Using Behavioral
Psychology to Improve
Your Website & Business
David M. Williams, CFP®
Business Enhancement Associates, LLC
We have 2 brains
Reflective
Processes and analyzes data at tremendous
depth and breadth
Resource intensive
Reflexive
...
Interaction—part 1
Interaction—part 2
Interaction—part 3
Interaction—part 4
Reflexive brain reacts to squealing tires
Surprise, tension, ceases Reflective brain
Reflective brai...
Reflexive Brain’s Modus Operandi
Always on
Watches for patterns—even where they
don’t exist
Knows loss hurts more than ...
Intuitions (Biases)
Heuristics (Rules of Thumb)
Overconfidence
Mental Accounting
Framing
Heuristics
1/n Rule
Option overload
Urgency imperative
Overconfidence
“One of the most fundamental
characteristics of human nature is to
think we’re better than we really are.”...
Overconfidence
Overestimate our chances at success.
Take risks we regret later.
“Home bias”
Illusion of control
Hinds...
Mental accounting
We value certainty and short-term gains
over waiting for a benefit.
$10 today or $11 tomorrow?
$10 in...
Framing
Our reflexive brains make judgments in
very subjective and changeable ways,
depending on the surrounding
circumst...
Framing
What is the state
of this glass?
Framing
Theater A charges $7.50 per ticket, but
gives a 33% discount for tickets from 5 to 6
pm
Theater B charges $5 per...
Framing
Doctors avoid procedures that have a
12% failure rate.
Doctors adopt procedures that have an
88% success rate.
Framing
If you can win only 67% of the time, it
sounds like slim odds.
If you can win 2 times out of 3, you’d
take a cha...
Practical Applications
Don’t give too many choices—it leads to
paralysis by analysis.
People react to a sense of urgency...
Practical Applications
Beware of putting short-term gains over
long-term gains. Determine how certain
“certainty” is.
Do...
Practical Applications
Weigh pros and cons. It’s never as bad
as it looks. It’s not that good, either.
Accentuate the po...
Practical Applications
Be aware of “only” and “just,” as our
reflexive minds diminish the object of the
term.
Confuse cl...
Upcoming SlideShare
Loading in...5
×

Using behavioral psychology to improve your website &

261

Published on

Published in: Education, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
261
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
3
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • To live and be sentient, we must have two brains. We are capable of receiving more data through our senses than we can process. Our brains can process and analyze data at tremendous depth and breadth, including processing it outside rational boundaries—thinking “outside the box.” This process is energy intensive.

    To handle the complexities of life and being, our brains react at two levels: reflex and reflective. The reflective brain handles the rational, comparative, and memory recall functions—sometimes referred to as the higher functions.
  • Here is an example of how the reflexive and reflective brains work together—in a grossly over-simplified explanation (because I don’t know any better). Picture this. You are at an outside café, sitting on a wire chair with a fresh cup of coffee and a good book you are reading. The reflexive brain receives the scent of coffee, the warmth of sun, the breeze, the birds chirping. It doesn’t necessarily pass these on, but gives you a feeling of happiness. It receives the feeling of cool metal from the chair, and notices that the chair pinches you if you shift your weight. The reflexive brain may pass these on if they escalate, but generally it discards these data. The reflexive brain passes the variances of black and white on the page to your reflective brain.
  • Your reflective brain translates the patterns into words, assigns them meaning, compares them to what you knew before, and recognizes that you had heard this poem by Edgar Allen Poe read before. You hear James Earl Jones say, “Once upon a midnight dreary, while I pondered, weak and weary…” You even envision Bart Simpson as a raven perched upon Pallas’ bust, above the chamber door. “For the rare and radiant maiden whom the angels name Lenore.” Wasn’t there a girl in college named Lenore?
  • The reflexive brain monitors the activity of the reflective brain and notices that it has accessed a number of memories with happy or pleasant connotations and generates the emotion of wistfulness. It still ignores the seat pinching, but reminds the reflective brain that it craves the taste of coffee.
  • The reflexive brain notices a sound different than birds chirping. It’s a sound of danger—the squealing of tires and horn blowing. Immediately, the reflexive brain interrupts all activities, sends out the emotion of surprise and intuitively tenses the body in order to make it a smaller target and ready to leap. It passes the data to the reflective brain, which has shifted attention away from the book and memories. The reflective brain references the sound from both ears and determines that the sound is to your right, and not distant. It causes your head to whip around so that it can collect data from your eyes. The reflective brain also compares the sound of the horn to its memories of car horns and recognizes that its timbre belongs to a big car. The reflexive brain intuitively sends fear throughout the body.

    The reflective brain recognizes a small car in the intersection and a big car barreling toward it. It calculates that the big car will not miss the small car, but neither car should threaten you. The reflexive brain senses that you are in less danger, but instinctively knows that there may be debris and that the sight of the collision will be unpleasant. It turns your head and closes your eyes, and tenses your body, less to leap and more to make you smaller (you shrug your shoulders, for instance). The reflexive brain is waiting for the sound of metal crunching, glass breaking, steam escaping, and rubber squealing.
  • The reflexive brain is on all of the time. It watches for “patterns,” and knows that gains feel good. It assumes that things aren’t going to change, and if they do it is probably a bad thing. The reflexive brain knows that the pain of loss is greater than the joy of gain, and it acts as if “once burned, twice shy.”

    In order to operate so quickly, the reflexive brain has to use shortcuts and rules of thumb. It measures the magnitude of events and remembers losses or dangers better than rewards. It simplifies many things into outlines or patterns. In so doing, it sees patterns that do not really exist. It develops biases.
  • Cognitive psychologists have identified ways that the Reflexive Brain reacts intuitively. They refer to these intuitions as biases, and two of them are heuristics and overconfidence. We will also talk about mental accounting and framing.
  • An example of a rule-of-thumb is the 1/N rule. If a retirement fund has 3 investment choices, the first inclination is to put 1/3 into each one.

    We find corollaries to the 1/N rule. The first is “option overload.” As N increases, we become overwhelmed. Retirement plan studies demonstrate that the percentage of participation goes down as the number of investment options go up.

    Another corollary is the “urgency imperative.” If we are told that we are about to lose a choice, we react irrationally. This is what hucksters count on when they tell you that “if you decide in the next 20 minutes, you get a bonus.” We instinctively want to act so we don’t lose the bonus. Or, current investors will consider putting more money into a mutual fund because it is closing. We don’t want to miss the opportunity to invest.
  • Jason Zweig, author of “Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich” (Simon & Schuster; 2007) makes the observation, “One of the most fundamental characteristics of human nature is to think we’re better than we really are.” He includes the following example in his book: in 1965, psychiatrists Caroline Preston and Stanley Harris published a study in which they asked 50 drivers in the Seattle area to rate their own skill, ability, and alertness the last time they drove. Just under two-thirds of the drivers said they were at least as competent as usual, describing their ability as “extra good” or 100%.

    However, these 50 drivers were all interviewed in the hospital—they were there because their last drive ended in an accident. The Seattle police reported that 68% of these drivers were directly responsible for their crashes, 58% had at least two past traffic violations, 56% totaled their vehicles, and 44% would ultimately face criminal charges. They suffered concussions, facial trauma, a crushed pelvis and other broken bones, and severe spinal damage. Three of their passengers had died.

    These drivers are not delusional. We naturally think we are better than we really are. Preston and Harris also interviewed people with a clean driving record—93% believed themselves to be above average drivers. Statistically, only 50% can be above average.
  • Overconfidence demonstrates in a number of ways. Firstly, we overestimate our chances at success, leading us to take risks we regret down the road. Secondly, we have “home bias.” We trust in what is familiar. Therefore, an investor tends to overinvest in their company’s stock, and invest too little outside their industry, region, or nation.

    Thirdly, we have the “illusion of control.” Investors demonstrate this by putting too little effort into planning ahead, and are overcome by surprise when their investments don’t meet their objective. We see it in the husband who won’t buy life insurance because his wife’s best policy is her own good looks.

    Fourthly, we have “hindsight bias.” We laugh when the clueless person on the sitcom says, “I knew that.” In reality, once we learn what did happen, we look back and believe that we knew it was going to happen all along. For example: Psychologist Baruch Fischhoff ran a study on hindsight bias. Right before Nixon’s trip to China, dozens of Israeli university students were asked to predict the probability that his visit would be a success. Then, at two intervals after his trip, they were asked to recall their earlier forecasts of what would happen. The trip had as much chance of turning out a disaster as a success. In fact, it was wildly successful beyond all imagination. Less than two weeks after Nixon’s visit, 71% of the students remembered predicting a higher probability of success than they actually had. Four months after the visit, 81% claimed to have been more certain it would succeed than they really were at the time.
  • We are not good at valuing things when time is a factor. In Aesop’s fable of the ant and the grasshopper, the ant saved for the winter while the grasshopper lived for today. We have both the reflective ant and the reflexive grasshopper active in our brains, but the reflexive grasshopper tends to win out. We value certainty and short-term gains over waiting for a benefit (which makes it seem less likely) even if the return is greater.

    An example of this bias is demonstrated in this simple thought experiment. Which would you rather have, $10 today or $11 tomorrow? The majority of people are willing to take the $10 today and give up the 10% gain by waiting one day. And yet, if we have to wait a year to receive $10 but can receive $11 in a year and a day, the majority is willing to wait an additional day for the $11.

    Even in the case of saving $100 for re-allocating, we have to be careful because our reflexive brain doesn’t do math well, but it approximates. She feels good about saving $100, so she decides to take her niece to the movies, and that cost $25. She’s still happy about saving $100, so she decides to take her boyfriend out for Sunday brunch (she’s a liberated woman and he’s a mooch), and that costs $52. Feeling proud of herself, she pays $6 for a venti caramel macchiato. To celebrate her smart shopping, she buys the girls a round of drinks for $31. Her reflexive brain generated happy feelings as she spends $114 celebrating the $100 she saved.
  • Our reflexive brains make judgments in very subjective and changeable ways, depending on the surrounding circumstances, feelings, context, or point of view. This inconsistency is known as framing.
  • A 4-ounce glass with 2-ounces of water is half ______. Whether we say “full” or “empty” depends on how we feel about ourselves at the time. But, let’s change the context. Case A: If a group is shown a 4-ounce full glass of water that has 2-ounces of water poured out, 69% will say it is now “half empty.”

    Case B: If that group is shown an empty 4-ounce glass that has 2-ounces of water added to it, 88% will say that the glass is now “half full.” Our reflective brain will tell us that in both cases we have a 4-ounce glass with 2-ounces of water so we should call it the same, but we don’t.
  • A theater charges $5 per ticket for movies that start before 6 pm or start after 11 pm. They charge $7.50 per ticket for the two showings that start between 6 and 11. The fact is the theater’s costs and profits are covered by a $5 ticket. The theater lists its early bird discount and red-eye discount, when in fact it could list the 50% primetime surcharge. However, even if all theaters in the area had the same pricing schedule, the theater that listed the primetime surcharge would lose customers.
  • Likewise, in research 400 doctors were told that they hypothetically had a cancer that could be treated by radiation or by surgery. One-half of the doctors who were told that 10 out of 100 patients die in surgery chose radiation treatment. The doctors who were told that 90 out of 100 patients survive surgery had only 16% who chose radiation.
  • You are more likely to take a risk if you’re told that the odds are 1 in 6 than if you’re told there is a 16.67% chance of succeeding. However, if you are told that there is an 84% chance of failing, you probably won’t touch it.

    There’s a surprisingly big difference between how we react to odds expressed as percentages and how we respond to odds expressed as frequencies. Percentages are abstract. Frequencies represent concrete things. If you hear that 1 in 10 will win, you will picture that one person—and often that person is you.
  • Using behavioral psychology to improve your website &

    1. 1. Using Behavioral Psychology to Improve Your Website & Business David M. Williams, CFP® Business Enhancement Associates, LLC
    2. 2. We have 2 brains Reflective Processes and analyzes data at tremendous depth and breadth Resource intensive Reflexive Intercepts input & monitors Reflective brain Applies intuition and emotion—feeds result to Reflective brain
    3. 3. Interaction—part 1
    4. 4. Interaction—part 2
    5. 5. Interaction—part 3
    6. 6. Interaction—part 4 Reflexive brain reacts to squealing tires Surprise, tension, ceases Reflective brain Reflective brain Determines no immediate danger Wants to see accident
    7. 7. Reflexive Brain’s Modus Operandi Always on Watches for patterns—even where they don’t exist Knows loss hurts more than gain feels good Uses intuition and emotion on partial input in order to react fast
    8. 8. Intuitions (Biases) Heuristics (Rules of Thumb) Overconfidence Mental Accounting Framing
    9. 9. Heuristics 1/n Rule Option overload Urgency imperative
    10. 10. Overconfidence “One of the most fundamental characteristics of human nature is to think we’re better than we really are.” Survey of 50 drivers One in four people are crazy. If you have three sane friends, it must be you.
    11. 11. Overconfidence Overestimate our chances at success. Take risks we regret later. “Home bias” Illusion of control Hindsight bias Survey regarding Nixon’s China visit.
    12. 12. Mental accounting We value certainty and short-term gains over waiting for a benefit. $10 today or $11 tomorrow? $10 in a year, or $11 in a year and a day? The reflexive brain doesn’t do math. Shopper who saved $100.
    13. 13. Framing Our reflexive brains make judgments in very subjective and changeable ways, depending on the surrounding circumstances, feelings, context or point of view.
    14. 14. Framing What is the state of this glass?
    15. 15. Framing Theater A charges $7.50 per ticket, but gives a 33% discount for tickets from 5 to 6 pm Theater B charges $5 per ticket from 5 to 6 pm, but charges a 50% primetime surcharge Which theater gets more business?
    16. 16. Framing Doctors avoid procedures that have a 12% failure rate. Doctors adopt procedures that have an 88% success rate.
    17. 17. Framing If you can win only 67% of the time, it sounds like slim odds. If you can win 2 times out of 3, you’d take a chance. We see 67% as just over half, but we can picture ourselves as a part of the 2 out of 3.
    18. 18. Practical Applications Don’t give too many choices—it leads to paralysis by analysis. People react to a sense of urgency. You are part of the odds. Only half of us are above-average. We are not above- average on as many things as we think we are. Nor is anyone else.
    19. 19. Practical Applications Beware of putting short-term gains over long-term gains. Determine how certain “certainty” is. Don’t spend to feel good. You won’t feel good when you add it up.
    20. 20. Practical Applications Weigh pros and cons. It’s never as bad as it looks. It’s not that good, either. Accentuate the positive with your customers. Percentages apply to things, but we comprehend frequencies better when risk is involved.
    21. 21. Practical Applications Be aware of “only” and “just,” as our reflexive minds diminish the object of the term. Confuse clients with odd numbers. People buy at $19.95 when $20 is too expensive. We think we pay $2.54 per gallon when we really pay $2.55, because we ignore 9/10.
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×