Tag Archives: behavioural-economics

Dark Patterns for Marketers, or: Practical Behavioural Economics

Tak­ing a sys­tem­at­ic approach to imple­ment­ing find­ings from beha­vi­our­al eco­nom­ics into a sales cycle can “unlock sig­ni­fic­ant value”, accord­ing to McKinsey’s Ned Welch. To help busi­ness do exactly that, Welch–in what, at times, reads a bit like a ‘dark pat­terns guide for marketers’–has writ­ten an art­icle look­ing at four prac­tic­al tech­niques from beha­vi­our­al eco­nom­ics that mar­keters should use to per­suade pur­chasers. The tech­niques:

  1. Make a product’s cost less pain­ful.
  2. Har­ness the power of a default option.
  3. Don’t over­whelm con­sumers with choice.
  4. Pos­i­tion your pre­ferred option care­fully.

There’s not much new here, but the sum­mar­ies are nice and suc­cinct. From item four, I found this bit of gro­cery store choice archi­tec­ture inter­est­ing:

Anoth­er way to pos­i­tion choices relates not to the products a com­pany offers but to the way it dis­plays them. Our research sug­gests, for instance, that ice cream shop­pers in gro­cery stores look at the brand first, fla­vor second, and price last. Organ­iz­ing super­mar­ket aisles accord­ing to way con­sumers prefer to buy spe­cif­ic products makes cus­tom­ers both hap­pi­er and less likely to base their pur­chase decisions on price—allowing retail­ers to sell high­er-priced, high­er-mar­gin products. (This explains why aisles are rarely organ­ized by price.) For ther­mo­stats, by con­trast, people gen­er­ally start with price, then func­tion, and finally brand. The mer­chand­ise lay­out should there­fore be quite dif­fer­ent.

via Nudge

(If you don’t have a McKin­sey account, you can read the art­icle here or here (PDF).)

Against Behavioural Economics and Irrationality

Prais­ing Maurice Allais as the fath­er of beha­vi­our­al eco­nom­ics rather than Kahne­man and Tver­sky,  John Kay intro­duces us to some of Allais’ ideas while sim­ul­tan­eously provid­ing one of the finest argu­ments against the simplist­ic view of beha­vi­our­al eco­nom­ics as the study of irra­tion­al­ity:

The skill of piecing togeth­er sense from frag­men­ted and inac­cur­ate inform­a­tion is a cent­ral attrib­ute of human intel­li­gence. Lit­er­al inter­pret­a­tion, and insens­it­iv­ity to con­text, are not marks of ration­al­ity but men­tal disorders. […]

The [beha­vi­our­al eco­nom­ics] experimenter’s trick is to con­struct an arti­fi­cial situ­ation in which nor­mally sens­ible beha­viour gives what he thinks is the wrong res­ult. The “mis­take” is detec­ted in a mean­ing­less prob­lem designed solely to eli­cit the “mis­take”. […]

Allais was less con­cerned to show that our beha­viour was irra­tion­al than to argue that the premises of ration­al­ity itself were irrational. […]

Allais’ most fam­ous exper­i­ment showed that we often treat very high prob­ab­il­it­ies very dif­fer­ently from cer­tain­ties, although “ration­al” indi­vidu­als would regard them as almost the same thing. But very high prob­ab­il­it­ies often are dif­fer­ent from cer­tain­ties: very high prob­ab­il­it­ies are usu­ally derived from cal­cu­la­tions whose rel­ev­ance and valid­ity are them­selves uncer­tain. […]

Irra­tion­al­ity lies not in fail­ing to con­form to some pre­con­ceived notion of how we should behave, but in per­sist­ing with a course of action that does not work. Some­times in mod­ern eco­nom­ics and polit­ic­al life, there is a big dif­fer­ence.

The example Kay uses is a bit glib but does serve its purpose.That last para­graph, how­ever, is the crux of it all. As you may have guessed, this is the Allais that designed the Allais para­dox – an exper­i­ment in beha­vi­our­al eco­nom­ics that shows the above won­der­fully.

Price Reductions and Cognitive Fluency

If the men­tal cal­cu­la­tion required to determ­ine the dis­count giv­en on a product is dif­fi­cult then we often mis­judge the mag­nitude of the reduc­tion.

This “ease-of-com­pu­ta­tion” effect for judging price reduc­tions is obvi­ously related to oth­er recent stud­ies look­ing at ‘cog­nit­ive flu­ency’ and is anoth­er way to manip­u­late and be manip­u­lated through product pri­cing.

Con­sumers’ judge­ments of the mag­nitude of numer­ic­al dif­fer­ences are influ­enced by the ease of men­tal com­pu­ta­tions. The res­ults from a set of exper­i­ments show that ease of com­pu­ta­tion can affect judg­ments of the mag­nitude of price dif­fer­ences, dis­count mag­nitudes, and brand choices. […] For example, when presen­ted with two pairs of num­bers, par­ti­cipants incor­rectly judged the mag­nitude of the dif­fer­ence to be smal­ler for pairs with dif­fi­cult com­pu­ta­tions (e.g., 4.97 – 3.96, an arith­met­ic dif­fer­ence of 1.01) than for pairs with easy com­pu­ta­tions (e.g., 5.00 – 4.00, an arith­met­ic dif­fer­ence of 1.00).

via Bark­ing Up the Wrong Tree

Prevention of Attainment Increases Desire, Decreases Attractiveness

Being pre­ven­ted from obtain­ing some­thing we desire sim­ul­tan­eously increases our desire for the item and decreases its even­tu­al attract­ive­ness. That’s the coun­ter­in­tu­it­ive res­ult from a study that shows the vari­ous sur­pris­ing effects of “being jilted”.

We show how being “jilted”–that is, being thwarted from obtain­ing a desired outcome–can con­cur­rently increase desire to obtain the out­come, but reduce its actu­al attract­ive­ness. Thus, people can come to both want some­thing more and like it less. […] In Exper­i­ment 1, par­ti­cipants who failed to win a prize were will­ing to pay more for it than those who won it, but were also more likely to trade it away when they ulti­mately obtained it. In Exper­i­ment 2, fail­ure to obtain an expec­ted reward led to increased choice, but also neg­at­ively biased eval­u­ation, of an item that was merely sim­il­ar to that reward.

It seems that by being unavail­able our expect­a­tions are raised to an unreas­on­able degree and we even­tu­ally become dis­ap­poin­ted. I guess this is a warn­ing for those think­ing of scarcity mar­ket­ing.

Abstraction to Increase Effort (and Spending)

When there is a medi­um placed between our effort and a desired out­come, we strive to max­im­ise this medi­um regard­less of wheth­er or not it leads optim­ally to that out­come (think points or vir­tu­al cur­ren­cies as a medi­um when attempt­ing to obtain goods).

That’s my attempt at a con­cise sum­mary of the find­ings from a study coin­ing the phrase ‘medi­um max­im­isa­tion’.

This example taken from the paper (pdf) and presen­ted by The New York Times may help:

Stu­dents were giv­en a choice between two simple tasks. One would take six minutes, and the stu­dents were told that they would get a gal­lon of Haa­gen-Dazs vanilla ice cream as a reward. The oth­er would require sev­en minutes of work, and the pay­ment would be a gal­lon of Haa­gen-Dazs pista­chio.

Not sur­pris­ingly, since the second option involved more work and a less pop­u­lar fla­vor, only about a quarter of the stu­dents chose it.

But the research­ers also repeated the exper­i­ment with a couple of tweaks. In the new ver­sion, the six-minute task led to a pay­off of 60 points, and the sev­en-minute task brought 100 points.

The research­ers then told the stu­dents that any­one who fin­ished with between 50 and 99 points would be giv­en a gal­lon of vanilla ice cream. Any­one with 100 points would get pista­chio.

Prac­tic­ally, there was no dif­fer­ence between the two exper­i­ments. But the out­comes ended up being very dif­fer­ent.

In the com­ments of a pre­vi­ous post of mine look­ing at the denom­in­a­tion effect, the idea that “the great­er the level of abstrac­tion, the more ready we are to spend” was mooted. So it seems to be the case here.

via @BFchirpy