Behavioral Economics and Technology Innovation: Using Choice Architecture to Build and Scale Products

. With technology being a part of our everyday lives, there has never been a more critical time to dive deeper and understand what drives us to choose specific products. The effectiveness with which technology companies use behavioral economics principles, such as choice architecture, in product development can drive better outcomes both for the organisation and the customer. The use of behavioral economics has become increasingly popular in. recent years. By leveraging insights from behavioral economics, technology companies can create products that better align with users’ needs and preferences, and that are more likely to be adopted over time. This article critically reviews existing and emerging academic research, addressing three key areas: how behavioral economics appeared and its growth in the last five decades, behavioral economics in practice through the use of Choice Architecture, and how behavioral insights are currently applied in the design of technology products. In the present study, I have undertaken a review of existing literature and research studies by analysing and synthesising key points. The review was conducted by analysing and reading existing literature on the topic, including peer-reviewed journal articles, books and industry reports. Overall, this visionary paper provides a contribution to the field of technology product development, highlighting potential strategies of using behavioral economics to better design, build and scale products.


Introduction
It's a well-known fact that for the last four decades, the economists' camp has been divided into two: the neoclassical economists, who advocate that humans are rational, and the emergence of behavioral economists, who support the contrary.
In the late eighteenth century, classical economists Adam Smith and Jeremy Bentham introduced the early concepts of rational choice, which assume that humans behave rationally.(Intro reference, Economics).
They defined a rational human as an individual who analyses all the information available to make the best decision.In practical terms, this means that an individual performs a cost-benefit analysis with every decision he makes.The idea of rational decision-making has led to one of the most critical Economics theories, The Utility Theory.This is based on concepts such as preferences, utility, and choice.
Preferences refer to an individual's relative criteria for choosing products and services.Utility refers to the satisfaction, happiness, or pleasure an individual derives from consuming those products and services.And finally, choice refers to the environment in which we make the selection decisions, maximising their utility.According to D. Begg et al. (2014), Utility Theory has been foundational for society to know what to produce, how to produce it, and who to produce it for.In short, it was a driver for most economic growth in the 19th and 20th centuries.The article is structured as follows: a high level-overview theoretical overview of Behavioral Economics, introduction of Prospect Theory and Choice Architecture and finally a theoretical introduction of using Choice Architecture in the product development process of technology products.
Given the potential of behavioral economics to provide a more nuanced understanding of decisionmaking complex contexts, there is a growing interest in applying behavioral economics to the development of technology products.By leveraging insights from behavioral economics, product managers, designers and developers can gain a better understanding of how users make decisions, what factors influence their behavior, and how to design products that align with users' needs and preferences.Overall, the use of behavioral economics in product development represents a promising approach to building technology products that are not only customer-centric but succeed in the marketplace.

The Emergence of Behavioral Economics
The area of Behavioral Economics has grown significantly in the last twenty years as it received support from outside disciplines such as Neuroscience, Psychology and even Computer Science.
In their foundational paper Prospect Theory: An analysis of Decision under Risk, Tversky and Kahneman (1979, p.263-91) presented an alternative model to the Utility Theory, called in fact the Prospect Theory.This theory was presented as a framework for decision making under risk, focusing on gains and losses, particularly when it comes to monetary incentives.
The authors (1979, p.263-91) propose that individuals evaluate potential gains and losses in relation to a reference point, and that their decisions are based on the perceived value of gains and losses, rather than their absolute values, as illustrated in Figure 1.The Value function.
In order to reach their conclusions, the authors ran a series of laboratory experiments where they gave subjects different choices under different incentives.The experiments showed that people are more sensitive to losses than to gains of equal magnitude, and then tend to be risk-averse when considering potential gains, but risk-seeking when facing potential issues.
Their research played an enormous role in the field of Behavioral Economics and paved the way to extensive studies of rationality and decision-making.
Whilst both Utility Theory and Prospect Theory are frameworks for decision making, we can observe key differences between them.First utility theory assumes that individuals make decisions based on their expected utility, which is a function of the probability for each possible outcome.
In contrast, Prospect Theory assumes that individuals make suggestions based on the subject value function, which assigns different weights to gains and losses.Secondly, utility theory assumes that individuals are risk-averse and prefer certain outcomes over uncertain outcomes, while Prospect Theory proposes that individuals exhibit a complex pattern of risk attitudes that depends on how the choice is being framed.Finally, utility theory has been criticised for its inability to explain certain aspects of human behaviour, such as loss aversion, Prospect Theory provides a more comprehensive framework that can account for these phenomena.
Overall, while both utility theory and prospect theory seek to explain how individuals make decisions, they differ in underlying assumptions and ability to account for certain aspects of human behaviour.Especially when behaviour can be influenced by the environment in which the decision is being made.

Evolution of the Prospect Theory through Choice Architecture
Focusing on frameworks for decision, years later, Thaler and Sunstein (2008) added to the Behavioral Economics field two new concepts known as Libertarian Paternalism and Choice Architecture.
This was a period when the field of Behavioral Economics started to take off, and the academic scholars and private companies could see its use in areas like financial investments, health care, and public policy.
The concept of libertarian paternalism involves influencing behavior while still respecting freedom of choice (Sunstein and Thaler, 2008).People's preferences are often ill-formed, and default rules, framing effects, and starting points can influence their choices.
With an understanding of bounded rationality and bounded self-control, libertarian paternalists can steer choices in welfare-promoting directions without eliminating freedom of choice.Libertarian Paternalism has been used in practice in areas such as Financial Investments, Labour Law, and Consumer Protection.
Choice architecture is the intentional design of the decision-making environment to influence people's choices.It encompasses various elements of decision-making, including the presentation of options, the framing of information, the order of presentation, and simplicity.
The concept of choice architecture is particularly relevant in the context of public policy and healthcare, evidenced by policymakers using it to nudge people towards healthier or more socially desirable choices.
In their paper Stumble, Predict, Nudge: How Behavioral Economics informs Law and Policy (2008,, On Amir and Orly Lobel discuss findings from Behavioral Economics research suggesting that regulatory nudges can influence human decision-making.
The authors provide a critical account of gaps in the research and argue that some types of behavioral insights may be better translated into law and policy reforms than others.They also caution that policy nudges are only the first regulation stage and that more coercive measures may be required later.

Theoretical Framework of Choice Architecture
Cass Sunstein and Richard Thaler described that Choice architecture is based on four main principles to influence decision-making: defaults, framing, feedback, and simplicity.
Defaults refer to the options people choose when they do not actively make a choice.For example, when enrolling in a retirement plan, the default option may be to contribute a certain percentage of income unless the individual opts out.
Defaults can significantly impact behavior, as people tend to stick with the default option even if it is not the most optimal choice.
Framing refers to how information is presented to people, such as the order of presentation, the wording of questions, or the use of visual aids.Framing can influence people's perceptions of risk, benefits, and trade-offs and can nudge them toward certain choices.
Feedback refers to providing information about the consequences of decisions, such as the cost or environmental impact of a particular choice.Feedback can help people make more informed decisions and adjust their behavior accordingly.
Simplicity refers to the degree of complexity of the decision-making environment.For example, simplifying the choice environment can reduce cognitive load and make decisions easier.

Building and scaling products through Choice Architecture
In recent years Choice Architecture has become particularly relevant in the development of Technology Products, and this area deserves more research attention.Unfortunately, to the best of my knowledge, no study has yet investigated the use of behavioral economics in the product development lifecycle.
In their paper, Athey and Luca (2019, p.209-230) discuss the role of economics in technology companies, including working on causal inference in different areas, understanding the trade-offs in products, and being involved in developing various measures of success.
The paper also presented that there is a growing demand for academic positions but also mentioned the need for economists to improve their skills, particularly in areas such as machine learning and coding.Table 1 presents the technology companies having Economists as part of their teams.

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While the authors present the importance of hiring Economists in technology companies, their discussion is focused on something other than the actual product development process.
In their paper, titled Product and Process Flexibility, Athey and Schmutzler (1995, p.557-574) presented a rather interesting take on modern product development.First, the authors introduced a model of a monopolistic firm's decision-making process concerning four long variables: product flexibility (or response to change), product research, process flexibility, and process research.
Their evidence points to existing complementariness between the firm's long-run choices and that external factors such as costs and innovation prospects determine the return to these decisions.The study suggests that further research could explore international differences in firm structures and the benefits of product design and process adjustments in different economic environments.
The modern product development process involves designing, developing, and launching digital products to solve real-world problems and equally meet customers' needs and demands.
This process involves a series of steps that begins with ideation and ends with the delivery of a product to the market.The process is complex and requires the involvement of various stakeholders, including designers, developers, product managers, marketers, and customers.To create successful products, companies must develop a deep understanding of their customer's needs, identify market gaps, and invest in cutting-edge technologies that enable them to develop innovative solutions.
In recent years the overwhelming wave of innovation for consumers has shown us that successful technology products are centred around user needs and understanding the market context.Therefore, companies must develop products that solve real-world problems and not only address customers' pain points but delight them and even exceed their needs to generate demand.
To achieve this, companies must conduct user and market research to identify gaps their product can fill.Additionally, they must innovate and invest in new technologies that enable them to create unique and valuable solutions and stay relevant in a very competitive landscape.
An element of organisational design touches this process because autonomy and collaboration are also critical in the product development process.It enables teams to work together effectively and create products that meet user needs.
The process of building technology products can be broken down into several stages.These stages, illustrated in Figure 3, include problem validation and ideation, designing and prototyping, development, launching, and iterating.Problem Validation and Ideation: At this foundational stage, companies generate ideas for products that solve user problems, and they assess the opportunity space.The data that underpins this decision is based on market and user research.
Designing and Prototyping: At this next stage, companies create mock-ups and early versions of the product to test its feasibility, usability, and potential risks.(Cagan, 2018) Development (inc.Programming): At this third stage, the product is built but also tested for usability, performance, and availability.
Launching and Iterating: Finally, the product is released to the market.However, companies must continuously evaluate and improve to ensure it remains relevant and competitive in the market.
At different stages, teams have to make certain decisions and trade-offs, which various external factors can influence, as Susan Athey and Armin Schmutzler's study proposed.
Looking back at the principles of Choice Architecture, this paper discusses how companies can include those in the product development process.
These four principles can be included at all stages, as tools to build a better decision-making environment, as illustrated in Figure 3.This theoretical study proposes strategies, highlighted in Table 2, to successfully incorporate Choice Architecture principles in the product development life cycle or process.Simplification of the decision-making process Make it easy for users to understand their options and the consequences of each choice during the design phase.This will determine how the users will interact with the product.
Limit the number of choices, but include options that are optimal for the users Too many choices can increase cognitive load and may lead to decision paralysis.The design should offer few options but nudge to better choices.Don't sludge.(Sunstein and Thaler, 2008).

Use simple defaults
These can be powerful tools that can influence the decision-making environment for the user.Consider a default that is optimal for the user and aligns best with its interests.

Feedback Loop
Give users immediate feedback on their choices to build confidence in the product and their choices Consider the user's context and environment Examine the user's current situation, goals, and preferences when presenting choices.This can help you design a product that is more relevant and usable.
Source: Author's own contribution.

Methodology
The methodology for this study was based on a comprehensive literature review of existing research related to the use of behavioral economics in building and scaling technology products.
The review was conducted by analysing and reading existing literature on the topic, including peer-reviewed journal articles, books, and industry reports.The literature review was structured around several key research questions: What are the main principles of behavioral economics that are relevant to technology product design and development?How have these principles been applied in existing technology products, and what have been the outcomes of these applications?What are the best practices and strategies for leveraging behavioral economics to build and scale successful technology products?
Once the relevant literature was identified, it was analysed using a thematic approach.Key themes and concepts related to the research questions were identified, and the literature was synthesised and summarised to answer the research questions.
Limitations of this study include the potential for bias in the selection and analysis of the literature.However, the methodology employed allowed for a comprehensive analysis of the existing literature on the topic, providing valuable insights and recommendations for future research.

Results and discussions
This section presents a theoretical analysis of the drawbacks and benefits of using Choice Architecture in the product development process for technology products.
One of the key benefits is that when used openly and ethically, it can help individuals make better choices.For example, extensive studies have shown that using a principle like Defaults can encourage people to save more.Similarly, using defaults can help individuals make better choices by making it easier to choose the option their peers most commonly select.Another benefit of using choice architecture in technology innovation is that it can help individuals make choices that align with their goals and values.For example, by providing information about the environmental impact of different decisions, individuals can make choices that align with their desire to reduce their carbon footprint.
Similarly, by providing information about the health impact of different choices, individuals can make choices that align with their desire to be healthy.Despite the potential benefits of using choice architecture in technology innovation, there are also some drawbacks to consider.
One of the main concerns is that choice architecture can be used to manipulate individuals into making choices that are not in their best interest.
For example, by using defaults, individuals may be more likely to choose the option that is easiest, rather than the option that is best for them.As a result, those options can be influenced to act in the organisational best interests rather than the individuals.Richard Thaler coined this term as Sludges (Sunstein and Thaler, 2008).
Another concern is that choice architecture can limit the choices available to individuals.By presenting options in a particular way, individuals may need to be made aware of all available options.This way, their ability to make optimal choices is not limited.
An in-depth analysis of how and to what extent companies are using Choice Architecture in the product development process is outside the scope of this article.However, the theoretical analysis presented here forms a foundation for future, more practical research in this area.
By providing a better understanding of the potential benefits and drawbacks of using Choice Architecture in technology innovation, this article highlights the importance of considering ethical and transparent use of Choice Architecture in product development processes for technology products.

Conclusion
Building technology products is a complex process that involves various stakeholders and stages.To create successful products, companies must follow a set of best practices that enable them to develop successful, user-centric products.By focusing on understanding user behavior in the context of innovation, companies can create products that solve real-world problems and exceed users' expectations.
Moreover, by continuously evaluating and improving the product, companies can ensure their products remain competitive and relevant in an ever-changing market.While Choice Architecture can help many individuals to make better decisions that align with their goals and values, it can also be used to manipulate consumers and limit their choices.Therefore, it's crucial for companies to use Choice Architecture ethically and transparently.Moving forwards, there are many opportunities for future research in this area, particularly in exploring the practical implications of using Choice Architecture in the tech industry.Companies and policymakers should also take note of the ethical consideration and consider developing guidelines to ensure transparency.
As we continue to innovate and create new products, it's important that we consider the impact of our choices and design products that benefit both individuals and society.By doing so, we can create a more equitable and sustainable technology, for all.