Behavioral Economics Workshop: Insights for Startups

As I wrote before, in August 2014, I attended a workshop for fintech startups in the impact space conducted by a renowned behavioral economist. In my previous posts, "The Power of Opportunity Cost in Making Better Financial Decisions" and "Emotion and Self-Control: Insights from a Behavioral Economist," I shared some key takeaways and insights from that enriching experience. Now, I'd like to delve deeper into the topics covered and share more insights to understand better the concepts discussed.

1. Understanding Opportunity Cost: The workshop emphasized the importance of considering opportunity costs when making financial decisions. It discussed the challenges we face in understanding what we're giving up when making a purchase and how technology has made it even more complex.
2. Money Strategies and Principles: Several strategies and principles were shared to help us make better financial decisions, such as (a) Setting aside cash, (b) Budgeting, (c) Using automatic withdrawals, like the 401k by law, (d) Hiding money from ourselves by using separate accounts
3. The Pain of Paying: The concept of "the pain of paying" was introduced, which refers to decreased enjoyment when consuming and paying for something simultaneously. The workshop explored how different payment methods, such as cash versus credit cards, and services like Uber and Lyft, affect the pain of paying.
4. Fairness and Willingness to Pay: The workshop discussed how our perception of fairness, based on the effort of producing a product or service, influences our willingness to pay. Examples involving locksmiths, consultants, and parking meters were provided to demonstrate this concept.
5. Saving Experiment in Kenya: A saving experiment conducted in Kenya was presented, which aimed to understand the barriers to saving and how to overcome them. The study found that tangible incentives and reframing mindsets around saving can lead to significant changes in behavior. Key findings included (a). The use of tangible incentives, like scratch-off coins (b). The importance of creating discussion within households (c). Reframing mindsets by giving names to accounts

Understanding the nuances of human behavior can play a critical role in designing effective fintech solutions. These insights remind us that emotions, perceptions, and biases at the core of our financial lives guide us. By incorporating these learnings into the development of fintech products and services, startups in the impact space can better cater to the needs of their users, ultimately fostering healthier financial habits and improved financial well-being.