Would You Pay Nothing if You Could?3
Bias of the Month 4
Milestone Birthdays: Do or Die5
Why Our Ancestors are Making Us Fat6
Trust Me, I’m a Banker7
Real Life Nudge of the Month 8
WOULD YOU PAY NOTHING IF YOU COULD?
A new risky pricing strategy that goes against every fibre of traditional economic thinking has arrived and surprised everybody with its success. What is it? It’s a pricing strategy known as Pay What You Want (PWYW) pricing which allows consumers to select any level of voluntary payment for an item which the seller must then accept. Traditional economics, which states that humans are selfish creatures who always engage in self-interested behaviour, would predict that humans given this option will always pay zero as they gain the item without having to make themselves any worse off. Time and time again, research and real world examples that implemented this pricing strategy have shown that people have constantly paid above zero for the item. Radiohead released their album “In Rainbows” under this pricing strategy, which turned out to be their most profitable album of all time!
Why does this happen? Humans are social creatures and have a huge desire to be liked by and be fair to one another. A criticism of this model is that in order for it to work social pressure is needed, as people don’t want to be seen as unfair; but if social pressure were removed and the purchase was anonymous, then people would pay zero. Armstrong, C.A., & Madrigal, R. (2014). Anchors and Norms in Anonymous Pay-What-You-Want Pricing Contexts. Journal of Behavioral and Experimental Economics,
Disagreeing with this view, researchers conducted an online studywhere partipcants could purchase a concert ticket online under this pricing strategy. They also investigated whether the consumers would use information of what other consumers paid (descriptive norm) or a recommend price (injunctive norm) as an anchor of what they should pay. Results showed that all partipcants paid far above zero for the concert ticket and used the recommended price and what others paid as an anchor for what to pay, as when these anchors changed, the price of the consumers payments also changed in line with them. Although both the recommended price and what others paid both predicted how much people under the PWYW strategy would pay, the information about what others actually paid was more predictive. This is in line with previous research that descriptive norms (what others actually do) is more predictive of behaviour than injunctive norms (what others should do). With online shopping growing at an ever increasing rate, these fascinating results indicate that PWYW strategy may indeed be feasible for these online products.
BIAS OF THE MONTH
The Responsibility Bias
Think of your relationships, your job, or any part of your life that involves collaborating with other people. When it comes down to it, you do the majority of the work, right?
Well, probably not. The responsibility bias, also known as the self-serving bias, means we tend to overestimate how much we have contributed relative to others in any given setting. For example, Ross and Sicoly(1979) asked married couples to indicate, as a percentage, which household chores were primarily the wife or the husband’s responsibility. The couples were rarely in agreement; most overestimated their own contribution relative to their spouse’s, resulting in joint scores that exceeded 100%.
However, this is not due to selfishly claiming credit for tasks completed by other people in order to make ourselves look good. It’s more likely to be caused by the availability bias, where we are influenced by immediate examples that come to mind. Our own contribution to a project is much more salient, as we were present for all of it, while we may only be able to remember a portion of someone else’s efforts. Furthermore, this effect can be reduced by focusing attention on other people’s contributions and consciously trying to empathise with them before thinking about our own input.
Worth remembering next time you’re arguing over whose turn it is to take out the bins!
Ross, M., & Sicoly, F. (1979). Egocentric Biases in Availability and Attribution. Journal of Personality and Social Psychology, 37(3), 322-336.
MILESTONE BIRTHDAYS: DO OR DIE
In theory, time passes linearly, one day is no different to the next, and we are growing older at a constant rate. In practice, the way we perceive time is hugely malleable; time appears to slow down or speed up depending on our levels of neural activity, and new research shows that we are much more cognizant of time passing and of the meaning of life on the eve of a new decade –in other words, when your age ends in 9.
Alter and Hershfield(2014)carried out six studies that demonstrated people aged 29, 39, 49 or 59 are much more likely to reflect on the purpose of their lives and even make big life changes than those not approaching a new decade. In the first experiment, they asked participants to imagine how they’d be feeling and what they’d be thinking about on the eve of a big birthday. The participants indicated they would be thinking about the meaning of life much more than those asked to just think about their next birthday, or about tomorrow.
More interestingly, they found behavioural evidence for this phenomenon. People with ages ending in 9 were likely to set new goals such as running a marathon; first-time runners with -9 ages were overrepresented by 48%. They also seemed more invested in the effort, with 29-and 39-year-olds achieving better times by an average of 2.3% than their counterparts a year or two younger.
Alter and Hershfieldalso showed there were maladaptive responses to reaching these ages. On a dating website specialising in extra- marital affairs, men with -9 ages were overrepresented by 17.9%, and women weren’t far behind (although it is possible that people may be lying about their age on dating sites, choosing an age just below their last milestone). Sadly, suicide rates are also 2.4% greater in this age group, suggesting some struggle to deal with the increased reflection on life’s meaning.
Alter, A. & Hershfield, H.E. (in press). People search for meaning when they approach a new decade in chronological age.Proceedings of the National Academy of Sciences.
If you’re currently at an age ending with 9, remember this effect may be at work when you’re making big decisions, so while running a marathon may be a worthwhile goal, don’t cheat on your significant other out of fear of the oncoming decade!
Kuo, L. E., Czarnecka, M., Kitlinska, J. B., Tilan, J. U., Kvetňanský, R., & Zukowska, Z. (2008). Chronic stress, combined with a high‐fat/high‐sugar diet, shifts
sympathetic signaling toward neuropeptide Y and leads to obesity and the metabolic syndrome. Annals of the New York Academy of Sciences, 1148 (1), 232-237.
WHY OUR ANCESTORS ARE MAKING US FAT
It is no secret that we are living through an obesity epidemic, with 1.4 billion adults and 42 million children under the ageof5 being either overweight or obese in 2008. We are also living in an increasingly stressful world, with 50% of people reporting that they feel greater stress now than 5 years ago (American Psychological Association Press Release). Although many speculate that it is no coincidence that stress and obesity levels were increasing at a similar rate, recent researchhas confirmed the notion that stress and obesity are related. While people constantly report a greater drive to eat sugary foods during periods of stress, the researchers confirmed that our bodies are designed is such a way that when we feel stressed our brains scream out for fat and sugary foods.
When our bodies were evolving, we were living in a world where stress meant a situation where we were in physical danger, such as threat of being eaten, so we needed to fight or run. Our bodies, therefore, developed a reaction to stress known as the flight or fight response, activated by the release of the hormone cortisol; our hearts start racing, we become highly alert and vigilant and adrenaline is released. Blood vessels constrict and direct the flow of blood to fast-acting muscles, all of which prepares us for combat or fleeing. Our bodies are self-regulating, so when the stressor is gone cortisol cuts itself off and our bodies go back to normal.
However, when a stressor continues over a period of time, which is common in today’s world, a higher level of cortisol is released into our system that activates other “nodes” craving sugar and fat for extra energy. These extra calories are then deposited in the abdomen near the liver so that they can be quickly mobilized for energy. Once the fat is deposited here it sends signals back to the brain to turn off the stress hormone, making us feel better.
Although eating these sugary and fatty foods may make us feel better by reducing our stress levels, the problem is that the stresses we feel today are not like the run or fight situations we faced when this system developed. Therefore, the fat that was stored in our abdominal to be used as extra energy is never used and therefore remains as fat. Another unfortunate result is that fat is also a cause of stress, which means it can be a never ending cycle. What this new research illustrates is that if we really want to reduce this obesity epidemic, levels of stress is something that needs to be taken seriously.
TRUST ME, I’M A BANKER
A new study by Cohn, Fehr and Maréchal(2014)has shown that bankers are more likely to lie when they are reminded that they are bankers. Participants, recruited from a large international bank, were asked to either think about their jobs (e.g. what their job role involves) or their personal lives (e.g. how many hours of TV they watch a week). This was followed by a classic dishonesty task, where the payoff is determined by the outcome of a coin toss, and participants are able to lie about whether they chose heads or tails to receive a higher payment. They found the bankers who were asked about their personal lives and a control group of non-bankers cheated significantly less than the bankers who thought about being bankers. This suggests that banking culture promotes -or at least permits -dishonesty, leading to fraudulent and unethical practices, like rate fixing and subprime lending.
Cohn, A., Fehr, E., & Maréchal, M.A. (2014). Business culture and dishonesty in the banking industry. Nature, forthcoming.
Research on the effects of money on our decision-making provides an interesting parallel: Vohs, Meade & Goode (2006)showed in a series of studies that priming participants with the concept of money led people to behave more selfishly. For example, participants with more money left over at the end of a Monopoly game were less likely to help a passer-by who dropped her pencils, while in another experiment, those who were asked to unscramble money-related words like ‘salary’ spent longer trying to solve a difficult puzzle, but were less likely to offer to help someone else with that puzzle than someone who had unscrambled more neutral words. Perhaps the reminder of being a banker brought these money primes to the fore; or perhaps working as a banker means this concept is primed all the time, making behaviour more selfish whilst on the job.
All is not lost, however; Boatright (2013)suggests that, while it may not be comparable to the Hippocratic oath that doctors take, making a commitment to behaving morally could be enough to change bankers’ behaviour for the better and start a new norm. This is soon to be adopted in Holland, where the Dutch Banking Association have created an oath that will be compulsory from 2015, so we’ll be able to see what effect, if any, this has on the profession.
NB. If you’re a banker, we definitely don’t mean you. Watch out for your colleagues though.
Spotted: Impulse saving on the Nationwide app
Everyone is familiar with impulse spending, but Nationwide have spotted the opportunity to harness our impulsive natures in a way we won’t regret later. A new feature on their mobile app allows users to save £5, £10 or £20 (or an ‘other’ amount) at the click of a button without even logging in. This removes the behaviouralbarrier of remembering login details while on the go, and also provides anchors that will ensure people are unlikely to save an amount less than £5. Over time, making this small saving could add up to a sizeable amount –enough for an impulsive shopping spree, perhaps.
REAL LIFE NUDGE OF THE MONTH
Unemployment and Well-being: Evidence and Policy Directions workshop at Stirling University
Behavioural Boozeonomicswith the London Behavioural Economics Network
Tuesday 9thDecember, 7.00-10.30pmhttp://www.meetup.com/London-behavioural-comms-monthly-informal-drinks/events/212476392/
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