Behaviour change

Just say no – to marshmallows

Posted on by carolynemitchell

This week I’ll be looking at self-control, something I have very little of when it comes to eating good food and spending money. These posts are inspired by Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality. I’d recommend it to anyone who wants to understand why people do what they do and why they won’t do what we as local government, health professionals and central government want them to do.

The problem with self-control is that it’s the difference between now and then – I really want that cake just now and the heart attack later seems so far away.

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We all have a present focus bias – the tendency to give more weight to our current environment or state. In the future we are all wonderful – next week we’ll start eating healthily and by next month we’ll have transformed into a gym bunny. But we never get to live in that future.We only live in the present.

So how do we get round this? Dan’s answer is reward substitution – using an alternative reward that is immediate and therefore more motivating. He came up with this idea when he was diagnosed with hepatitis. He was offered a treatment that would mean he had to self-inject once a week. If he didn’t have the treatment, although he felt OK now, he would be seriously ill in the future. He knew that an hour after the injection he would be violently sick for a few hours and feel rotten. Most of the other people on this treatment gave up after a few injections but Dan kept going. He loves watching films so on the way home from uni he would stop off at the video shop and hire a film. He would set up the room – covers on the couch, TV on, film loaded, remote control in reach, bucket and tissues close by – then give himself his injection. It was the films that were his reward and the thing that got him through his horrible treatment.

Can we use reward substitution to encourage eco-friendly behaviour?

Well, the problem with climate change is that it maximises human apathy. Why?

  1. It’s in the future
  2. It affects others first
  3. We don’t see its progression
  4. We don’t see a particular person suffering
  5. Individual efforts to mitigate are a drop in the rising ocean

We could encourage better environmental behaviour with the following rewards:

  • money
  • making the required behaviour easier than the normal behaviour
  • recognition
  • reputation

Gamers have devised many ways to motivate people, such as leader boards. Reward substitution can get us to act like we care about the world when all we really care about is our image.

Inflating the incentive with the principle of loss aversion may also work – pre-pay people then take the money away for non-compliant behaviour.

Regret is the comparison between where we are in life and where we could have been. Analysis of the podium photos from the Olympics shows that the gold winners smile most, closely followed by bronze and the least smiley are the silver winners because they can imagine what they could have done differently to win gold.

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What is happiness? We pick a reality and compare our lives to it. If that reality is better than our actual life we are miserable but if that reality is worse, we feel good.

The regret lottery – everyone gets a ticket but you can only claim our prize if you have been compliant.

Ulysses contracts

These are self-control contracts. With self-control contracts you:

  • know you will be tempted
  • bind your current self to prevent your future self from misbehaving

A great online version of this is Stickk where you set yourself goals and if you don’t meet them you give money to charity. If you really want to make sure you manage to reach them, set up donations to a charity you hate!

The importance of self-control

Self-control at a young age is highly predictive of self-control as an adult. In experiments tempting three-year-olds with marshmallows shows that self-control, even at that young age is predictive of success as an adult. The kids who couldn’t resist were more likely to flunk school, get involved with drugs and even end up in jail. But where does self-control come from? Is it a skill or are we born with it? When we distract ourselves from temptation we are more likely to resist. However when we are continually exerting self-control our ability to resist temptation weakens. This is called ego depletion.

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But how much does self-control depend on innate ability and how much relies on tricks we develop to enhance our abilities. How much does self-control suffer as we are tempted throughout the day and what role do rules play?

We live in a commercial world where companies want us to act now in a way that benefits them, not us in the long-term. This is only going to get worse as the commercial world gets more and more sophisticated and this makes Ulysses contracts super important.

Human mortality can be attributed to bad decisions. In the US in 1900 the percentage of deaths cause by bad life choices was only 10% – the rest were down to accidents and diseases caused by the environment such as diphtheria and cholera. In 2000 bad decisions caused 46% of deaths. This is because technology invents ways to help us kill ourselves for example obesity, diabetes, even texting while driving. Technological advances create more and more opportunities for us to succumb to temptation.

An example of Ulysses contracts being used in health was a drug abuse program in Denver. It attempted to help heroin addicts recover. It required them to write a self-incriminating letter to the person they did not want to find out about their habit and the letters would be sent out if the recovery agreement was violated. There was a three-week waiting period and after that most subjects complied with their contracts. However, the program had to be stopped because it violated human rights. Ulysses contracts must be binding to be effective – it’s human freedom versus the human temptation to do the wrong thing. It’s difficult to study Ulysses contracts because researchers are required to let participants leave a study if they want to.

We must find a balance between the amount of freedom we crave and the controls we need to shield us from temptation.

 

Tune of the week

Edith Piaf – Non, Je Ne Regrette Rien

Show me the money

Posted on by carolynemitchell

Next up in this series of behavioural economics posts, inspired by Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality is how performance is affected by money and social stress.

Monetary stress and performance

Is it true that work is aversive and people only do it for the money?

Almost all animals, except cats will work for food. For humans money is an important motivator and bonuses do increase motivation. But do they increase performance?

Real life bonuses work under loss conditions. People aren’t given the money in advance but in their heads they’ve already spent it. I do this every time I work at an election – I know what I’m spending the money on before I get it and sometimes I actually spend it before it’s in the bank.

But do mechanical tasks work differently to mental tasks? Bonusus work for mechanical tasks but not for mental – in Dan’s experiments performance of mental tasks goes down.
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The intuition about business increasing performance relies on what we know about mechanical tasks. Would you want a surgeon to be thinking about what he could spend his bonus on if the operation goes well? It’s a state of ‘flow’ that drives the highest quality performance – getting into the zone – not thinking about bonuses. Bonuses can be distractingand may decrease motivation and performance.

Social stress and performance

When working in front of a group, social concerns are added to the financial motivation. However, anxiety caused by public pressure impedes performance.

Higher motivation does not necessarily translate into better performance. Do these results apply to Wall Streetexecutives or are they immune to the impact of big bonuses? Well, bankers think they are special but Dan’s experiments showed they are affected by social stress as much as the next man, or woman.

Bonuses, labour and motivation

Money is only one aspect of motivation –

  • small amounts of money can move relationships from the social to the financial domain
  • large amounts can increase motivation but decrease performance
  • we do not operate by simple rules of reward
  • motivation = money, meaning, creation, challenge, ownership, identity and pride

We should think of ways to motivate and make people happier besides paying them more. A thoughtful gift can mean much more than money and this could be time off, flexible working and healthcare.
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Efficiency versus meaning

During the Industrial Revolution Adam Smith believed that work should be specialised and that a production line environment is the most effective way to work. Centuries after Karl Marx stated that when work has meaning people are more connected to the output. Now we are in the middle of the Knowledge Revolution and the internet is changing the way we shop, live and think. Now we need to think about social motivation and how that can help people and organisations be more creative.

 

Tune of the week

Steve Wonder – Money (That’s What I Want)

 

Why you love your Billy bookcase

Posted on by carolynemitchell

Apologies if you’re getting fed up of these behavioural economics posts, inspired by Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality on Coursera. I personally find the subject fascinating and I truly believe it’s a must for all comms people to get their heads round this economics/social psychology/behaviour junction.

Anyhoo, this week we’re looking at motivation and the IKEA effect.

Extrinsic versus intrinsic motivation

Even although mountain climbing can be a miserable experience at the time, people continue to repeat the experience. Why? Well they claim it’s about:

  • overcoming nature
  • a sense of achievement
  • a sense of accomplishment
  • competition
  • proving something to yourself

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But what would you do if you knew you couldn’t get to the top or if, once you came back down, you’d instantly forget everything about it.

Effort made in vain is de-motivating and the purpose of the activity contributes to its meaning. This applies as much to everyday work as it does to mountain climbing.

It turns out money is not the best motivator – people derive value from a wide range of sources.

The issue of meaning

We are motivated to do things that we find meaningful. Doing the same task over and over without a sense of progress can be the ultimate de-motivator. People understand the value of meaning but not the extent to which it matters. Not having meaning can choke the joy out of an activity you would otherwise have enjoyed.

Purpose and meaning are so important that they can be worth a substantial investment of time and money. An example of this is Google – they allow their employees to spend 20% of their time on other projects to make them feel more valuable.

Acknowledgement

Acknowledgement is just as important as meaning. It’s relatively easy to make people feel good about their work just by acknowledging their contribution. Simply ignoring people can be as demotivating as destroying their work. Dan proved this with a series of experiments where people’s work was either acknowledged, ignored or put through a shredder without being looked at.
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The IKEA effect

How does labour lead to love?

Our liking of something isn’t just judged by what it is but by how much effort we have put into it. The more effort, the more we like it. This even extends to our children – the effort we expend on our kids increases our love for them and blinds us to the perspective of others. Another example of this is customisation such as T-shirts – this is about more than individual preferences as the effort invested also increases the liking of the product. However, too much effort can have negative consequences so it’s important to strike the correct balance.

Dan first noticed this when he realised he was more attached to a self-built piece of IKEA furniture than other more expensive ready-built pieces. He has also carried out many experiments asking people to place values on Lego models they’ve made themselves and models mad by others.

The not-invented-here bias

Are we over-committed to our own ideas? Investing even a small amount of energy in a solution makes people like it much more. This has a plus and a down side:

  • plus – it results in more time and passion devoted to our own ideas
  • down – it hinders our ability to consider the ideas of others

Cognitive dissonance

This is the tension that results when there is a mismatch between our beliefs and our behaviours.

Dan’s example of this at work is Zappos. Instead of interviewing customer services people they train them for a week then offer $2000 not to take the job. Why? When we work harder for something we value it more therefore Zappos employees believe they must love working there because they gave up $2000 for the chance. Retaining happy and motivated employees and eliminating the rest helps maintain a quality customer service.

Next week it’s monetary stress, social stress and performance under the spotlight.

 

Tune of the week

Beat Mafia & Diaz Grimm – Motivation

Don’t let doctors decide

Posted on by carolynemitchell

A final few words on cheating from Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality on Coursera.

Cheating over time

People start by cheating just a little but at some point some people start cheating all the time. What does it take to reset the fudge factor to get people to stop cheating? Put it another way – what is the logic behind Catholic confession? You should cheat just before confession but it doesn’t work like that. Confession is like resetting to a clean page. in an experiment Dan asked people to write down their transgressions and ask for forgiveness – this decreased cheating but only temporarily.

Does cheating vary across cultures?

In a word, no. How do we balance this finding with a strong conviction in cultural differences. Experiments have no cultural context – they simply test the basic human capacity for moral flexibility. Culture influences specific domains but doesn’t change the core of morality. Culture can either shrink or expand the fudge factor – for example in some countries it is acceptable to bribe the police.

Medical decision-making gone wild

Think of these choices. You have terminal cancer and doctors have no idea how long you have left. Do you take chemo miserably for longer or do you take the palliative care and live as good a life as you can for a shorter time?

Medical decisions are unlike any other – they ask you to imagine the unimaginable.
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People often make bad decisions because they can’t imagine what life will be like going through treatment. Cancer patients feel like they have to do something, anything to get rid of it even if treatment is riskier than doing nothing.

Medical decisions often rely on information from doctors who don’t speak the same language as their patients. But it’s not just the patients that make strange decisions – doctors do too. Doctors over-estimate how long patients have to live because they must have hope that they are doing a worthwhile job. They also over promise to patients and experiments have shown that we weigh decisions differently for others than we do for ourselves.

Sorry if this has been a bit of a downer – let’s fix that with a good tune.

 

Tune of the week

 

Buchanan Brothers – Medicine Man

Fudging the nudge

Posted on by carolynemitchell

Sorry folks, missed a post last week because I’ve ended up with two more courses running at the same time and it all got too much again – will I never learn?

This week I’m back to share what I learned on Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality on Coursera. This week we’re on to rational crime, the fudge factor and morality training.

Is dishonesty the result of a few bad apples or is it due to many people cheating just a little bit?

Well, there is no morality in economic theory which is why pure economics doesn’t work and why behavioural economics was born. Apparently lots of people cheat just a little bit and we carry out mental cost benefit analysis, weighing up the benefit of cheating against the possible costs of getting caught.

According to Dab we need a new economic model of dishonesty that doesn’t solely rely on cost benefit analysis.

The fudge factor

This is when we balance a view of ourselves positively against benefiting from cheating.
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Shrinking the fudge factor

Dan carried out an experiment where people took a test where there was an opportunity for cheating. Those who were asked to write down as many of the 10 commandments as they could before taking the test didn’t cheat at all. Reminding people of their morality makes them more honest and this work has resulted in many educational establishments introducing honour codes.

The bad news: morality training has no measurable long-term effect.

The good news: reminding people of morality just before being tempted to cheat does make a difference. Honour codes work better at the beginning of a process and they don’t work at the end as the cheating has already happened. An example of this in practice would be the work the Cabinet Office’s Behavioural Insight’s Team did with tax return forms where they moved the honesty signature box to the top of the form and saw fantastic results compared to when it had been at the bottom.

Dan’s research shows that in the US lots of people exaggerate by 10-15% on insurance claims. In their heads this doesn’t seem like a lot to individuals but tallied up costs a whopping $24 billion a year.

Expanding the fudge factor

Removing the direct link to money allows us to rationalise our dishonesty. In his experiments Dan discovered that cheating doubles when cash is replaced by tokens.

You can also expand the fudge factor by providing examples of others cheating – this is called social proof. A great example of this is when doctors surgeries around the country put up notices showing how many people didn’t turn up for their appointments. Instead of attendance going up, it went down because people saw it as almost normal behaviour to just not turn up instead of cancelling their appointment.

Do certain personality traits foster cheating?

Cheating is about how much we can rationalise our behaviour and according to Dan creative people are best at this because we can create little internal stories to explain our behaviour.

We can rationalise to a greater extent when there is:

  • a greater distance from money
  • social proof
  • creativity

During a series of experiments Dan lost $150 to 12 people who cheated a lot but $36,000 to 18,000 people who each cheated a little.

Next time I’ll look at conflicts of interest, cheating over time and across cultures and medical decision-making gone wild.

Tune of the week

Cheat song! (Whisper Parody) – by Emmanuel N. Phillip Hudson

Because I’m happy

Posted on by carolynemitchell

I don’t know anyone who doesn’t love a bargain but often they aren’t all they’re cracked up to be.

The price of free

People will happily queue up for ages for a free coffee from Starbucks but would they queue quite so readily if what they got at the head of the queue was the £3 in cash that the coffee was worth?

When thinking about products how does the price difference compare to the difference in quality?

When offered either a 25p truffle or a 1p chocolate, most people go for the truffle but if offered a 24p truffle or the same cheap chocolate for free, most people choose the chocolate.

We are over-excited by ‘free’. Why? Because we only see the benefits, not the costs if things are free.

 

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For example you compare the same book from three vendors:

  1. book – £10 + shipping – £10     this is seems the worst deal
  2. book – £20 + shipping – free     this seems the best deal
  3. book – free + shipping – £20     this just seems crazy

The perfect example of how to manage the price of free would be a group of friends who meet regularly for a meal in a restaurant together – how should they split the bill?

  • split it exactly when the bill arrives – this ruins the end of the meal when everyone has to get their phones out to work out how much to pay
  • split the bill evenly – this can cause resentment when some didn’t have a starter or someone had a large glass of wine when the rest just had Coke
  • each person pays the whole bill on a rota – this eliminates the pain of paying, you get a free meal more often than you pay, the payer feels good, although the pain of paying has diminishing returns as the price increases

Micro-payments

Micro-pricing breaks up the cost of a purchase into smaller compartments. iTunes is a great example of this where you can pay for just the tracks you want rather than a whole album. Personally I think this is ruining the stories that used to run through albums but then I’m a vinyl junkie – what can I say?

However, sometimes micro-payments are a bad idea – 100p does not always equal £1. Dan ran an experiment to see how people would read articles depending on how they had to pay for them. There were four methods of payment:

  1. pay on demand to read them
  2. pay at the end once you’ve read them
  3. deduct payment from a pre-paid account
  4. pay a subscription to read as mush as you want

In fact people read the least when they had to pay on demand and not much more when they had to pay at the end. Things got slightly better with deducting from a pre-paid account but people felt happier and read more when they paid a subscription.

Keeping prices equal simplifies the decision-making process, making us more likely to pay – a good example of this would be pound shops.

Consolidating multiple purchases into one invoice reduces the pain of paying.

Gift certificates and pre-payment options reduce micro-payments and therefore the pain of paying. An example of this not working would be offering free apps as this reduces the number that can be sold for profit.

The psychology of money is a topic where our intuitions aren’t always correct.

We had a guest lecture by Mike Norton from Harvard Business School telling us about his studies of time, money and happiness.

 

Time versus money

What are the best ways to use these for ultimate happiness?

Money – we all think more money will make us happier than it actually does. We try to make more and more of it but experiments have shown that getting more money makes us more selfish and happiness tails off. Giving money away makes people happier than spending it on themselves, no matter how poor they are.

Time – this is the same as money. Most of us spend time on ourselves but giving time away makes you feel like you have more time. How? When we give to other people, it signals to us that we have more than enough for ourselves and can afford to give some away.

If you want to hear more from Mike there’s a lot out there but he did a TEDx talk on this very thing.

If you want to know more about the behavioural economics MOOC I’m talking about over the next few posts you should sign up for Dan Ariely’s Beginners Guide to Irrationality course on Coursera.

Tune of the week

Northern Soul Girl Levanna

As you all know I love a bit of Northern Soul – I just wish I could do the dance. Levanna dances in her front room and all around town sharing the Northern Love. In this she dances in the street to Pharrell’s Happy and Velvet Hammer’s Happy. This makes me happy 🙂

 

Gifts that keep giving

Posted on by carolynemitchell

When I was doing Dan Ariely’s Beginners Guide to Irrationality course on Coursera, there were lots of little Eureka moments and this was one of them. Human irrationality at its best or worst depending on how you look at it can be hilarious and embarrassing when someone like Dan points out some of the bad decisions we make every day. Luckily some of the ways to make us stop and think are covered in the course but better still for those of us who work in the public sector and depend on people making good decisions, some of it can be achieved without people realising that their behaviour has been subtly changed for the better.

Fairness and reciprocity

It’s easy for us to pay for something that requires conspicuous effort but much harder to pay for an expert who performs the job effortlessly. A good example of this would be a joiner, toiling over replacing a broken lock, huffing and puffing and taking a long time. Two streets down a better joiner does the same job but in half the time with much less obvious effort. Both charge for their services by the hour so we’re basically paying for or rewarding incompetence!

 

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Our ideas about fairness are based on marginal cost rather than fixed cost – we are willing to pay more when we see the costs involved. Purchasing decisions should be based on weighing pleasure against price but we have difficulty calculating these trade-offs. Judgement of a fair price depends on perceived costs. Because determining value is so difficult we use shortcuts – like assessing the level of effort required to produce something.

Loss aversion

Basically we get:

  • happy when we make money
  • really unhappy when we lose money

Loss aversion is the asymmetry around a neutral point, where losses are perceived at 2.5 times more powerful than gains. An example of this would be that sales people sell more when their commission is paid in advance because they don’t want to have to give the money back. Once you give people money they value it to a higher degree.

The endowment effect

This is when we adjust our level of ownership and that becomes the new baseline by which we judge gains and losses. When we know we are about to get a pay rise we think that it will sort out or debts, pay for better holidays, change our lives but once we have it we very quickly get used to it and nothing much about our lives changes.

Once ownership is established, people favour the object that they own, and when we own something we focus on what we would have to give up rather than what we could gain. After taking possession of an object people consider themselves the owner and like the object more, making it difficult to give up. A good example of this would be 30-day money back guarantees on things like sofas – once that sofa is in your front room you consider it yours and the chances are it won’t go back to the showroom.

Marketing and social norms

In some situations adding money to the equation makes things worse – imaging turning up at a dinner party and handing the host £20 instead of a great bottle of Chateauneuf Du Pape. Once financial motivation is added to the equation the social motivation disappears.

We live in a continuum between market norms and social norms. Imaging a work colleague’s car tyre blew and they phone you and asked for help. Would you help just because it’s someone you know? Yes – social norms. Would you help if they offered you £3? No – downright cheeky! Would you help if they offered you £300? Yes – market norms.

Gifts are in the social domain – if tell the recipient the value of the gift you violate social norms. Social norms often dictate when money is an appropriate gift for example a wedding or a birthday but it would be inappropriate as a get well gift or a thank you for looking after the dog while you were on holiday.

 

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In the workplace this translates into the fact that the social benefits of things like health care or holiday schemes work better than cash commission.

Cash doesn’t build social capital whereas gifts create a greater sense of reciprocity. It is gifts rather than money that help nourish friendship.

Next time I’ll be looking at the price of free, micro payments and balancing money, time and happiness.

Tune of the week

Nouvelle Vague – The Killing Moon

Do you want ibuprofen with the bill sir?

Posted on by carolynemitchell

This behavioural economics series is turning into an epic.

This week’s hot topics are the pain of paying and mental accounting – those who know me realise that my accounting skills are a bit off the wall but I don’t think that’s what we mean here.

The pain of paying

The pain we feel when paying for something is magnified when our feelings about spending money are coupled with consumption:

  • paying per bite for a meal makes economic sense but you wouldn’t enjoy the meal with the waiter hovering over you counting every mouthful
  • paying for a holiday on the day you come home makes more financial sense than paying the balance three months before you leave as you’d accrue more interest with the money in your own account. But you probably wouldn’t enjoy the holiday as much, especially the last day.

The pain of paying adds a moral tax to consumption and the timing and method of payment changes our enjoyment.

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If you want to increase the pain of paying:

  • pay with cash
  • receive notification whenever money is spent
  • increase salience i.e. watch the petrol pump meter spin round as you fill your car, use an electricity coin meter or add consumption meters to all your household appliances

To decrease the pain of paying:

  • pay with credit cards
  • keep payments hidden
  • prepay before you consume

Prepayment can focus our attention on the enjoyment of an experience – think of all-inclusive holidays.

All the men out there if you’re looking for the perfect gift you need to know two things:

  1. it should remove the pain of paying
  2. it should be something that she wants but the pain of paying is preventing her from buying it

So, the pain of paying involves the opportunity cost, the hassle component, the moral tax with its associated guilt, the method of payment and the timing of the payment.

We experience less pain of paying when the form of payment is distanced from the pure representation of money, e.g. credit cards, casino chips as prepaid money is easier to spend.

That’s all from the perspective of a customer but organisations, especially local authorities should consider the pain of paying because let’s face it, who actually wants to pay their council tax or a parking fine.

Mental accounting

Once money is assigned to a certain category it is non-transferable. In our heads we assign money to certain categories and spend it accordingly. Assigning money to categories controls how we feel about that money and we treat unassigned money differently. Just the other day I lent HimIndoors £40 at the cashline. In my head that became lost money so when he gave me it back I spent it on rubbish instead of holding onto it and paying for food shopping or something useful. It is mental accounting that allows us to have a low interest savings account yet at the same time have a high interest loan because we see them as two different domains – spending and saving.
If we were all perfectly rational, mental accounting wouldn’t make sense. However, it can be an adoptive strategy. It allows us to partition our spending and make financial decisions more manageable.

So, there are two approaches for helping people think about their money:

  • assume they are rational and can effectively manage money between categories
  • optimise existing mental accounting techniques, even if they are irrational

If you want people to pay their bills instead of spending it on chocolate and wine get them to compartmentalise their money into funds. Make it as easy and as painless to pay – this is tricky for councils though. Credit cards may be the pain-free method but removing people completely from money and the pain of paying makes it too easy to buy unnecessary items on the never-never and so the debt spiral begins.

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The council I work for is closing its cash halls and removing the ability to pay council bills in cash in council offices. Our preferred way to receive money is by direct debit or online payment but for a lot of people cash is simply the safest method to keep it all real and prevent money becoming some airy fairy notion and credit considered there to be spent, whether the monthly balance can be paid or not. Cash at a PayPoint or a Post Office may be the best option in the long-run for these people. otherwise we run the risk of future rent and council tax arrears because financially vulnerable people think we’re encouraging them to get debit cards and the overdrafts that go with them or worse, credit cards to pay council bills.

You can sign up to a watch list for Dan Ariely’s Beginners Guide to Irrationality course on Coursera but next time I’ll be sharing his thoughts on fairness and reciprocity, loss aversion and the endowment effect.

Tune of the week

Gentleman June Gardner – It’s Gonna Rain

The unconscious consumer

Posted on by carolynemitchell

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!

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Opportunity costs

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.

Relativity

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

Paris or Rome?

Posted on by carolynemitchell

Well, I thought I was going to be talking about persuasion this week but apparently I was looking at my social psychology notes instead of my Beginners Guide to Irrationality but the two disciplines are inextricably linked anyway. In fact, I think social psychology and behavioural economics are so important for us all that they should both be taught as core subjects in school.

Instead of persuasion I’m actually sharing Dan Ariely’s thoughts on decision-making.

The decisions we make often aren’t the best for us, either in the short or long-term – a glass of water or a glass of wine, an apple or a bag of crisps, spend now or save for later. The choices we make are influenced by the choice sets laid out in front of us and often these choices are difficult to evaluate. In the open market we are often given weighted choices, choices which have asymmetric dominance – this is called the decoy effect.

Dan uses this holiday analogy to explain. You are offered an all-expenses paid trip to either Paris or Rome. Most of us who have been to either will have a favourite but suspend those thoughts an imagine you have no preference. You wouldn’t be sure which to choose. No imagine the same offer but if you choose Rome, coffee isn’t included in the deal. You probably still wouldn’t be sure. But, given the choice between Rome all-expenses or Rome minus coffee and you’d definitely choose Rome which then makes Rome all-expenses seem better than Paris all-expenses. The contrast makes the desirable option even more attractive.

Another example of this will be recognised by readers of the Financial Times or Wired magazine. Their subscriptions go something like this:

  • online subscription £59
  • print subscription £125
  • both online and print £125

In lab conditions 16% of people chose the web subscription, 84% choose the combination and no one chose just print. However if offered just web for £59 or both for £125, 68% chose web and 32% chose both.

By offering the print subscription it defined the framework to evaluate the options and it make it look like you’re getting the online version for free.

Anchors

Once a particular number is introduced it becomes the reference point from which prices are judged. The first decision we make becomes an anchor that influences future decisions. In the lab Dan tested this by making people think of the last two numbers of their social security number then asking how much they would be willing to pay for a bottle of wine. This with higher numbers were willing to pay significantly more than those with low numbers, and remember – those numbers were arbitrary.

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The decisions we make are influenced by past decisions but unfortunately we remember our actions far better than our emotional states when we made the decision to act.

Learning from our mistakes

There are three main lessons we can take from behavioural economics:

  • we have many decision biases
  • we don’t have good intuition and don’t recognise our faults
  • we need to look to the results of experiments rather than using intuition

We should test government policies before implementing them, in the same way physicians have to test procedures and drugs.

We should work like computer hackers and break procedures down into discrete, exact steps and figure out which points are the best at which to intervene.

We should critically examine where improvements in behaviour can be made.

Doubt your intuitions.

Experiment more.

Tune of the Week

Ella Fitzgerald – Undecided