When and Why Randomized Response Techniques (Fail to) Elicit the Truth

Leslie K. John; George   Loewenstein; Alessandro   Acquisti; Joachim  Vosgerau

Article | Organizational Behavior and Human Decision Processes | September 2018

When and Why Randomized Response Techniques (Fail to) Elicit the Truth

by Leslie K. John, George Loewenstein, Alessandro Acquisti and Joachim Vosgerau

Abstract

By adding random noise to individual responses, randomized response techniques (RRTs) are intended to enhance privacy protection and encourage honest disclosure of sensitive information. Empirical findings on their success in doing so are, however, mixed. In nine experiments, we show that the noise introduced by RRTs can make respondents concerned that innocuous responses will be interpreted as admissions, and, as a result, yield prevalence estimates that are lower than direct questioning (Studies 1–4, 5A, & 6), less accurate than direct questioning (Studies 1, 3, 4B, & 5A), and even nonsensical (i.e., negative, Studies 3–6). Studies 2A and 2B show that the paradox is eliminated when the target behavior is socially desirable, even when it is merely framed as such. Study 3 shows the paradox is driven by respondents’ concerns over response misinterpretation. A simple modification designed to reduce concerns over response misinterpretation reduces the problem (Studies 4 & 5), particularly when such concerns are heightened (Studies 5 & 6).

Keywords: truth-telling; Lying; privacy; information disclosure; survey research; Surveys; Attitudes; Behavior;

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John, Leslie K., George Loewenstein, Alessandro Acquisti, and Joachim Vosgerau. "When and Why Randomized Response Techniques (Fail to) Elicit the Truth." Organizational Behavior and Human Decision Processes 148 (September 2018): 101–123.

Firms do not typically disclose information on their costs to produce a good to consumers. However, we provide evidence of when and why doing so can increase consumers’ purchase interest. Specifically, building on the psychology of disclosure and trust, we posit that cost transparency, insofar as it represents an act of sensitive disclosure, fosters trust. In turn, this heightened trust enhances consumers’ willingness to purchase from that firm. In support of this account, we present six studies, conducted in the field and in the lab. A pre-registered field experiment indicated that diners were 21.1% more likely to buy a bowl of chicken noodle soup when a sign revealing its ingredients also included the cafeteria’s costs to make it. Five subsequent online experiments replicated and extended this basic effect, providing evidence of when and why it occurs. Taken together, these studies imply that the proactive revelation of costs can improve a firm’s bottom line.

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In August 2017, Commonwealth Bank of Australia was looking for ways to differentiate itself from competing banks and was also trying to improve the financial well-being of its customers. One domain where this was particularly relevant was in its bank-issued credit card business, where customers routinely selected cards that although profitable for the bank could be a poor fit for customers’ needs—leading to low satisfaction scores, cancellations, and occasionally, financial distress. To that end, the company’s Behavioral Economics team had developed a provocative experiment dubbed “The Good and the Bad.” Rather than just presenting the strengths of its various credit card offerings, they proposed also promoting each credit card’s less-obvious drawbacks. Being transparent with customers might help them make better choices, but would those choices come at the expense of bank performance? Should a company choose to be in the sales prevention business?

Teaching Note | HBS Case Collection | September 2019 (Revised February 2020)

Commonwealth Bank of Australia: Unbanklike Experimentation

Ryan W. Buell and Leslie K. John

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This Teaching Note explains the theory of the case and teaching plan for the case: Commonwealth Bank of Australia: Unbanklike Experimentation (619-018). In August 2017, Commonwealth Bank of Australia was looking for ways to differentiate itself from competing banks and was also trying to improve the financial well-being of its customers. One domain where this was particularly relevant was in its bank-issued credit card business, where customers routinely selected cards that although profitable for the bank could be a poor fit for customers’ needs—leading to low satisfaction scores, cancellations, and occasionally, financial distress. To that end, the company’s Behavioral Economics team had developed a provocative experiment dubbed “The Good and the Bad.” Rather than just presenting the strengths of its various credit card offerings, they proposed also promoting each credit card’s less-obvious drawbacks. Being transparent with customers might help them make better choices, but would those choices come at the expense of bank performance? Should a company choose to be in the sales prevention business?

Keywords: transparency; experimentation; Banks and Banking; Credit Cards; Customer Focus and Relationships; Competitive Strategy; Banking Industry; Australia;

Citation:

Buell, Ryan W., and Leslie K. John. "Commonwealth Bank of Australia: Unbanklike Experimentation." Harvard Business School Teaching Note 620-041, September 2019. (Revised February 2020.) View Details

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When and Why Randomized Response Techniques (Fail to) Elicit the Truth

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