Strap yourself in for my top ten reasons why you need to know about Behavioural Economics. More slap down than count down, prepare to be insulted!
You need to know about Behavioural Economics because:
1. You’re arrogant
You think other people succeed because of the situation but you succeed because you’re ace. But when things go wrong, it’s the situation for you but a deep personal flaw in others. After all, you never cut people off in traffic, but get cut off all the time. (a.k.a, Actor Observer bias)
2. You’re lazy
When you don’t know what to do, you do nothing. Inertia is your friend and default is your home. The easiest position is to stay with what you know. That’s why you haven’t changed banks…car insurance…partners yet. (a.k.a Status Quo)
3. You take short cuts
Who can be bothered with all that thinking? Do what you’ve done before or just make some assumptions. If you remember seeing that brand advertised, then it must be reputable. If one product is more expensive than another, it must be better. You’ll order wine from the middle of the price range because you don’t want to look stingy. (a.k.a. Heuristics or Rules of Thumb)
4. You delude yourself
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You love your thinking so much that whenever you look for evidence to support your point of view you can find it easily. (a.k.a Confirmation bias)
But when someone else puts forward an idea, it always seems to have more down sides. (a.k.a. Not Invented Here bias)
5. You’re a sheep
When you don’t know what to do you follow what other people are doing. Ever lined up in a queue without knowing what it was for? Gone to a restaurant because it always seemed busy? Bought ill-fitting fashion? An SUV? (a.k.a Herding)
6. You’re scared
Losing is scarier than winning: Bird in the hand and all that. Safer to do nothing (as per point two) or demand over the top guarantees before you’ll make a move. Stayed in a job too long? Held on to an investment even though it was tanking? Gone to a petrol station out of your way because you want to save $2 with your shopper docket? (a.k.a. Loss Aversion)
7. You’re superficial
You operate most of the time at a superficial, top-of-mind level. Listing 3-5 reasons you like or dislike something is easy because but beyond that gets tricky. It causes you a bit of mental anguish because you start to second-guess your ‘gut’ feeling. (a.k.a. Availability bias)
And you want rewards NOW! Just like Veruca Salt in Willy Wonka (I want it now Daddy!) you hate to wait because you are not very good at imagining what the future will be. (a.k.a. Short Term bias)
8. You’re not in control of your own mind
You set the alarm and then hit snooze. You intend to go to the gym but stay glued to the couch watching Big Bang Theory. You know superannuation is important but somehow can’t find 10 minutes to read the brochure. You are constantly fighting with yourself as your mind processes intent and actual behaviour. This inner turmoil exhausts you so you revert to short-cuts (see point 3) and status quo (see point 2). (a.k.a. System 1 and System 2 thinking)
9. You fall for obvious tricks
You buy the yogurt that is 97% fat free instead of the yogurt that has 3% fat. You pay for broadband plans with data quantities you will never reach. You buy the shirt because it is marked down to half price. You know you know that you are being tricked by the way something is communicated, but you can’t help falling for it. (a.k.a. Framing)
So that is you. But don’t worry, it’s you and me and everyone else because we are beautifully complex, emotional and cognitive beings and being irrational is what we do.
The important lesson for anyone in business is that you need strategies and systems geared around this irrationality so you can best meet the needs of your market. It’s pretty clear that many businesses have not yet come to terms with the opportunity Behavioural Economics presents, so it’s your chance to shake off your status quo bias, squash your fear of losing and, instead, grab on to a field that can deliver significant competitive advantage.
Oh. I almost forgot.
10. You need completion
You see a gap and you need to fill it. A list of 10 with only nine items becomes annoyingly distressing. Failing to finish means you miss out on the entirety of the experience, so you go through with it even if there is no point. (a.k.a. Completion)
Bri Williams runs People Patterns Pty Ltd, a consultancy specialising in the application of behavioural economics to everyday business issues.
Bri’s book, “22 Minutes to a Better Business“, about how behavioural economics can help you tackle everyday business issues, is available through the Blurb bookstore.