this is solving the hyperbolic discounting problem, mentioned earlier.

Habit: The strongest predictor of whether someone will respond to a prompt to save is how often they have actively saved before. In other words, how much of a habit saving has already become. I don’t believe that there are intrinsic features that make some people better savers than others. It’s a question of habit. And the best way to influence habit is through identity. Non-smokers don’t smoke because they identify as a non-smoker! I want all Franc users to identify as investors. And what that means is that you pay yourself first without thinking and stick to your investment goals.

So what are Boosts?

A Boost is basically our way of trying to help you build a saving habit by giving you a direct and immediate potential reward for saving. Every week users will soon be able to find what boosts are available to them in the app. As always if you feel there are ways we can make the boosts better, we’d love to hear from you.