A Sticky Situation: With Guests Richard Thaler, Wendy Wood & Susan Budowski

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Katy Milkman: We've all been there, on the phone, waiting in person for customer service, or interacting with a chatbot trying to get an answer or solve a problem. But barriers to real progress pop up at every turn. Sometimes, these barriers are the result of poor design, or unforeseen events, or overly complex bureaucracy. At other times, these barriers seem to be there on purpose, designed to keep you paying for a feature or subscription or service you'd like to cancel. And sometimes all barriers evaporate, either by an accident of good design or to deliberately make it simple for you to benefit from government programs or to purchase products.

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Katy Milkman: In this episode, I'll look at how much our decisions can be affected by the amount of friction in our way. Whether a purchase is made easy thanks to one-click shopping or difficult thanks to a requirement to mail in a complex rebate form or speak to a live customer service representative.

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Katy Milkman: I'm Dr. Katy Milkman, and this is Choiceology, an original podcast from Charles Schwab. It's a show about the psychology and economics behind our decisions. We bring you true stories about high-stakes choices, and then we examine how these stories connect to the latest research and behavioral science. We do it all to help you make better judgements and avoid costly mistakes.

Nobel Prize–winning economist Richard Thaler is probably best known for writing popular books like Nudge and Misbehaving, which explore people's tendency to make systematic and predictable mistakes, as well as offering some helpful solutions. Richard recently told me a funny story about a small friction that really irked him and affected his decision-making.

Richard Thaler: When I published my book called Misbehaving, the first review came out in a London newspaper, and my editor excitedly sent me a link that I clicked on. And there was a paywall, and there was no way around this paywall, but there was a one-month trial for one pound. And I said, "Oh, OK. Well, I'm willing to pay a pound to read the first review of my book." But then I read some of the fine print, and it turns out that in order to cancel your subscription, which after the first month would cost you 27 pounds a month, you would have to call London, not on a toll-free line, during London business hours, which for me would've meant a lifetime subscription. And I call this particular example the "Hotel California" subscriptions. You recall the feature about Hotel California was you can check out anytime you like, but you can never leave. And lots of newspapers, including some I love and even write for, have this model that I disapprove of.

Katy Milkman: Richard Thaler's Hotel California experience with a certain newspaper subscription makes it easy to see how much friction can affect our decisions. And it's not difficult to think of other examples where this comes up. One arena where friction really affects decision-making is in the world of timeshares. Timeshares are shared vacation real estate, where purchasers buy fractional ownership in a condominium apartment or another type of vacation property. This ownership normally amounts to a certain number of weeks of property use per year.

Susan Budowski: There's different structures, so it's a lot to understand.

Katy Milkman: This is Susan.

Susan Budowski: My name is Susan Budowski. I am a licensed attorney in the state of Florida and in the state of Maryland. I'm also a solicitor with the U.K. and Wales, which allows me to practice law in 40 countries.

Katy Milkman: Susan specializes in legal issues around timeshares. We've asked her to explain the ins and outs, particularly the ease of getting into some timeshare agreements and the challenges of getting out of complicated contracts. First, some basics.

Susan Budowski: So say you're going to buy a timeshare from a developer, and say it's at a resort, say in Orlando, very popular destination, right? Timeshare capital of the world. And you'll buy it from a developer that has a resort in Orlando, and typically you'll buy a floating week. So that means that your ownership can be used any time during the year.

Katy Milkman: The amount of time you can use it each year depends on the money you put into the timeshare purchase. Some developers sell points instead of weeks.

Susan Budowski: Depending on how many points you have, you can choose a resort wherever you have enough points to use. So yeah, it just depends on the type of ownership you have and the time of year you want to use it.

Katy Milkman: If you're like me, you might have an image in your mind of typical timeshare owners, empty nesters, retirees, and these groups certainly make up a large share of owners, but surprisingly not the majority.

Susan Budowski: The majority is actually owned by the millennials. When I found that out, I was quite surprised as well. 67% are married or in a domestic partnership, average age of an owner is 39 years old.

Katy Milkman: With that in mind, we asked Susan to give us an example of how typical buyers can get themselves in trouble. And how friction plays a key role in that equation. She's changed the names of these clients to protect their identities.

Susan Budowski: Joe and Mary are approximately 23 years old, and they date, they're students working part-time and just took a weekend to get away. And they decided to go to Orlando for a day trip. They live in Tallahassee, so it wasn't an extremely long drive. They can do Universal. They can do Disney. There's all kind of fun places to go to. So their plan was to spend the day at Universal Studios.

As soon as they walked in, they were approached by the rep at the kiosk. There was someone there from a timeshare developer, and they offer a gift card, which, who doesn't want a gift card, right? Extra $100 or $200 to use while you're in the park, but in exchange, you have to sit for a 90-minute presentation.

Katy Milkman: In timeshares, as in life, there's no such thing as a free lunch. But Joe and Mary figured the gift card was worth 90 minutes of their time.

Susan Budowski: So they agreed to go. There's the podium person who explains how wonderful it is to own with that developer and the different resorts they have and the options they have. Some of them have cruise lines as well as resorts, and of course they're going to show fancy slides and video and that kind of thing, and you get caught up in the moment because who doesn't want to vacation at beautiful spots like that, right? That's kind of how it starts. They listen to the presentation, and it sounded like something that they would like, as a young couple traveling. So they agreed to the purchase.

Katy Milkman: From the moment they said yes, things moved quickly. You could say they experienced very little friction.

Susan Budowski: A lot of these developers don't have the paper copy in front of you. That's all on a computer screen. So it tends to go a little quick because they tap, tap, tap or tab down and sign here, sign here. Initial, initial.

Katy Milkman: The process was incredibly easy, though there was one complication.

Susan Budowski: Joe and Mary didn't have the ability to get on the internet when they were there. They wanted to look up this developer. They did try several times. They just wanted to verify some things.

Katy Milkman: Whether or not that lack of internet access was intentional on the part of the developer is unclear, but it's not an unheard-of situation.

Susan Budowski: I have heard that happen, that it's difficult to access the internet during the presentation.

Katy Milkman: The salesperson assured Joe and Mary that the developer had great reviews, so they sealed the deal and continued their trip. And then returned home to Tallahassee.

Susan Budowski: So they went back to life and work and school and then started doing a little bit of research. And when they got home and had the chance to start digging deeper, they were reading other consumers' stories about owning with this particular developer that caused grave concern for them. That's when they decided, oh yeah, this isn't going to work for us.

Katy Milkman: They were having buyer's remorse. And they were becoming concerned about the long-term costs.

Susan Budowski: The average price of a contract is about 23,000. Theirs was about 20,000, and it's a 10-year loan. And then you have the maintenance fees. So based on their individual circumstances, they realized that they were way in over their head.

Katy Milkman: Fortunately, their contract had an escape clause. Unfortunately …

Susan Budowski: The salesperson did not share that information. "Hey, if you change your mind, take a look at the bottom of your contract. This is how you would cancel within 10 days." They never brought that to their attention. Now in Florida, they're not required to do that.

Katy Milkman: When they read the fine print and found the escape clause, Joe and Mary were already several days into the agreement.

Susan Budowski: Mary actually reached out to her dad and said, "I need your help. Can you help me and Joe get out of this contract?" Dad called the salesperson, day nine. And salesperson did pick up, but said that he didn't have the contract with him, and he would call back.

Katy Milkman: Despite the urgency, the salesperson didn't call back. Joe and Mary were scared.

Susan Budowski: "Oh my gosh, what have we gotten ourselves into? We have to get out of this. This is not good. This could destroy us." They were pretty scared, and Dad was on a warpath to get them out of that and continued to call and just would get voicemail. I had their phone records showing all the attempts of trying to reach the salesperson. It was a pretty steep number, because they were desperate.

Katy Milkman: Remember, they had 10 days to cancel the contract, and they were already on day nine.

Susan Budowski: They knew that they were under the gun, so they made a lot of calls.

Katy Milkman: But Mary and Joe never heard back from the salesperson. They were stuck.

Susan Budowski: So I ended up taking their case.

Katy Milkman: Sadly, this type of case is common for Susan, but as a trained lawyer, she has an effective strategy she can deploy.

Susan Budowski: I prepare a letter explaining what happened from beginning to end. In some cases, I may do an affidavit as well, so I accompanied my letter with the affidavit. And then I send it to the developers, to their counsel.

Katy Milkman: Fortunately, the developers agreed to cooperate rather than risking a lawsuit.

Susan Budowski: They did not try to fight me on it. Sometimes they do. Sometimes they don't. But in this case, they were willing to release these owners and to refund their deposit. Having those phone records is pretty compelling.

Katy Milkman: While some cases can drag on for years, this one was mercifully brief.

Susan Budowski: It was about three months from the date they signed. They were super happy, very relieved. And I think Mary was afraid to get her dad involved, but she was super happy that he took such a lead in helping them.

Katy Milkman: But for every Joe and Mary story, there are many others where owners are unable to sell their stake or get out of their contract or don't have the wherewithal to obtain a lawyer, which is by the way, not a frictionless task. This can all be very stressful, and the agreements can be incredibly complex, leaving owners unsure of their rights and responsibilities.

It can be tempting to blame people like Joe and Mary for being naive, or for not properly reading the fine print when they first signed the agreement. But some timeshare sales tactics are designed to overwhelm critical thinking. A nice gift establishes trust and reciprocity. The process of signing up is made quick and easy, friction-free. But then once the contract is signed, friction operates in the other direction. Overly complex terms, obscured information, or slow-to-respond sales staff can push people to stick with the timeshare purchase even when they have second thoughts or, when years later, the timeshare no longer serves its purpose. The process has been engineered so friction works for the timeshare developer in this case, and with any other large outlay, it's always wise to have a lawyer look things over before you sign.

Susan Budowski: I'm not anti-timeshare. My mom and dad had one for 30 years, and after my dad passed away, my mom gave it to my sister, and she gets great use out of it, and it's a beautiful thing. It just comes down to selling your product in an honest way, so it works out for everyone.

Katy Milkman: Susan Budowski is an attorney in Florida and Maryland who specializes in resolving timeshare matters. You can find a link in the show notes and at schwab.com/podcast.

It was easy for Joe and Mary to get into their timeshare agreement, and difficult for them to get out. Much like Richard Thaler's experience with an easy-to-sign-up-for, tricky-to-leave newspaper subscription. Both examples are set up to favor the vendor's interests, and not the consumers. And both demonstrate how friction or a lack of it affects our decisions.

My next guest has done fascinating research into how we can leverage friction to help build positive habits and diminish negative ones. Wendy Wood is an emeritus professor of psychology and business at the University of Southern California and author of the wonderful book Good Habits, Bad Habits.

Hi, Wendy. Thank you so much for taking the time to talk to me today.

Wendy Wood: Oh, I'm glad to be here. It's always lovely to talk with you, Katy.

Katy Milkman: Well, likewise. I wanted to start by asking if you could just define friction for us.

Wendy Wood: So friction is what gets in the way of behavior. So you can think of friction in physical terms, right? That's what stops motion in the physical world. Friction, for behavior, has a very similar effect, in that it works directly on behavior to make it less likely, to make it so that we do less of something. And friction, you can think of many examples in your daily life. One is distance. So, when things are further away from us, we're just less likely to act on them. And that's great when you're trying to stop yourself from eating donuts, you can put them on the other side of the room. And there's actually good research evidence that makes it less likely that you'll eat them. It doesn't stop you, if you're highly motivated, but it makes it less likely. But it also is a problem, right? When we're trying to get to the gym.

So a gym that's really far away, there's good evidence that people are less likely to go, and it's not how we think about going to the gym, right? We don't think about it in terms of friction. But it is a determinant of our behavior. So distance, time is another example of friction. Online sites know this well—they know one click and you'll buy something. If you have to click a couple of times, they lose customers. So reducing the amount of time that it takes to buy something online is an important way for online retailers to control friction. And to encourage us to purchase stuff.

So time, distance. Effort is also another kind of friction, and that's sort of obvious. That when something just takes much more effort and energy from us, we're less likely to do it. So those are three types of friction that are pretty well documented in the literature.

Katy Milkman: That was so clear, and I love those examples. Could you actually describe some of your favorite research showing that friction changes our decisions?

Wendy Wood: Yeah, I have a couple. One is a study that was done a long time ago in the 1980s, but it was done in such a smart way. And the focus of this research was to control elevator use. It was in a four-story building, so most people could take the stairs, but there was a lot of elevator use in this building, and the researchers were trying to figure out, so how do we stop people from taking the elevator as often? So they did what most of us would think of first, which is they put up signs all over the elevator, all around the stairs, "Take the stairs. It's healthier for you. Uses calories." Or "Take the stairs. It's good for the environment." And they did the same thing by the elevator, put the signs up all over. It had no effect. Signs didn't influence people's behavior.

So what these researchers did is they slowed the closing of the elevator door by 16 seconds. Remember I said, time is an important component of friction. Well, that additional delay cut elevator use by a third. And the great thing was when a month was over and the researchers put the elevator back to its original speed, people kept taking the stairs because a month had been long enough for them to form a habit of taking the stairs, and they just continued to do that. Even when the elevator was back to normal. So friction can have very helpful effects that can be long-term if we form habits in response to them.

Katy Milkman: I love that example. That's such an interesting study. I also really love the recent work you've done with Asaf Mazar on the topic of friction. And I was wondering if you could describe your work with Asaf that touches on this topic.

Wendy Wood: Yeah, this is very much Asaf Mazar's work. We conducted a survey of U.S. voters, people who were registered to vote. We surveyed them before, and we surveyed them after the last presidential election. And what we found is that people, in describing what would help them or get in the way of them voting, what would determine whether they vote. People described a lot of personal things, right? Like, "I'm really a strong Republican. I really hate this candidate. I think it's my civic duty."

They described a lot of beliefs about voting that they thought would motivate them to vote. Very few people described what you'd think of as friction, like whether they needed to get childcare in order to vote, whether they owned a vehicle so they could get to the polls, or how much time did they think it would take for them to vote.

So people mentioned beliefs, but they didn't mention friction very often. And what was really cool about this research is that we assess them after they had voted, to find out what were the real determinants? What really mattered in whether they voted. And even though people mentioned beliefs so much more than friction, in actuality, beliefs and friction were both about equally important in determining whether people voted. So we think of voting as this thing that we do because we're driven to do it, and we do because we're committed, either to our country or to a political party. But in actual fact, friction is really important in determining whether people vote. We just overlook it. We don't see that as an important factor in whether people get to the polls. All of this speaks to the fact that we tend to overvalue agency and we tend to underestimate the influence of difficulties in our environment, barriers that can stop us doing things.

Katy Milkman: That's such an important point, Wendy, and I appreciate you making it. I'm curious, what first actually got you interested in studying friction, especially given that we tend to underestimate its power intuitively?

Wendy Wood: Yeah. So I study habits. And habits are notoriously difficult to change. You can change your attitudes; you can change your preferences. We've all had the experience of deciding we're going to start eating more healthfully, we're going to start saving money, we'll spend less, we're going to start exercising. But these involve changing our habits. And changing intentions doesn't change those behaviors very effectively. So, in trying to figure out how to best change well-established habits, friction is a great alternative to the kinds of interventions, the kinds of change strategies that we typically think of. Friction works directly on the behavior itself, and it works on habits just like it works on other behaviors—it makes them less likely. So one of the best ways to control your habits, unwanted habits, is to set friction, set some barriers in the environment. And probably the best example of this is the anti-smoking campaigns.

So, since the last century, we've gone from 50% of Americans smoking, to today it's only 15%. And certainly, part of that is people's understanding that smoking causes cancer. That became clear around the middle of the last century. But even more important, the government instituted policies in the U.S. to make smoking more difficult.

They instituted friction. So they started putting taxes on cigarettes. They set up bans for smoking in public places. You couldn't buy cigarettes just by going to a store and pulling them off the shelf. You actually have to remember what brand you smoke, and you have to ask someone. And sometimes also show them your ID to show them that you're old enough to purchase cigarettes. So all of these things make purchasing and smoking a little bit more difficult. Not impossible—we're not removing people's decision-making and their own ability to make choices—but we're encouraging them to make a healthy choice, which is "don't smoke." And that has had tremendous impact, even on something that is as addictive as nicotine. So it's a very broad influence on behavior, and it's very powerful.

Katy Milkman: What do you think our listeners should do differently now that they have a better understanding of how much friction affects our decisions and our habits?

Wendy Wood: Be aware of the importance of the barriers around you, to doing what you want. It's not only up to you; it's also whether we eat healthfully, whether we meet other goals, whether we are productive at work, at home, whether we have supportive family environments. Some of this depends on the forces around you. It's not just you.

So, to control behaviors sometimes involves controlling those forces, not so much making a commitment yourself, being convinced, reminding yourself of what to do, monitoring what you're doing. That's all great, but in addition, think about how to make behaviors that you want to perform easier. And how to make behaviors that you don't want to do a little bit harder. Won't stop you from doing them, won't force you to do them, but it will influence the likelihood that you might do something. And for behavior change that is a successful outcome.

Katy Milkman: I love that message. Wendy, thank you so much for taking the time to talk to me today. I really appreciate it.

Wendy Wood: Of course. Thank you for asking me, and I'm thrilled to be included in this episode, and as always, to be involved in Choiceology.

Katy Milkman: Wendy Wood is the Emerita Provost Professor of Psychology and Business at Dornsife College at the University of Southern California. She's also the author of the wonderful book Good Habits, Bad Habits: The Science of Making Positive Changes That Stick. You can find links to Wendy's work in the show notes and at schwab.com/podcast.

I want to take you back to Joe and Mary's timeshare story for a minute. Their nightmare was just one example of a firm removing frictions to facilitate signups and then adding frictions to dissuade customers from leaving or moving to a competitor. This relates to some core ideas from what is, without a doubt, my favorite behavioral science book of all time: Richard Thaler and Cass Sunstein's Nudge. In their book, Thaler and Sunstein present data showing that small tweaks to the way a choice is presented can guide people towards good decisions, tweaks that don't change incentives or introduce meaningful new information.

They're called nudges and by definition are designed to promote choices that benefit decision-makers in society in the long term. For example, nudges might be used to help ensure more people save for retirement or get safe and effective vaccines. When designing the way choices are presented, adding nudges can make the best choices, the easiest ones, the ones that are frictionless. You can hear all about the benefits of nudging in a popular previous episode of the podcast called Choiceology's Guide to Nudges.

But there's an ugly underbelly associated with understanding how nudges work. Nudges are meant to be used to help people and create social value, but sometimes they're used to take advantage of consumers. When a nudge is used for this purpose, Richard Thaler calls it "sludge." He coined the term after his experience with the newspaper subscription.

Richard Thaler: So I started cursing and tweeted about this and called it sludge, and it acquired a hashtag. So sludge is whatever interferes with people getting what they really want.

Katy Milkman: And sludge is really all about friction.

Richard Thaler: My mantra of nudging is "make it easy." And help people get to their goals. So sludge is the opposite, of the literal definition sludge is a sticky byproduct of some industrial process, and it makes navigation difficult. Some of the worst of sludge is the U.S. tax system. In Sweden, you can file your tax return by text. You get a text saying, "We think we owe you 11,000 kroner. If you agree, press one and the money will appear in your account." Wouldn't that be nice? 90% of American taxpayers have simple enough tax returns that the government could do the same thing. Government already knows how to do it because that's what they're doing to check to see whether you paid the right amount. There's a law forbidding them from doing that. And if you think real hard, you can probably guess which industry lobbied for that.

Katy Milkman: College applications and student aid are also areas where sludge rears its ugly head.

Richard Thaler: I had one high school student who was working for me who said that the hardest part about getting admitted to Harvard was filling out the financial aid form.

Katy Milkman: But there's research demonstrating clever antidotes to this kind of sludge.

Richard Thaler: There's a study showing that if you pre-populate the form and the government has all the data, then you make it easy. There's another study, a study I like a lot, from Susan Denarski and colleagues where they sent low-income high school students who had good grades a letter saying, "If you apply to the University of Michigan and are accepted, you'll get a free ride." Tuition, room, and board guaranteed. Make it easy. So there's lots of ways that we can remove sludge and help people achieve their goals.

Katy Milkman: That experiment at the University of Michigan showed the letter had a big effect. Just telling students upfront about the financial aid they were virtually guaranteed to receive down the line if they applied and were admitted increased applications by 260% among targeted students. And increased enrollment rates in the same population by 225%. Not bad for a little sludge removal. Richard believes there are a couple of simple takeaways once you know about sludge.

Richard Thaler: Well, the first thing is to watch out for it. So I would've gotten caught up in the subscription trap had I not been wary of these things. So, rule one, before you sign up for anything, especially a gym membership or a subscription, find out what it takes to leave, and if it's Hotel California, don't check in. And more generally, we all are capable of creating sludge inadvertently or intentionally, and we can do less of it.

Katy Milkman: Richard Thaler is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago's Booth School of Business and the winner of the 2017 Nobel Prize in economics. He is also the author of multiple bestselling books, including Nudge: The Final Edition and Misbehaving: The Making of Behavioral Economics. You can find links in the show notes and at schwab.com/podcast.

Whether it's easy or hard to make or return a purchase, to get or avoid exercise, and to cast or skip casting a vote has an outsize impact on our decisions. As Wendy Wood explained, not only are the effects of the frictions that can make it easy or difficult to follow through on our plans large, but we tend to underestimate them. Which makes friction particularly nefarious. When friction is weaponized by someone seeking to profit from our well-warranted aversion to paperwork, to sitting on hold, to calling repeatedly at inconvenient times or to driving to the ends of the earth, then it becomes sludge.

Sludge can also describe frictions placed in our path inadvertently, like a poorly designed financial aid form. But even if it's unintentional, friction can be frustrating. I want to leave you with a few parting thoughts on friction and sludge now that you know how important both can be.

First, if you're ever in the position to eliminate sludge, do the right thing. Second, when you next encounter sludge, just recognizing what you're up against may help you avoid falling into the Hotel California trap. Richard Thaler realized a one-month, one-pound newspaper subscription would actually mean a lifetime subscription at a far higher price thanks to a sludgy cancellation system, so he balked. You should do the same thing when you see sludge. To give another example, don't convince yourself you'll fill out the sludgy rebate paperwork for a purchase. You probably won't. Only buy it if it's worth the pre-rebate price.

My final piece of advice is to follow Wendy Wood's suggestion to build good friction into your life and eliminate the bad. If you want to work out more, instead of joining a gym five miles away to use the elliptical, consider getting one at home to eliminate the commute—less friction. If you want to eat better, stock your kitchen with healthy snacks and purge it of junk food. Harness friction to work for you rather than against you whenever you can.

You've been listening to Choiceology, an original podcast from Charles Schwab. If you've enjoyed the show, we'd be really grateful if you'd leave us a review on Apple Podcasts, a rating on Spotify, or feedback wherever you listen. You can also follow us for free in your favorite podcasting app. And if you want more of the kinds of insights we bring you on Choiceology about how to improve your decisions, you can order my book, How to Change, or sign up for my monthly newsletter, Milkman Delivers, at katymilkman.com/newsletter. That's it for this season, but we'll have new episodes for you in 2024. I'm Dr. Katy Milkman. Thanks for listening and talk to you soon.

Speaker 7: For important disclosures, see the show notes or visit schwab.com/podcast.