Uber, the ride-sharing colossus, was recently highlighted in a New York Times article that left them looking like a diabolical Bond villain. Whether you regard Uber as a brilliant tech disrupter of the complacent taxi monopoly or an opportunistic lord abusing a new class of serfs, the provocatively titled article, “How Uber Uses Psychological Tricks to Push Its’ Drivers’ Buttons,” was a neat lesson in applied behavioral finance.
While there were examples of psychological inducements, such as having a female dispatcher interact with the primarily male driver population, the bulk of the article read as if Dan Ariely had been placed in charge of designing Uber’s employee incentive program.
The tendency to frame missed rides as lost income for drivers appeals to the phenomenon known as loss aversion. It hurts far more to lose a buck than it pleases us to gain the same buck, so framing a scenario the right way can influence our decisions greatly. You want your Uber drivers to stop working Tuesday morning in favor of turning out in large numbers on Saturday night? Don’t tell them they’ll earn an extra $10 an hour for Saturday’s shift; instead, inform them they’ve just lost $100 by choosing to work Tuesday.
Lesson for the investor: Don’t think of retirement contributions as extra money you might save. Any retirement funds you fail to maximize represent free money you are losing. Your employer's match is the free money lost outright. The costs incurred for paying higher taxes today instead of lower taxes on tax-deferred withdrawals in retirement represents still more money lost. Hopefully, feeling the pain of this loss is enough to rouse you to action.
Another section of the article focussed on income targeting - the practice of certain drivers to choose a daily income goal. Uber tries to keep drivers on the road during demand by inventing a bigger carrot with arbitrary goals via messages like “You’re just shy of earning $100.00 on this shift” The analogy is with video games where the goal is perpetually just beyond your reach, inducing you to play just a bit longer.
Lesson for the investor: set explicit savings targets (monthly, yearly) to help you stay the course.
Another lesson from video games comes in the form of providing status rewards like customer service awards that reward drivers psychologically but not financially. Drivers who barely made a living puffed with pride at customer satisfaction merit badges.
Lesson for the investor: consider setting up a reward program for your savings plan so that you dole out special treats (Dining out with friends? New athletic gear?) as you reach different savings targets.