That changed when he heard their goal: to create an insurance system that fostered trust, not suspicion, among its users. As a behavioral economist, it was an intriguing problem to try and solve. “That’s when I became very excited,” he says. “As someone who has been studying conflicts of interest and dishonesty for 15 years, and I see how corrosive it can be.” Under the traditional model, insurer’s and users’ incentives are fundamentally misaligned. Every successfully paid claim costs the insurance company money, hence the difficulty in getting them accepted in the first place (which, in turn, encourages fraudulent behavior in users, who often assume they’re getting screwed regardless). To correct for this, Lemonade takes 20% of premiums as a flat fee; when a policy ends, all unclaimed funds are donated to a nonprofit or charity, a rather elegant solution that removes the financial conflict of interest. In addition to his role at Lemonade and Qapital (he has an equity stake in both companies), Ariely is the co-founder of Genie , a kitchen appliance that “cooks” nutritious cartridge meals (options include couscous and vegetables, chicken with rice, and miso ramen) in less than two minutes, and Shapa , a smart scale that displays shifts in weight on a five-point scale in lieu of pounds. Both attempt to remove every-day obstacles—cooking and the counterproductive “loss aversion” we feel when we get on a scale and to find the number has inched up—that often stops us from making healthy decisions. This desire, to shape behavior via a series of gentle nudges, informs all of Ariely’s entrepreneurial work: “It’s about trying to take the research we know about what kind of mistakes people make, and figuring out how can we get people to make better decisions.” Technology makes his job easier. “One of the principles from behavioral economics is that the environment matters,” he says. In a pre-digital world, this was hard to achieve at scale.
For the original version including any supplementary images or video, visit http://fortune.com/2017/03/18/behavioral-economist-startups/
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