Overcoming Software Selection Bias Using Behavioral Economics

February 22, 2024

Software selection is already complicated due to the numerous options available and all the factors buyers need to consider (features, pricing, support, and so on). We don’t want to further complicate it by adding bias to the challenges of software selection.

My previous article on how biases impact software selection described how behavioral economics principles could be used to identify irrational decision making and how this can influence software buying behavior.

The next important step is to define action items that decision makers can implement to limit the negative impact of biases on software selection.

Why biases can make or break a software selection project

While we're all biased when making decisions, I wanted to determine how much they impact buyers when selecting software.

I asked 1700 respondents who participated in the 2023 G2 Software Buyer Behavior Report survey. The results were staggering, way below my already pessimistic expectations.

More than 80% of the respondents consider that biases have a medium and high impact on software selection. The only exception was "too much influence from vendor sales and marketing," with “only” 78%.

To put this into context, the 1700 respondents work for companies of all sizes and are involved in software buying concerning budgets as high as millions of dollars.

One may think that the CIO of a large company would be more sophisticated (or less biased) than the CEO of a small company, but that's not necessarily the case. The former will probably have significant experience with software purchasing, while the latter not so much, but they may both be biased.

Therefore, decision-makers must understand biases and take measures to limit their impact on software selection.

How to overcome software selection biases

Since they're unconscious, biases may still lead to irrational decisions, even though we rationally know we shouldn't make them. To address this challenge, we can use commitment devices and the concept of nudging.

As the name implies, commitment devices are ways to force ourselves into making the right decision. An example would be evaluating at least five software solutions and demoing three before buying.

It may also help to hire an external consultant or project manager and put them in charge of the selection process. Your company's internal politics would influence this person less and are more likely to be objective.

Tip: Beware of the sunk-cost fallacy when dealing with external consultants. We tend to keep spending on something we invested in, even when it's not justified anymore. Therefore, replacing consultants is preferable if working with consultants proves inefficient and doesn't help with the selection process.

Nudging refers to altering people's behavior "in a predictable way without forbidding any options or significantly changing their economic incentives" (Thaler and Sunstein 2008, 6). A nudge must be easy to avoid and benefit the influenced person.

Nudges help with difficult and low-frequency decisions, like software selection. They can be reinforced by framing and reframing, which refers to presenting choices that highlight the positive or negative aspects of the same decision.

For selection, it may help to focus on the gain instead of the loss of replacing software. We tend to resist change because it's new and different from what we know. That explains why companies may keep complicated and difficult-to-use software instead of replacing it with better solutions.

If users see demos of new software and realize how it will help them, they are more likely to adopt the latest software.

How to deal with bad nudges (aka sludges)

Vendors may also use behavioral economics principles to influence your decision, and not always in a good way. They may try to convince you to buy their product even though your company may have better options. This is called a sludge.

For instance, a vendor may offer you a big discount if you sign with them immediately. This would prevent you from seriously considering alternatives and realizing that there may be better options.

It's also important to be aware of inattention, which can be particularly tricky when using subscription-based software. When it's time to renew a contract, we may keep spending on software that we either don't need or may not be the best option.

Furthermore, sludges combined with inattention can have an even more significant influence on our decisions. In the example above, receiving a discount when it's time to renew a subscription will substantially impact your decision when combined with inattention. Another example of sludge is when vendors make it difficult for customers to unsubscribe.

Finally, you may inadvertently sludge instead of nudging. This happens when you influence people to decide what is not beneficial to them.

For example, the executive team selected a shortlist of solutions without involving managers and subject matter experts. Trying to convince everyone that one of the three is the best software for them may backfire as users may only adopt a solution that is helping them.

What to do next

First, it's essential to have a detailed plan for software selection. Biases and sludges may influence us at any process stage (planning, requirements gathering, evaluation, and negotiation). On the other hand, nudges can also be used to overcome biases across the selection process.

Also, individuals involved in decision making should be subject matter experts and as objective as possible. It is also critical that the decision is made by a team, not by one or two individuals.

Finally, the selection process should be clearly documented, allowing those involved to learn from their mistakes and identify ways to avoid them in the future.

It's not easy to be a software buyer nowadays with so many different options, but careful planning and an effort to avoid bias can significantly improve the outcome.

Not sure where to start? Learn more about behavioral economics principles.

Edited by Jigmee Bhutia

ERP software Compare ERP solutions

Explore our ERP categories to identify the best option for your company’s specific needs.

Overcoming Software Selection Bias Using Behavioral Economics Our biases greatly impact decision making, and software selection is no exception. Understanding how to limit this impact is critical to ensure that software selection is as objective as possible. https://learn.g2.com/hubfs/G2CR_B143_Behavioral_Economics_V1b.png
Gabriel Gheorghiu Gabriel’s background includes more than 15 years of experience in all aspects of business software selection and implementation. His research work has involved detailed functional analyses of software vendors from various areas such as ERP, CRM, and HCM. Gheorghiu holds a Bachelor of Arts in business administration from the Academy of Economic Studies in Bucharest (Romania), and a master's degree in territorial project management from Université Paris XII Val de Marne (France). https://learn.g2.com/hubfs/_Logos/Gabriel%20GheorghiuUpdated.jpeg https://www.linkedin.com/in/cgheorghiu/