Week three in my behavioural economics series inspired by Dan Ariely’s MOOC Beginner’s Guide to Irrationality.
The unconscious consumer
When something is restricted, such as choice, people fight to get it back. This is known as a psychological reactant – things that are outside your consciousness that affect your purchase/decision. Some people build up resistance to messages such as eating healthily and exercising more because they feel it is restricting their freedom of choice. In fact sometimes this pushes them to do the opposite of what you want them to do. Indirect persuasion is when someone is persuaded to do something without causing this backlash reaction.
Brief brand exposure
People in the west are exposed to between 5000 and 10,000 brands a day. This is too many to consciously process in a meaningful way. Subliminal exposure to brands affect behaviour. It is better to use brands strategically for your own means than to have brands try to influence you unconsciously. For example if you’re a swimmer and you want to shave a second off your personal best you may want to consider buying the same warm-up parka that Michael Phelps wore at the Olympics. The first time you wear it you may feel daft and think that there’s no way you’re going to swim faster just because you’re wearing it. You’ll probably still feel the same the second day. But three weeks in, you’re not going to be consciously thinking about the fact that you’re strategically wearing Michael Phelps’ jacket but that association between the jacket and Michael Phelps and how fast a swimmer he is going to be activated at some level, below your conscious threshold – you hit the pool, you swim, you cut the time off. this also works for creativity, intelligence and just about any aspirational goal you may have. Which is why I wear shoes like Fred Astaire!
It’s incredibly difficult to look at trade-offs – should I have a coffee from the coffee shop or should I save the price of a daily coffee and buy something at the end of the year? Instead we look at shortcuts for example caring about the method of payment or relative prices.
Money allows the market to operate efficiently – imaging how much longer the weekly shop would take if you had to barter for everything. Money is all about opportunity cost: where is the money coming from; what else could it buy; what are you giving up by choosing one thing over another. When faced with a finite amount of money like a weekly pay packet it is easier to understand trade-offs but in today’s world with credit, loans and bank accounts trade-offs are obscured.
We often think of money in relative terms and not absolute terms. Salary satisfaction is influenced by comparisons to co-workers. When surveyed people would rather work for £67,000 a year where they are on the top earning rung, rather than for £70,000 when they are the lowest earner in their team.
Next time the topic will be the pain of paying and mental accounting.
Tune of the week
Kendrick Lamar ft. Jay-Z – Opportunity Knocks