An Introduction to Behavioural Economics

A
Presenta*on
from

The
Fes*val
of
NewMR
–
Training
Day

3
December
2012

An Introduction to Behavioural Economics
Bri
Williams
(B.
Acc,
B.
Psych,
CPA),
People
Pa(erns

All
copyright
owned
by
The
Future
Place
and
the
presenters
of
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material

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Bri Williams, People Patterns, Australia
Festival of NewMR 2012 – Training Day – Session 1
An
Introduc*on
to

Behavioural
Economics

Bri
Williams
(B.
Acc,
B.
Psych,
CPA)

Specialist
in
Buying
Behaviour

People
Pa(erns
Pty
Ltd

3
December
2012

Consumers
are
“irra;onal”

3%
fat

97%
fat
free

$2
fee

“Irra;onality”
is
predictable

The
study
of
emo;onal,
cogni;ve
and
social

inﬂuences
on
economic
decision
making
behaviour.

What
we
do.

How
we
are
inﬂuenced.

What
we
are
likely
to
do.

Behavioural
Economics

Two
applica*ons
of
Behavioural
Economics

in
Market
Research
ﬁrms

1.  Methodology:
Controlling
impacts

2.
Client
value:
Bridging
gap
between
intended

and
historical
behaviour

Principle
1.

System
1
and

System
2

thinking

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats
(“Fast”)

•  System
2
=
bursts,
delibera;ve
(“Slow”)

Principle
1.

System
1
and

System
2

thinking

Wilson
&
Schooler
(1991)

Delibera;ve
thinking
changed
the
results

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats
(“Fast”)

•  System
2
=
bursts,
delibera;ve
(“Slow”)

Implica*ons

•  May
be
engaging
System
2
in

System
1
task

•  Ra;onalised
response
which

won’t
translate
into
real

behaviour

Principle
1.

System
1
and

System
2

thinking

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats
(“Fast”)

•  System
2
=
bursts,
delibera;ve
(“Slow”)

Principle
1.

System
1
and

System
2

thinking

Applica*ons

•  Methodology
to
engage

System
1
if
that
is
the

business
objec;ve

•  Client
plan
to
‘normalise’

System
2
result
as
System
1

behaviour
(habitua;on)

* Implica*ons

•  May
be
engaging
System
2
in

System
1
task

•  Ra;onalised
response
which

won’t
translate
into
real

behaviour

Principle
2.

Deple*on

eﬀects

70%
vs
10%

Levav,
Danziger
&
Avnaiim-‐Pesso
(2011)

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
2.

Deple*on

eﬀects

What?

•  Cogni;ve
strain
accumulates,

impac;ng
subsequent

behaviour

Implica*ons

•  Length
of
session

•  Tasks
required

•  Time
of
day

•  Decisions
taken
to
get
to

research
(parking,
food,

introduc;ons…)

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
2.

Deple*on

eﬀects

What?

•  Cogni;ve
strain
accumulates,

impac;ng
subsequent

behaviour

Implica*ons

•  Length
of
session

•  Tasks
required

•  Time
of
day

•  Decisions
taken
to
get
to

research
(parking,
food,

introduc;ons…)

Applica*ons

•  Client
can
use
deple;on

to
advantage
if

‘indulgent’
product

•  Eliminate
or
leverage

cogni;ve
load
in
buying

process

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
3.

Status
Quo

(Default)
bias

Opt
in

Opt
out


☐
Thaler
&
Sunstein
(2008)

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
3.

Status
Quo

(Default)
bias

What?

•  Strong
preference
to
leave

things
as
they
are

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
3.

Status
Quo

(Default)
bias

What?

•  Strong
preference
to
leave

things
as
they
are

Implica*ons

•  Forcing
opinion
in
session
may

not
translate
to
real
world

where
there
is
always
a
default

–
usually
do
nothing

•  Clients
may
need
help
to
move

beyond
own
status
quo

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
3.

Status
Quo

(Default)
bias

What?

•  Strong
preference
to
leave

things
as
they
are

•  Status
quo

Applica*ons

•  Test
for
do
nothing
–
it
may

be
the
most
realis;c

outcome

•  Overcoming
iner;a
requires

deliberate
strategies

•  Request
pre-‐commitment

from
client
about
what
they

will
do
with
results

Implica*ons

•  Forcing
opinion
in
session
may

not
translate
to
real
world

where
there
is
always
a
default

–
usually
do
nothing

•  Clients
may
need
help
to
move

beyond
own
status
quo

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
4.

Anchoring

6,
7,
8,
9

1,
2,
3,
4

$

Ariely,
Loewenstein
&
Prelec
(2003)

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
4.

Anchoring
What?

•  Value
anchored
by
ﬁrst

available
informa;on

•  Does
not
have
to
be

contextually
relevant

•  Adjustment
in
reference

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
4.

Anchoring
What?

•  Value
anchored
by
ﬁrst

available
informa;on

•  Does
not
have
to
be

contextually
relevant

•  Adjustment
in
reference

Implica*ons

•  Subjects
will
be
anchored
by

content
available
to
them
in

the
research
environment

•  Anchoring
will
impact
results
in

real
world

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
4.

Anchoring
What?

•  Value
anchored
by
ﬁrst

available
informa;on

•  Does
not
have
to
be

contextually
relevant

•  Adjustment
in
reference

Implica*ons

•  Subjects
will
be
anchored
by

content
available
to
them
in

the
research
environment

•  Anchoring
will
impact
results
in

real
world

Applica*ons

•  Control
for
research
eﬀects

of
anchoring

•  Manage
client
expecta;ons

re
anchoring
in
real-‐world

context

*

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
5.

Framing

80%
chance
of
survival

20%
chance
of
mortality

X
2

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
5.

Framing
What?

•  Respondents
and
Clients
will

draw
diﬀerent
conclusions

depending
on
how
data
is

presented


1-‐4

5-‐8

9-‐12

13-‐16

17-‐20

>20

1-‐2

3-‐4

5-‐6

7-‐8

9-‐10

>10

Avg

9-‐12
hrs

Avg

5-‐6
hrs

Please
es;mate
the
average
number
of
hours

you
watch
television
per
week…

Shaﬁr
(2005)
cited
by
Ian
McAuley

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
5.

Framing
What?

•  Respondents
and
Clients
will

draw
diﬀerent
conclusions

depending
on
how
data
is

presented

Implica*ons

•  Results
may
be
tainted
by

framing
that
is
ar;ﬁcial
vs

real
world

•  Everything
about
the

research
process
is
framed

•  Decisions
about
how

informa;on
is
presented

must
be
deliberate

•  Selec;ve
use
of
verba;ms

and
data

• 

*

6/10
did…
4/10
did
not…

60%
did…

Six
people
out
of
ten…

What?

•  Two
systems
drive
thinking

•  System
1
=
auto
pilot,
habitual,

threats

•  System
2
=
intensive
bursts,

asks
&
receives
ques;ons

Principle
5.

Framing
What?

•  Respondents
and
Clients
will

draw
different
conclusions

depending
on
how
data
is

presented

Applica*ons

•  Control
effects
of
framing;

randomisa;on
or
isolate

consistent
use

•  Use
the
topic
of
research
as
the

frame
to
determine
its
effects

•  Separate
data
from
narra;ve?

•  Pre
report-‐out
workshop
with

emphasis
on
un-‐interpreted
data?

Implica*ons

•  Results
may
be
tainted
by

framing
that
is
ar;ficial
vs

real
world

•  Everything
about
the

research
process
is
framed

•  Decisions
about
how

informa;on
is
presented

must
be
deliberate

•  Selec;ve
use
of
verba;ms

and
data

• 

*

Methodology:
Controlling
impacts

1.  System
1
&
System
2

2.  Deple;on
eﬀects

3.  Status
Quo
bias

4.  Anchoring

5.  Framing

5
Principles
we’ve
covered:

Businesses
seek
to
resolve
issues

When
they
are
really
looking
to
resolve

behaviour

From
Browser
Competitor
Occasional
Low spend
Small
To
Buyer
You
Frequent
High spend
Large
Business
is
about
behavioural
change

Our issue Research Resolution
Businesses
turn
to
Research
to
resolve
this

uncertainty

I will…
I would…
I think…
They did…
I observed…
But
most
research
is
based
on

might
do
or
have
done

I will…
I would…
I think…
They did…
I observed…
When
clients
want
will
do

What
will
they
do?

I will…
I would…
I think…
They did…
I observed…
Behavioural
Economics
can

bridge
the
gap

Behavioural
Economics
They are
likely to…

How
I
apply
Behavioural
Economics

We
navigate
the
world
through
ﬁlters

Ambiguity
effect
Anchoring

Bandwagon
effect

Certainty
bias

Choice
bracke;ng

Clustering
illusion

Decoupling

Endowment
effect

Diagnosis
bias

Framing

Hedonic
framing

Hyperbolic
discoun;ng

Informa;on
avoidance

Actor-‐observer
bias

Availability
bias

Impact
bias

Mental
accoun;ng

Loss
aversion

Representa;veness

Resolving
cogni;ve

dissonance

Status
Quo
(default)
bias

Adapta;on

Comple;on

Contra
free
loading
Drop
in
the
bucket
effect

Herding

Ikea
effect

Not
invented
here
bias

Pa(ern
recogni;on

Procedural
fairness

Rela;vity

Revenge

Short
term
bias

Self
herding

Sunk
cost

Vividness
Fluency

Judgment
heuris;c

Halo
effect

Systems
1
&
2

Scarcity
percep;on

Heuris;cs

Deple;on
effects

Free

Inter
temporal
choice

Confirma;on
bias
Choice
paradox
Rules
of
thumb

Behavioural
Economics
iden*fies
and
labels

these
filters

I’ve
mapped
each
behavioural
principle
to

one
of
four
higher
order
themes

1.  System
1
&
System
2

2.  Deple;on
eﬀects

3.  Status
Quo
bias

4.  Anchoring

5.  Framing

The
four
layers
framework
can
be
u*lised

across
each
stage
of
research

Proposal
Method
In
ﬁeld
Analysis
Report
Extension

✔
✔
✔
✔
✔
✔

Behavioural

checklist

Our issue Research Resolution
And
applied
to
help
resolve
the
client
issue

Bri
Williams

Email

bri@peoplepa(erns.com.au

Call

0408
392
173

Follow

@peoplepa(erns

Visit

www.peoplepa(erns.com.au

Read
more
on
Behavioural
Economics

Bri’s
blog

www.peoplepa(erns.com.au

Bri’s
book

22
Minutes
to
a
Be(er
Business

An Introduction to Behavioural Economics

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