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Behavioral economics for startups @ Thiel 20 Under 20 Retreat

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Here is a talk I gave on behavioral economics and psychology for the Thiel 20 Under 20 Fellowship retreat.

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Behavioral economics for startups @ Thiel 20 Under 20 Retreat

  1. 1. Behavioral Economics & Psychology 20 Under 20 Retreat
  2. 2. Study of decision making in the real world
  3. 3. Conclusion: People aren’t rational
  4. 4. People are dumb and easily manipulatedDoesn’t work with smart peopleInteresting, but doesn’t apply to me
  5. 5. Inverse: Calculating rational robots aren’t ideal either
  6. 6. Reframed Conclusion: Peoplemake decisions very efficiently (not without errors)
  7. 7. Examples & Studies(Academic + Business)
  8. 8. Example (social proof)
  9. 9. Social Proof 15%
  10. 10. Social Proof 48%
  11. 11. Game: $20 Rules:Bids are made in $1 incrementsWinner wins $20 but 2nd place must honor bid to charity
  12. 12. Commitment
  13. 13. Commitment Before: 1% Now: 17%
  14. 14. Value Attribution Sobe Study Control: Test no drinkGroup 1: Test drink full price (2.89)Group 2: Test discount price ($.79)
  15. 15. Value Attribution Nathan Handwerker 5 cents per hotdog vs. 10 centsInitially viewed as cheap and not good quality Paid doctors to stand around and eat hot dogs
  16. 16. Default Option (environmental effects)
  17. 17. Default Option (environmental effects)
  18. 18. Reciprocity Survey research Mailing a $5 bill gift with a survey is 2x aseffective than giving $50 for completed survey
  19. 19. Reciprocity
  20. 20. Reciprocity
  21. 21. FramingAtaturk wanted adoption of two sources of food, tried to make it compulsory, then switched to marketing approach
  22. 22. Framing AOLMoved from pay per hour to fixed $19.95 amonth. Went from 140K customers to 236K customers in 24 hours.
  23. 23. Authority Milgram ExperimentLearner and teacher, 15 volt increments, up to deadly shocks, thought 1% would go all the way, reality was 65%
  24. 24. Authority YelpExclusive club for top commentors, estimated to be in the 4,000 range, a huge force to be reckoned with
  25. 25. Authority
  26. 26. Pygmalion effect (take on perceived traits)51 WomenRandomly paired up with guys to chatvia phone.Men received profiles of women(pictures faked)Some women were beautiful someweren’t in picturesIndependent group attributed sameratings the guys did.
  27. 27. Conclusions(Why this stuff is important)
  28. 28. In any product that deals with people:behavioral economics, psychology, and design, become very important.
  29. 29. Small inputs can have inordinate results
  30. 30. Psychological inputs tend to be non-numerical
  31. 31. Easiest to figure out these large effects through experiments not reason
  32. 32. Questions?chris@startupdigest.com @mccannatron

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