What banking can learn from the music industry

Machine Learning: From “Hey Ya” to Banking

In The Power of Habit, best-selling author Charles Duhigg has an interesting story behind the Outkast song “Hey Ya”.  Prior to its release, the song was predicted to be a big hit by artificial intelligence experts and statisticians who analyze mathematical characteristics of songs such as tempo, pitch and melody, among other things. But the song bombed during the first few weeks it was played on the radio, as listeners would just click off or tune to other radio stations. As Duhigg goes on to explain, it wasn’t that “Hey Ya” was bad, or as we machine learning practitioners like to call a “false positive” in our predictive model, the problem was that it was not familiar.¹

The human brain craves familiarity. If the song sounded like other things we liked, then we would listen. This trend is similar to behavioral habits. MIT researchers led by Ann Graybiel show that “our daily routines become so ingrained that we perform them automatically” (Anne Trafton, 2013).² This becomes more crucial when we are talking about financial behaviors, especially bad ones since these choices affect you for the rest of your life. The more accustomed we become to performing a certain financial behavior, say going on a shopping spree immediately after getting a paycheck instead of putting some off into savings, the more automatic the behavior becomes.

The truth is that many Americans are falling into this unfortunate cycle. In a 2015 survey conducted by the Federal Reserve in which they asked respondents how they would come up with a $400 emergency fund, a whopping 47% of them said they would have trouble coming up with that amount.³ Saving money is unfortunately just not part of the regular routine for many Americans, which makes creating smart spending habits that much more difficult.

Building Better Money Habits

At Varo, it’s our goal to help our customers develop healthy financial habits that last over time. Using machine intelligence based approaches such as reinforcement learning and predictive algorithms, we will provide our customers the tools to develop goal-oriented financial habits that are planned, purposeful, and easily replicated. This is important because we want to help our customers create a financial lifestyle that prevents small mistakes from accumulating over time. So, along with spotting those long-forgotten recurring subscriptions or those uncontrolled shopping habits, we also want to make sure the messages we deliver are always easily actionable and timely. It’s our ability to create algorithms that build collective wisdom across transactional, as well as personalized, behavior that can make this happen.

Just as in “Hey Ya,” radio DJs realized that they needed to make the song feel familiar by sandwiching it between songs that were considered “sticky,” meaning songs that listeners never changed the dial from. At Varo, we want to make sure that the recommendations and financial habits we encourage our customers to develop feel right for them. As in most things in life, preparing ahead helps. With Varo’s help developing these financial habits, customers will be spending less time worrying about how to come up with that emergency $400 and more time doing what’s important to them!

So join us in making smart financial habits routine. Secure your spot on our early access waitlist today!

 

Sources:

 

1. Duhigg, Charles. The Power of Habit: Why We Do What We Do in Life and Business. New York: Random House, 2012.


2. http://mcgovern.mit.edu/news/news/breaking-habits-before-they-start/


3. https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pd


4. Image credit: wocintech.com