Behavioural  Economics:    From  Human  Understanding  to  Business  Advantage  

2  

System  1  and  System  2  Thinking  

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Jan  11

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We  think  much  less  than  we  think  we  think  

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System  1  decision-­‐making  is  faster  and  less  efforDul  

System  2  

System  1  

50  bit/sec  

11,000,000  bit/sec  

Zimmerman,  M.  (1989)  "The  Nervous  System  in  the  Context  of  Informa@on  Theory".    

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7  

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yellow  

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“A  bat  and  a  ball  cost  $1.10  in  total.  The  bat  costs  $1  more  than  the  ball.  How  much  does  the  ball  cost?”  

“People  are  not  accustomed  to  thinking  hard,  and  are  oRen  content  to  trust  a  plausible  judgement  that  quickly  comes  to  mind.”    

 Daniel  Kahneman,    

Nobel  Prize  Winner  

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Human  behaviour  driven  by  two  decision-­‐making  Systems,  1  &  2  …  

Slow  Explicit  

AnalyWcal  EfforDul  CogniWve  

System  2  

Fast  Implicit  

ExperienWal  InsWncWve  EmoWonal  

 

System  1  

“We  are  not  thinking  machines  that  feel;  

we  are  feeling  machines  that  think”    

Antonio  Damasio  

DECISIONS

DECISION

         Priming        Framing    Accessibility  Defaults  

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“Just as no building lacks an architecture, so no choice lacks a

context.”  

Thaler  &  Sunstein,  Nudge  

Environment  

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5:1 1:2

A. North, D. Hargreaves and J. McKendrick (1997)

Sales Sales

Priming:  When  our  exis0ng  memories  are  ac0vated  by  something  we  see,  hear,  smell,  taste  or  feel  

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Pre-­‐2007  0ps  were  roughly  10%.                

AEer  2007  it  jumped  to  22%.    

Framing:  The  way  that  informa0on  is  presented  affects  your  percep0on  of  its  value.      

DECISION

Social  Proof      Copying              Consistency                  Reciprocity  

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“The true nature of mankind is that of a

super-social ape. We are programmed to be

together; sociability is our species’ key evolutionary

strategy.”  

Mark  Earls;  Herd:  How  to  change  mass  behaviour  by  harnessing  our  true  behaviour  

Social  

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Bateson  et  al,  2006  

People  pay  2.76  Wmes  more  on  average  

when  eyes  are  present  

Social  

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Seated  accomplices    ea0ng  pretzels  

No  accomplice    ea0ng  pretzels  

1/12   1/6  Propor0on  of  passengers  buying  pretzels:  

Herrmann et al, 2011

Copying:  When  we  see  other  people  do  something  we  oEen  copy  them  –  whether  consciously  or  not.    

DECISION

EmoIon  Visceral  States  

Habits  Hyperbolic  discounIng  

 

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Personal  “Perhaps there is no such thing as a fully integrated human being. We may, in fact, be an agglomeration

of our multiple-selves.”  

Dan  Ariely;  Predictably  Irra@onal;  The  Hidden  Forces  that  Shape  our  Decisions    

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Buy  fewer  impulse  items  

Anxious  

Happy  

Buy  fewer  items  on  promo0on  

S Those  happy  as  they  start  their  shop  spend  around  10%  more  than  those  who  aren't  happy.  

Personal:  Feel  Do  Think  

S Anxiety  makes  us  more  cauWous,  less  impulsive  and  more  likely  to  use  System  2  

10%  

23  

Jan  11   23

8 8

26

3742

31

47

40

27

34

89 105

10

2919

3830

25

32

Total

Excite

d

Not ex

cited Hot

Cold

Just

Right

Ill /unwell

% Def/Prob buy% Probably would buy% Definitely would buy

Average  Monadic  Purchase  Intent  for  Ambient  Food  Concepts  

Context  changes    the  way  we    feel,  think    and  behave  

* *

Significance shown at 95% level

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Hyperbolic  DiscounWng:  The  tendency  for  people  to  have  excessively  stronger  preferences  for  immediate  gains  rela0ve  to  future  gains.  

Most  people  will  make  commitments  long  in  advance  that  they  would  never  make  if  the  commitment  required  immediate  ac0on.    

Would  you  rather  be  given  £50  today,  or  £100  tomorrow?    Would  you  rather  be  given  £50  today  or  £100  a  year  from  now?  

Would  you  rather  be  given  £50  a  year  from  now  or  £100  a  year  and  a  day  from  now?  

DECISIONS

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Behaviour  change  needs  to  be  Fun,  Fast  &  Easy  

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Applying  Behavioural  Principles    to  Pack  TesWng  

Jan  11   28  

Packaging  &  Comms  

Brand  A  IntuiWve  &  emoWonal  packaging            “Helps  quick  decision-­‐making”                  

Brand  B    InformaWon-­‐based,  message-­‐heavy        packaging              “Makes  people  think  too  much”                    

Jan  11   29  

What  if  we  could  simulate  System  1  decision-­‐making?    

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44

41

39

20

30

40

50

% o

f all

sing

le a

nd m

ultip

acks

sel

ecte

d

*

System 2 Conditions (Unrestricted Time)

System 1 Conditions (Restricted Time)

Brand A Brand B Brand A Brand B

System  1  condiWons  

more  indicaWve  of  sales  reality  

Significance shown at 95% level

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Applying  Behavioural  Principles    to  Screening  

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Too  many  choices…  

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The  Wisdom  of  the  Crowd  

 Why  the  Many  Are  Smarter  Than  the  Few  

James  Surowiecki  (2004)  

33  Jan  11  

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–

 

–

PredicWve  Markets  called  the  US  elecWon  clearly  &  correctly    

   

 

TradiWonal  Polling  (“Who  do  you  think  you  will  vote  for?”):  perhaps  more  entertaining,  as  the  elec0on  race  was  made  to  appear  exci0ng  un0l  the  very  last  day  and  hour…    

PredicWve  Markets  (“Who  do  you  think  will  win  the  elec@on?”):  clearly  much  more  predic0ve  and  accurate  -­‐  and  therefore  perhaps  much  more  useful  when  you’re  making  investment  decisions  instead  of  newspaper  headlines!  

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Unreliable  witnesses  to  our  own  behaviour  

Yet  good  at  anWcipaWng  the  behaviour  of  others  

We  are  self  deceit  machines  …  

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Probably  Buy  Shares  In...   Probably  Sell  Shares  In...  

One  To  Double  Shares  In...   One  To  Sell  All  Shares  In...  

Net  Preference  Ranks  Ideas  

%   %  

Probably  Buy  Shares  Normable  Benchmark  

‘Imagine  you  owned  shares  in  all  these  ideas...’  (Consumers  Shown  up  to  15  Ideas  From  Set  at  Random)  

How  a  PredicWve  Market  works    

36  Sep  09  

-­‐24  

-5-7 -7 -6

-10 -11 -9

-17

-28

20 2016

13

8 84

74

15 13

9

7

-5

-9

-24

-4-3

-25

-20

-15

-10

-5

0

5

10

15

20

25

Chill Sangria Palm Extra Gold Chief Jewel Djembe Emperor Bold

% o

f res

pond

ents

Net PreferenceMost Successful - would double sharesLeast Successful - would sell shares

Please  select  which  one  of  these  ideas  you  would  immediately  sell  /  double  your  shares  in    

Strength of Portfolio

5776

Portfolio Norm This Test

Performance  v  norms    Top  QuarWle    2nd  QuarWle    Boeom  50%  

%s  based  on  total  seeing  each  concept:  c500  

Works  well  in  ‘everyone’s  a  winner  cultures’  like  Nigeria  

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“Which  of  these  faces  best  expresses    how  you  feel  right  now?”  

“To  what  degree  do  you  feel    [selected  emoIon]?”  

“And  what  is  it  that’s  making    you  feel  this  way?”  

So  if  System  1  is  so  influenWal,  how  do  we  measure  it?  FaceTrace®:  award  winning  measure  of  emoIonal  engagement  

Captures  ‘Reasons  for  EmoIon’  

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Applying  Behavioural  Principles    to  Consumer  Understanding  

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Irresponsible  Drinking  in  Britain  

Brighton

Cardiff

Leeds Nottingham

Newcastle

Newcastle

Gloucester Watford

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Meet  Our  DetecWves  

Team  Marple  The  case  for  Individual  Factors  

Team  Poirot  

The  case  for  Social  Factors  

Team  Columbo  

The  case  for  Choice  Environment  

Team  Holmes  The  case  for  Local  Environment  

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The  Case  for  Environmental/Architectural  Factors  

“Could  I  have  a  ginger  ale  please?”    

“A  gin  and  tonic  please.”  

“Did  you  want  gin  or  vodka  with  that?”  

“Double?”  

“Two  beers  please  –  can  I  pay  by  card?”  “Sure  –  minimum  spend  £10  on  the  card  though”   “OK  –  I’ll  get  four  beers  then,  please”  

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The  Case  for  Environmental/Architectural  Factors  

Cartoon by Anna Af Hallstrom

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The  Case  for  Social  Factors  

“A  lot  of  us  started  off  by  buying  rounds  of  pints/spirits  which  is  probably  one  of  the  main  reasons  that  lead  to  drinking  too  much  -­‐  everyone  feels  they  should  buy  a  round  and  so  a  lot  of  booze  goes  down.”  

Cartoon by Anna Af Hallstrom

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The  Case  for  Individual  Factors  

“A  lot  of  people  knew  that  they'd  probably  had  enough  to  drink,  but  they  decided  to  carry  on  anyway.  The  classic  'Oh  go  on  then,  one  more!'  

tagline  cropped  up  a  few  0mes  (myself  included).”    

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Exercise!  

Challenge  1:  Iden0fy  the  individual  /  social  /  environmental  factors  that  could  influence  your  target  group  to  drink  irresponsibly    Challenge  2:  Consider  poten0al  interven0ons  that  could  change  the  behaviour.    (hint:  not  just  what  could  stop  exis0ng  behaviours,  but  also  what  could  trigger  new,  responsible  behaviours)    

S  Group  one:  18-­‐24  year  olds  in  bars  /  pubs  S  Group  two:  25+  in-­‐home  consump0on  S  Group  three:  parents  of  8-­‐17  year  olds  –  how  can  

they  be  a  more  posi0ve  influence  

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Hints  page  

Individual  What  role  does  mood  &  how  they’re  feeling  have  on  behaviour?  What  about  their  established  rou0nes,  do  they  do  things  ‘just  because’?  What  role  does  ego  play  in  their  decisions?    Social  Who  are  they  with  and  what  influence  might  they  have?  What  is  the  social  dynamic?  How  does  the  group  define  ‘normal’  /  what  are  the  social  norms?    Environmental    What  environmental  primes  might  influence  behaviour  &  the  atmosphere?    E.g.  furniture,  décor  etc  Where  are  drinks  stored,  where  are  they  drunk?      How  are  drinks  served  /  kept?    What  impact  does  this  have?  How  are  drink  choices  presented?  

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Some  of  our  ideas  

Environment  Serve  ¾  pints  as  standard  and  name  them  ‘large’  Ensure  low  abv.  beers  /  wines  are  the  majority  Sell  wine  glasses  with  unit  lines  rather  than  ml  Prominently  display  non-­‐alcoholic  beers  /  in  home  store  booze  in  non-­‐prominent  place  Encourage  sea0ng  areas  in  pubs  Ensure  there  are  ‘quiet’  areas  in  bars  where  music  doesn’t  drown  out  conversa0on  Introduce  word  primes  and  other  auditory/olfactory  interven0ons  to  bars    Social  Provide  jug  of  water  &  glasses  with  each  round  of  drinks  Stop  ringing  the  11:00  bell  signalling  last  round  Discourage  large  round  buying  (e.g.  maximum  number  of  drinks  in  one  transac0on)  A  mobile  app  that  shows  you  what  you  will  look  like  in  20  years  0me  if  you  drink  x  amount  per  week,  share  it  on  Facebook  Prominently  display  pictures  of  irresponsible  drinkers  and  their  ‘crime’;  drinking  licence?    Personal  Factors  Table  service  to  break  consump0on  momentum  Your  hung-­‐over  self  writes  a  message  to  your  future  Friday  night  self  to  stop  drinking  If  buying  on  a  tab,  regular  reminders  about  how  much  they’ve  spent  –  keep  price  salient  Put  up  ‘responsible’  signs  such  as  ‘give  blood’  

Any  QuesWons?  

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