Behavioural economics is so hot right now. It has also been a big part of the inspiration for nativeye. I studied economics at university which assumed perfectly rational humans as a foundation for many of its models. At the same time I also took psychology modules which dealt with the highly irrational, aka real-life human brain. The two disciplines dealt with similar subjects but seemed very far apart. Behavioural economics has mainstreamed to fill this gap and is required reading for anyone involved in researching people.
Introducing tonight’s double act – your brain
BE books such as Nudge and Predictably Irrational have been top sellers. I am working my way through the latest and probably greatest, Thinking fast and slow, by BE’s godfather Daniel Kahneman. It deals mainly with the flaws in our intuition and our apparatus for perceiving and making sense of the world (our Systems 1 and 2). System 1 is concerned with intuitive thought, it is immediate, reactive and always on. System 2 is the policeman – it calculates whether what System 1 reports is true and makes corrections where required. It is also pretty lazy.
System 2 uses a bunch of heuristics (rules of thumb) to speed up its job and this is where all sorts of biases creep in. Here are some examples:
- Disproportionate effect of emotion on risk taking decisions (e.g. loss aversion)
- Affect bias (“I like this company, i think I’ll invest in them” – rather than crunching the numbers)
- Availability bias (“That air crash in the news was terrible. Air travel is really unsafe.”)
- Anchoring – being unduly influenced by a previous reference point
Are you sitting comfortably..?
We are not aware that we do these things, and when questioned, System 2 tends to make up stories to explain them away. We like (and like to tell ourselves) stories that make sense, that are coherent, and that provides us with ‘cognitive ease’, whether our not they are actually ‘true’.
“The conscious rational brain isn’t the Oval Office. It’s actually the press office issuing explanations for actions we’ve already taken”
Rory Sutherland, Vice Chairman, Ogilvy & Mather and President, IPA
What does it mean for market research and your business?
This tendency to post-rationalise our decisions and actions clearly raises serious questions about how we go about researching these same actions and decisions. As usual Rory Sutherland is miles ahead. His concern is that traditional, ‘after the fact’ survey-based research is missing a trick, and that businesses can benefit from research that is closer to the point of decision.
“As you get closer to the point of decision, there are factors at work which never really appear in conventional market research. They are contextual factors, social factors”
This is taken from an interview with Research Magazine and the whole interview is worth a read, exhibiting Sutherland’s entertaining ‘after-dinner speech’ style.
Some thoughts on how to measure the moment
So how do we go about short-circuiting this storytelling and get through to people’s true motivations?
- Capture emotions ‘in the moment’ which are associated with a particular decision or action (rather than the explanation after the fact)
- Pay more attention to the context in which decisions are made (e.g. environment and location, time constraints, social pressure, mood)
- Studying behaviour (based on the counter-intuition that behaviour predicts preference rather than the other way around)
- Or hire a neuroscientist and by-pass the problem and probe directly into the brain
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