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Behavioral Economics is the study of how people make decisions.  It turns out we are not the coldly rational Vulcans that economists once thought we were.  We think with our emotions. We are subject to giving different answers to the same questions asked or framed a little differently.  We are risk-averse leading us to walk away from a better deal, and overly attracted to short-term reward.  We use simple heuristics (Herb Simon’s concept of bounded rationality) based on only a few considerations to make decisions that are “good enough” rather than trading off every possible feature (think about that the next time you ask for brand ratings on 30 attributes!) Behavioral economics lives at the crossroads of economics, cognitive psychology and anthropology in order to understand decision-making that is filled with the shortcuts we all use and of which we are only partially self-aware.

Marketing research needs to put a little behavioral economics in its game.

Nudge the respondent. Professor Dick Thaler’s best-selling book “Nudge” is all about the idea that there is no neutral way to frame choices.  “…simply by rearranging the cafeteria, Carolyn was able to increase or decrease the consumption of many food items by as much as 25%.  Carolyn knows she can increase consumption of healthy foods…”  The conclusion: Carolyn is a choice architect and there is no such thing as a neutral design.

Aren’t research teams constructing surveys also choice architects? Survey-taking is chock full of decision-making.  Should I join this panel?  Should I click on that link? Even answering survey questions involves decision-making because people are not opening “a container” and just letting truthful answers pour out of their heads.  They are reconstructing memories and opinions in the context of their current mental state, how the question is framed and asked, and how the preceding parts of the survey have brought a respondent to the next question.   Brand equity research systematically understates preferences for store brands.  Perhaps we should be willing to bend research “rules” to help people access their true feelings and preferences for lower priced alternatives?

Heat up the respondent. We tend to study preferences at times that are divorced from a respondent being in a need state.  Noted Behavioral Economist George Lowenstein might caution us against this.  He describes his research on cold-hot empathy gaps as follows:

“A … focus is on people’s predictions of their own future feelings and behavior. …when people are in a cold state–i.e., not hungry, sexually aroused, in pain, angry, etc.–they underestimate the impact of such “visceral” (hot) states on their own future behavior. “ 

From a research protocols point of view, this leads me to wonder if current concept testing does enough to “put people in the mood” especially if the idea is innovative.

Reflect the decision heuristics people use. Except for shopper insights research, we researchers tend to study preferences for things rather than the decision process that people go through.  We need to study both. Gerd Gigerenzer (his work was heavily referenced in Gladwell’s book Blink) talks about “simple heuristics that make us smart”. What heuristics is the shopper using?  I hypothesize that shoppers sub-consciously use a satisficing strategy to make a shopping trip less laborious.  They are intuitively rank-ordering choices and taking the first alternative starting at the top of the list that is good enough, that meets their criteria.  This might explain why a highly preferred brand is not always bought; it takes BOTH brand meaning AND activation to result in a purchase.

Create social contracts. Another important insight comes from Dan Ariely’s book, “Predictably Irrational” about social vs. monetary contracts. A few years ago, they studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Before the fine was introduced, the teachers and parents had a social contract, with social norms about being late. Thus, if parents were late — as they occasionally were — they felt guilty about it — and their guilt compelled them to be more prompt in picking up their kids in the future. But once the fine was imposed, the day care center had inadvertently replaced the social norms with market norms. In other words, since they were being fined, they could decide for themselves whether to be late or not, and they frequently chose to be late. Needless to say, this was not what the day care center intended. 

The ARF hypothesized implications for incentivizing respondents to join panels and take surveys.  The Foundations of Quality research proved that those who are motivated by a social contract (i.e. giving my opinion is the right thing to do) rather than receiving cash incentives exhibited more diligent survey taking behavior.

A behavioral economist might offer, “It’s not your survey that’s a delicate instrument, it’s the human mind!”  The challenge to producing consistent and reliable marketing research data goes well beyond sample representativeness.  We need to think more like Behavioral Economists.

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Comments

6 Responses to “What Marketing Research needs to learn from Behavioral Economics”

  1. Excellent perspective. We used similar approach to augment our statistically bound algorithms with models build on behavioral economics with very good results.

  2. Gregory,

    It is a very excellent perspective–so much so you’d think more people “get it.”

    From my article of January, 2010, published in “Management and Operations” (http://resorttrades.com/articles.php?showMag=Management&act=view&id=591):

    “Although we agree that the non-trivial consumer decision is compelled by self-interest, we recast its depiction to one more in line with that of noted social scientist Herbert Simon, by whose view of “bounded rationality” we perceive the consumer’s contemplative exercise as a simple heuristic essentially reduced to a single, inward-directed question: “If I miss half-a-day’s work to tour this resort,” the prospect is imagined to ask the mirror, “what is the least I can expect to get in return?”

    I wonder what Simon himself would say?

    Ken

  3. [...] What Marketing Research needs to learn from Behavioral Economics [...]

  4. [...] catching up on some reading and enjoyed this still rather recent blog post by Joel Rubinson on What Marketing Research needs to learn from Behavioral Economics.  Joel’s comments on what he termed “Heat(ing) up the respondent”  suggest -  [...]