Sludge economics

My Irish gentleman friend of many years, Peter Macintyre, sent me a Feb. 7 article from the economics feature of www.thetimes.co.uk. It is an article written by James Coney entitled: Want to Stop Bad Investment Decisions? Use some sludge...” Now, how can you resist an article with a title like this? The answer is, “You cannot!”

Coney talks about two economists in 2008 who experimented with a cinema involving moviegoers and their popcorn. Those who ordered a large bucket of popcorn were given four separate bags instead.

When you added up the four bags, they amounted to the same price, same quantity, and what happens next is surprising. The cinemagoers ate less popcorn.

There was a reason why this phenomenon happened. Instead of automatically and unthinkingly munching their way through one huge bucket, the person had to switch on their brain. They have to decide whether to open the next bag and continue eating or not. With a few mouthfuls from the first bag, they have already experienced a short-lived gratification, and presumably, the decision-making process interruption started making them think of their waistlines. The finding, therefore, is that by adding a little friction to the process and forcing consumers to make a choice, you can alter behaviors.

Coney says the term used for this is called “SLUDGE ECONOMICS.” And while we are pretty familiar with the “NUDGE THEORY,” this one is not the same. It is a cousin of the famous theory in which little pushes convince us to make better decisions.

The “Sludge Economics” is everywhere. And it is most notoriously practiced in business. Businesses use this to get us to pay more money, battering us with long waiting times, excessive paperwork, complicated terms and conditions, websites that make it hard to do what you want to do – and even offering too much choice. The principal philosophy here is that when things are easy and smooth, no one wants to switch all the time – it’s tedious. This may explain why fast food, faster payments, fast cars, fast fashion – has enabled us with the obsession with how quickly we can do things. “Adding to cart” is so easy in online shopping. AI-enabled program recommendation makes it so easy for us to binge on series.

Coney says: “Part of the problem with investing in cryptocurrency is that it is so easy: there is no sludge at all. The rise of online trading platforms that let you sign up in seconds and impose no trading costs means that you can unthinkingly wade into a market you know little about.

On the one hand, we should welcome this. Democratization of investing should make for a fairer and wealthier world. On the other, it creates jeopardy because you are investing before you have weighed up all the risks, and it also leads to some more established types of investment being overlooked.” End of article.

Something to think about: perhaps this is why I have a closet full of too many clothes and shoes because there is practically no sludge in shopping and “adding to cart,” let alone having all these stuffs delivered right into my doorsteps.

Coney continues saying: “Pensions are super sludgy. Think about how much paperwork there is if you want to look at your company pension and change where you invest; it is like wading through a muddy bog compared with the speed with which you can buy Bitcoin.” And he says: “Banks are discussing adding some “sludge-for-good” as economists call it – they want to slow down payments in a bid to stop fraud.” And the conclusion is that perhaps it would be better to celebrate a bit of sludge and slow things down a bit for our own good.” This article got me thinking. When things are easy and fast, it stops me from thinking, which is not a good thing.

When clients invite me for keynotes or do training and do not have very high requirements for me, there is not much sludge for a seasoned veteran trainer like me who has been in this profession for the longest time. Yes, the work is comfortable for me, but I do not grow, and my craft does not improve. However, I am blessed with having some of the toughest, seasoned, and sharpest HR directors of top business organizations who impose very high requirements and expectations on me (there is the sludge). I am challenged to excel and improve on my expectations, and I, in turn, level up in what I do. This is good for me. I never expected that I could see the word “sludge” as a positive thing one day, but it sure does in this case.

Perhaps with this understanding, I will shop less.

(Francis Kong will run his Level Up Leadership 2.0 Master Class Online on April 20, 21 and 22. For inquiries and reservations, contact April at +63928-559-1798 or and for more information, visit www.levelupleadership.ph)