Dan Ariely Startup Lab CAH

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Here in the Triangle, we know Dan Ariely for his bestselling books on behavioral science, classes and research at Duke University and appearances on WUNC's The State of Things and most recently, at last week's CED Tech Venture Conference. 

But he's becoming more known globally for applying his research to startups that change consumer behavior and do good in the world. Lemonade, the New York-based insurance company just launched out of stealth mode, is the latest of these. Ariely joined the startup as chief behavioral officer in February.

His mission—to eliminate fraud in the property insurance industry and make it easier for people to give to charities of their choice.

Credit: Lemonade
Ariely has taken a big interest in startups in recent years. He co-founded a smart calendaring company called Timeful that last year was sold to Google. And in the fall of 2015, he launched a startup lab at Duke University's Center for Advanced Hindsight in Durham.

Over the nine-month 2015-2016 school year, he and his team of researchers worked with two companies—a FinTech startup from Durham and healthy lifestyle app from France—to integrate behavioral science into their products. The FinTech startup is now called MoneyComb, and has a free personal finance and budgeting app aimed to help people make better financial decisions. Fabulous suggests ways for users to create daily rituals to improve their health—its founders are now back in France.

The goal of the lab is to both apply the center's research and teach founders how to perform experiments to test consumer behavior and improve their products or user experience. Ariely told me last year that most startups conduct bad or inconclusive experiments.

"A good experiment," he said, "is one that you've learned something definitive and something about the principle so you can keep applying it moving forward." 

A new cohort of startups (yet to be named) join the lab this fall, receiving mentorship and support from the researchers as well as funding in return for a small stake in their companies, like a traditional accelerator.

Ariely is involved in a pair of other startups too. Shapa of the U.K. helps to overcome the anxiety that comes from standing on a scale and Genie of Israel is a patented device that cooks or bakes healthy portion-controlled dishes (ingredients come in a pod similar to a K-cup) in one minute.

But Lemonade has more hype than them all. With more than $13 million in funding and one of Sequoia Capital's largest seed rounds ever, co-founders that led successful companies in New York and Tel Aviv, ratings from the traditional agencies and backing from top re-insurers, the startup is launching in New York with a platform that is cheaper, more ethical and more altruistic than its competitors.

According to Ariely: "If you try to create a system to bring out the worst in people, you’d end up with one that looks a lot like the current insurance industry.”

Ariely's interest is in cracking down on fraud in the system (which research shows is 38% of all money paid out), leveling the playing field for policy makers and holders and then rallying them around a shared interest in supporting charities. Lemonade does that by setting flat monthly rates that start at $5 for renters and $35 for homeowners, then allowing policy holders to select a charity of their choice to donate any unclaimed funds at the end of the year.

Ariely believes this removes distrust of the policy makers and discourages policy holders from over-claiming funds. Here's his description of the science behind it:

Credit: Lemonade

Lemonade makes money by collecting 20 percent of each transaction. The founders estimate that 15 percent of claims will go to charity. The firm is in the process of becoming a B Corp.

Besides all that, simplicity is key for the Lemonade team. Check out the company's listing on Product Hunt and read comments on its beautiful design and easy-to-understand user interface. Most would explain the insurance process as confusing, complicated and full of jargon. Ariely's research and Lemonade's design is entirely focused on consumer understanding and action. 

Eventually, the company hopes to give policy holders the option to keep the leftover funds, a practice that is against the law today. The founders told national media sources they are lobbying legislators in New York now, and will do so in other states as they expand. 

But they're also hoping—and research shows—that people who buy policies through Lemonade will do so because they desire to have an impact in the world. 

When I met Ariely late last year, he shared with me his biggest learning from his work on Timeful and why he's become so passionate about building and helping startups. 

"I learned how big the gap is between academic knowledge and application," he said. "It used to be that I would finish a paper and think, someone can read this paper and implement this, but the place between paper and someone actually using it is big."