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How Behavioral Economics helps you build better products

Economists used to tell us that consumers were perfectly rational beings who always acted logically. Talk about a faulty assumption! Fortunately, psychologists and economists started comparing notes and gifted us behavioral economics and the phrase “predictably irrational.” What it comes down to for product managers – you need to know what your customers are doing, but you’re better off watching them than asking them. This week’s resources explain that idea in a bit more detail.

Meanwhile, in product news, Gen Z’s AV club is the IT team. Microsoft is watching you way too closely. Google is selling ads in its AI results, and a proposal to rescind Section 230 could end negative reviews.

The product manager’s guide to behavioral economics. As a product manager, understanding the psychology of people—what makes them tick—may be your most important asset. To get your ideas off the ground, you need other people to believe in them. You need to run a team and manage conflicting priorities to ship them. To make them successful, you need to tap into your users' psychology and fulfill an actual need or desire. The nuances of the human mind, its irrationalities, and quibbles define much of your success and failure as a product manager. Will Lam explains how behavioral economics helps you understand psychology and, as a result, understand how to bring a great product to market.

Behavioral economics and product management: Enhancing decision-making and user experience. After studying behavioral economics and behavioral design, Maria Lukina found that both have much in common with product management. To describe how, Maria defines both concepts, shares the fundamental principles and processes, and provides resources to take a deeper dive.

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This Week’s Interview: How To Use Behavioral Economics In Your Product Strategy Today’s product leaders often rely on the word of their customers when building their product road maps; whether it’s a customer survey or a phone interview, loads of qualitative data through these methods is being collected and used to dictate how to design and develop products. Seems like a foolproof plan, right? Actually, no — reliance on customer input and feedback builds on an antiquated model of human decision-making that assumes humans are rational. Kristen Berman, CEO of Irrational Labs, goes over her compelling research that highlights just how misleading customer research can be. She takes you through the behavioral economists' process to understand and change behavior. This talk is helpful for any PMs that need to get their customer to take action or change the behavior of their customers (which is most of us ;). LEARN MORE

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​INDUSTRY: The Product Conference returns to Cleveland in September, with over 700 other product people from across the globe attending. You'll be inspired and challenged during this two-day (three-day for Conference Plus and Superpass ticket holders) retreat from your desk. Ultimately, you'll return to your workplace with ready-to-implement strategies and the confidence that you are doing things right.

Speakers include Bob Moesta (Co-Architect of the JTBD framework), Melika Hope (Director of Product Management at Spotify), Matt LeMay (Author of Product Management in Practice), Cassidy Fein (Principal Group Product Manager at Microsoft), and many others.

Behavioral Science and AI

Earlier this month, there was a fascinating panel discussion at the 2024 Behavioral Science & Policy Association conference. I wasn’t there, but I came across an article about the panel, and it got me thinking about something in the minds of many product people – the regulation of AI. No matter if you’re in the e/acc camp – or believe in strong government regulation – the commonality is that this topic is probably living rent-free in your brain.

​According to Behavioral Scientist, the panel featured some serious heavy-hitters from Salesforce, Northwestern University, and the U.S. Artificial Intelligence Safety Institute. They dove deep into the challenge of regulating AI while mitigating harm and keeping innovation alive.

Here's the thing: as Kristian Hammond from Northwestern put it, "This is not a problem with just the machine. It's a problem with how the machine interacts with us." The panel emphasized the importance of zeroing in on the places where actual harm is happening, like the rise in depression among young women, online addiction, and the spread of fake pornography.

While government agencies are hustling to tackle these issues, the lightning-fast pace of AI development is making it tough to keep up. Elizabeth Kelly from the U.S. AI Safety Institute stressed that staying ahead of the tech is critical, as AI's exponential growth makes it hard to predict future harms.

So, what does this mean for us as product people?

Regardless of what regulation looks like, we are responsible for building AI that solves problems and respects the humans it serves. One way to do that is to weave behavioral science insights into the fabric of our AI-powered products. By understanding how AI and human behavior intersect, we can make smarter decisions that prioritize user safety and well-being while pushing innovation forward. Agree? Disagree? Let me know!​

Mike Belsito
​Co-founder, Product Collective

Can behavioral economics help you build better products? Building products people want to buy, use, and engage with requires a deep understanding of people and their thoughts. Behavioral economics helps you understand how people think so you can create better products. Ketan Nayak dives into some key concepts in behavioral economics and explains how they tie in with some fascinating real-life product-building stories.

The power of nudging in product management: empowering success through user-centered design. The folks at Gigantic explore how user-centered design principles and the concept of nudging can empower product managers to drive success in their organizations. By understanding the role of nudging and its application in product management, you can effectively influence user behavior, achieve business objectives, and create user-friendly experiences that align with your customer's goals and values.

Resources and news curated by Kent J. McDonald.