User Friendly. The future of financial products?

April 15, 2008

The economist ran an article last week pushing the idea of financial literacy.[1] 

 

The article features ‘Nudge’ a book by economist Richard Thaler and legal scholar Cass Sunstein[2] which suggests that policymakers should focus on designing ‘choice environments’ that make it easier for people to be steered towards the ‘right’ decisions.[3]  When in comes to financial literacy, Thaler suggests that the emphasis should be on “building “sensible default options” into the design of financial products, so that the do-nothing option is “financially literate”.” 

 

Let’s nudge the new-fangled economic ideas on choice, aside for a moment. 

 

There is a long tradition in consumer engineering of making products user friendly as part and parcel of the making mass consumption possible.  This has not come without high industry investments and resisted costs.

 

Ralph Nader’s ground breaking work ‘Unsafe at any speed’[4] which earned him his reputation as a ‘muckracker’ and consumer advocate, is an excellent example of the political work involved in making automobiles safe products.  Nader painsteakingly documented the design defects in cars such as the 1960-63 Corvair, which was prone to flipping over due to a swing in the axel at ‘critical speeds’.  Nader argued that “the connection between design effects and driver misjudgment or uncontrollable vehicle behavior is so subtle that neither the accident investigator nor the operator is aware of this connection in collisions.” (p 56) 

 

“The men who headed the Corvair project” said Nader, “knew that the driver should be given a vehicle whose handling is both controllable and predictable.” (p 28)  Although he does not say it, the evidence he lays out is clear: The problems of cars with difficult handling fell disproportionately on certain categories of consumers such as women drivers who were more likely to loose control of vehicles that lurched forward suddenly in garages and out of parking areas, killing pedestrians, spouses or themselves (p 57).  If any idiot can drive today (which they can and do) it is due to the efforts to make cars as safe and as easy to use as possible, that is, within the limits of average human capabilities.  This has included everything from making dashboards dark to reduce glare, to making sure that a truckdriver can break without having to shift gears first.

 

Today, human-centered design is an enormous industry.  You can follow one such Nokia anthropologist in this article in this week’s New York Times, as he zips around the globe observing cell phone users and generating design ideas for his company.

 

Beyond financial literacy, financial product design just could be the next big thing.  It will have to be if financial products are to continue their metamorphosis into genuine consumer consumption goods.  The question is: How and in what ways will the social studies of finance be equipped to contribute to human-centered investment product design?


[1] In case you didn’t know, in 2007 Congress declared April, Financial Literacy Month. The bill was introduced and passed in a single day.  For Democratic race junkies, Mrs. Clinton was part of the team that submitted it.  Mr. Obama was not.

[2] Member of the Obama team.

[3] One scheme they endorse is paying teenage mothers of one a dollar a day to stay un-pregnant.

[4] Nader, R. (1965). Unsafe at Any Speed. New York: Grossman Publishers.

 

2 Responses to “User Friendly. The future of financial products?”

  1. typewritten Says:

    “The question is: How and in what ways will the social studies of finance be equipped to contribute to human-centered investment product design?”

    Well, the “let-us-educate-the-masses” is an option (perhaps neatly favored in your post, and by proponents of the literacy bill too) that is slightly distinct from (but perhaps compatible with) a sort of “let-us-give-a-lesson-to-financiers-instead” alternative that could also galvanize finance socializers. Well, just an idea.

  2. yuvalmillo Says:

    Very good post! The equivalence between some financial products today (such as structured debt contracts) and the 1960s Detroit cars that Nader described is very interesting. In both cases it can be claimed that people are put inadvertently in risky situations: trying to get to work, in the 60s and saving towards their pensions using regulation 401(k) in the 90s, for example.
    What can (and should) be added (and typewritten is doing it nicely in his/her comment) that ‘literacy’ is not what we should be after – as it implies that if we only understand finance well, markets will be less risky – but ability to affect the design of products and markets. Explicitly crossing the lines between users and designers can be an interesting solution. So, what can SSF do? Study the (implicitly) blurred boundaries between categories of actors in the markets and transgress them.


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