Americans, we are suckers for zombie shows and movies. How many more can we have? I have heard that we even make special weapons for those who want to prepare themselves for a zombie apocalypse. (I am not sure which part of that sentence is more wrong).

Decomposing, yet almost invincible, half humans the relentlessly hunt us, and that plague our nightmares.

The premise of every Zombie movie is that zombies feed on human flesh, but that also, most of the time, they turn people into zombies as well. They are undead, cannot die, so in a way they are immortal.

The hero usually fights tooth and nail not to be caught, even when most of the population have already been turned into zombies.

In our daily lives, we act exactly the opposite way, and we are desperate to fit in, to be part of the group.

The Network effect is a term that describes technologies or trends that become more valuable as more people uses them. There are, of course, very recent examples of this like Facebook or Twitter, but there is also sort of a joke going around.

Remember the Fax machine? The joke goes that the first person to buy a Fax machine was an idiot, and the second one just wanted to send a document. It rings like truth at least.

As more and more people got Fax machines, prices went down as a result of economies of scale, cheaper technologies, etc., but the value of having a Fax machine also went up in the minds of many, because now “everybody” had one, and it was possible to send them documents. So there was a point where the perceived value and the price met, and people like me, also jumped in and bought one.

The network effect is modeled (notice that I say modeled, not governed) by Metcalfe’s law, originally born in the Telecommunications industry, which touts that the value of a network is proportional to the square of the number of nodes (or members) connected, and it is derived simply from how many unique 1-1 connections can be established. For the Fax machine example, one fax has zero connections, two faxes can establish exactly one connection, three can do three, four can connect in six different ways, five in ten, and so on. So the actual mathematical expression is a bit more complex n(n-1)/2, but for practical purposes and because we are using the word proportional, and not equal, it comes down to n².

And the word proportional is very important, since the actual value will depend on the specific value that every user puts on an individual interaction as well. Going back to the Fax machine example, if we are faxing exclusively multi-million dollar contracts, the value of the network will be huge, but if the only thing circulating are chain letters, then it becomes very low. Modern networks also allow for all kinds of variations on the 1-1 connection. It is possible to create groups, and other ways of connection, but the principle is the same.

In any case, the value of connections is very difficult to hold in our linear minds, and when you are building something, by all means look for the network effect and how to leverage it.

Which reminds me, you have to send this blog post to ten of your closest friends, and on the seventh day you’ll be blessed with unexpected riches, but if you don’t….

Probably one of the most powerful incentives that can exist, is peer pressure. As individuals, we want to belong, and to belong, we cannot stick out.

UK’s “Nudge Unit“, made famous by the Freakonomics guys,  was created specifically to exploit this “feature” of human nature and drive adoption for programs.

Things like making the default to an option an “opt-out” instead of having to take any action to actually opt-in, or showing individuals how they compare against their peer group are all very simple, yet powerful strategies.

One notable example is how all airlines have the Executive or First Class at the very front of the plane and most of them allow premium class members to board first, serve them refreshments and THEN have all passengers pass champagne wielding business people, on their sorry ways to the back of the plane.

“Tier envy” is a term used in program design and carefully placing the benefits and requirements in such a way that they drive partners to make the effort and come up through the ranks. Will the benefit in the next level make it worthwhile to go through all the requirements? Getting it right is not easy, and it is sort of an art.

When designing incentives I always ask, Is it possible to get a nudge for free anywhere?

During the recent efforts by many governments to get more people vaccinated, one of the most visible ones has been the “vaccine lottery”.

There are a couple of things to learn here from the results. First, the overall premise of the vaccine lottery is that the possible upside for a very little effort, is perceived to be huge. Humans are not good when dealing with statistics and at the moment of decision, it is very hard to factor in the probability, we all only look at the prize. This is what some savings incentives and other similar ones have been based upon. Most of them have been quite successful.

It was expected that the vaccine lotteries would be a raging success, however, it seems that objective measures of their effectiveness have been mixed. 

And this is another thing to be learned here. The introduction of monetary, or tangible rewards for doing something, can backfire, especially if the individual’s identity is linked to impartiality, critical thinking, or moral compass. The tangible reward becomes “offensive”, and individuals may chose not to participate to avoid the risk as being seen as motivated solely by the prize.

We have seen this type of decisions in business, most notable when some Global Systems Integrators stay away from participating in programs that offer hard cash as incentives.

Designing incentives can be a really hard thing to do. Best is to test.