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Teddy discusses Behavioural Economics – what is it and why should you care?

Last week, I was having a browse for online courses that I thought would be useful for work and interesting. The latter requirement meant I decided to give a swerve to any ‘improve your powerpoint skills’ courses that I came across. So apologies if at any point in the future you have to sit through me giving a talk or pitch with a fairly dodgy combination of fonts and layout.

Thankfully, my hunt turned up this Behavioural Economics course, certified by advertising giants Ogilvy (though smaller, equally skilled and effective marketing agencies are also available, folks, perhaps specifically in the Finnieston area of Glasgow). At this stage, you’re probably reading the term ‘behavioural economics’ and imagining a grim study of how people behave while filling in spreadsheets. Well don’t worry, that’s not what I’m into. Though I will decline to share my search history to prove it.

The course also carried the benefit of being ‘presented’ by Ogilvy UK high-heid yin, Rory Sutherland, who’s very funny as well as knowledgeable. See him in action here:

https://www.ted.com/talks/rory_sutherland_life_lessons_from_an_ad_man


So what is behavioural economics?



The word ‘economics’ makes the subject sound very dry and boring, but really behavioural economics is more of a strand of psychology, explaining what’s actually going on in many of the decisions we all make. Even (or especially) when we don’t realise what’s behind the decision we’re making.



Wait… we don’t even know why we make decisions?

 

An example? Well, the one that struck me most related to anchoring. Anchoring is when the context of your decisions has been set (anchored) by something else that may be neither relevant nor accurate. One of the examples given was an experiment conducted by Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University.

He asked students to write the last two numbers of their social security number down on a piece of paper. He then asked the students to write down how much they’d be prepared to spend on a fancy bottle of wine, a not-so-fancy bottle of wine and a box of chocolates. Those initial two numbers have absolutely no relevance to these follow-up question and nobody would be conscious of letting them affect their answers.



And yet…


The higher the number of the last two digits of their social security number, the higher the amounts the students said they’d be prepared to pay for each of the three items. If their numbers were between 00 and 19, they were prepared to pay an average total of $67 for the three items. If their numbers were between 20 and 39, the average rose to $102. At the top end of the scale, students with numbers between 80 and 99 were prepared to pay an average of $198. That’s almost three times the amount of the lowest group.

Of course, none of the students were conscious of the numbers they wrote down at the start playing any part in their later decision-making.

 

Isn’t this witchcraft?


Initially, a result like this seems so bizarre as to suggest the researchers have cast a spell on their test subjects. In fact though, as Rory Sutherland points out, it’s simply that as humans we don’t actually think the way we think we think. Which is slightly terrifying.

We’ll tell ourselves that we’ve weighed up pros and cons, used our experience and our knowledge. In actual fact, we’re susceptible to various evolutionary triggers that we’re not even consciously aware of.

 

Is anchoring the only example of behavioural economics?

 


Anchoring isn’t the only example of behavioural economics in action. For example, it’s important to realise that our perception of value is always relative, rather than absolute.

What do I mean by this? Well, if I asked you how much effort you would put into saving a fiver, the answer wouldn’t be an absolute. If one newsagent charged you £5.50 for a can of coke and another – half a mile away – charged 50p… you would probably walk half a mile to avoid being ripped off.

However, if you were buying a car for £15k and the eventual deal came down to a difference of a fiver between the garage you were in and one half a mile away – I doubt you would make the same effort. The difference is still a fiver, but the relative value of that fiver has changed. In one example, you’d be spending 1100% of what you might otherwise spend. In the other, you’d be spending 0.03% more.

Once you realise the impact of the wider context on how we perceive things, it starts you thinking about framing. For instance, a smaller plate will take less food to fill it. Put the same amount of food onto a larger plate though and it will look like a less satisfying portion. So smaller plates could stop people from overeating and have a real impact on their health. It’s another example of simply altering the perception of something to create a tangible change.

How you frame things can also come down to how you present messaging. For instance, food packaging will proclaim a dish 85% fat free, not 15% fat full. The reality remains the same, but the framing of it plays a huge part in the success or failure of the product.


But what has all this got to do with marketing?


In marketing, we’re basically trying to get people to make choices. Whether that choice is clicking on a link or buying an end product, the more we know about how people (actually) think, the better we can shape our ideas to suit this. That means saving time and budget that might previously have gone on bigger ideas built around how we ‘believed’ people think.

Put it this way, if your ‘15% fat full’ ready-meal wasn’t selling, would it be easier to scrap it, develop and promote a new dish… or to change the messaging to say ‘85% fat free’?

 

What else do you need to know?


There’s a whole course-worth of info to explore, so I’m not going to run through all of them here. But if you want to understand the impact of things like…

-Loss Aversion

-Reciprocity

-Priming

…then I highly recommend doing what I did and ‘learning enough to be dangerous’.

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Teddy Craig is a Content Manager at Bright Signals. He is 15% fat-free.