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Behavioural economics: the complete picture?
Brain Game
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2
Behavioural economics: the complete picture?
One of the reasons that the teachings
of behavioural economics have become
so widely influential is that they are a lot
more colourful, intriguing and, let’s face
it, fun than the neo-classical approach to
economics that largely dominates
our world.
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3
Behavioural economics: the complete picture?
The picture here shows a young couple taking
part in one of shopping’s great rituals – the search
for an engagement ring. It’s a routine that’s been
established in the consumer mainstream since the
late 1930s – and you would think that by now we
would have a pretty robust idea of what takes place
on such occasions.
However, our view of this and other familiar
shopping scenes has been transformed in recent
years. We now know that an unseen landscape of
contextual and unconscious factors has the potential
to sway our couple’s choice in ways that they may
well, themselves, be completely unaware of. The
playing field of choice is by no means level – and we
can’t resist the challenge of working out exactly how
it might be slanted.
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4
Behavioural economics: the complete picture?
Behavioural economics is
as much a debate as it is
a conclusion; a collection
of insights that has much
to add to traditional
thinking, but is far from a
complete, self-contained
answer to why we behave
the way that we do.
Fun with behavioural economics
This new perspective has been provided for us by
behavioural economics, which has been pushed into
the mainstream of politics and marketing by books
such as Thaler and Sunstein’s ‘Nudge’, Dan Ariely’s
‘Predictably Irrational’, Timothy Wilson’s ‘Strangers
to Ourselves’ and Daniel Kahneman’s ‘Thinking Fast
and Slow’, as well as by the influential work of Gerd
Gigerenzer. Behavioural economics has focused
marketers and governments alike on the importance
of fast and frugal heuristics, and the contextual
triggers with which they interact in driving much of
human choice and behaviour. And an entire industry
has sprung up around detecting their presence and
adjusting them to achieve desired ends. However,
what devotees of pop behavioural economics
sometimes forget is that the thinkers mentioned
above do not put forward one single consensus view
when it comes to just how our unconscious mental
structures influence our behaviour. Behavioural
economics is as much a debate as it is a conclusion;
a collection of insights that has much to add to
traditional thinking, but is far from a complete,
self-contained answer to why we behave the way
that we do.
One of the reasons that the teachings of behavioural
economics have become so widely influential is that
they are a lot more colourful, intriguing and, let’s face
it, fun than the neo-classical approach to economics
that largely dominates our world. That neo-classical
approach views human decision-making as a rational,
calculable exercise, which can be predicted reliably
by anybody with the patience to work out the best
possible outcome for those concerned. It’s a take on
human behaviour that’s far too like maths to cause
widespread excitement. Behavioural economics is
different. The insights that it puts forward resonate
far more strongly with us as human beings. This does
not make them any less scientifically established or
credible as explanations; but it does perhaps help to
explain why we are increasingly inclined to give them
pride of place when it comes to decoding a picture
such as this.
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5
Behavioural economics: the complete picture?
Choose your heuristics
When doing so, we could start by looking at the
fast and frugal heuristics, the mental rules of thumb
that our brains use to guide our decision-making,
and which prevent us agonising over every possible
permutation of our choices. These heuristics are
the product of our own experiences as well as
psychological, social, cultural and market influences.
The reality of which heuristics we follow in different
circumstances is often as individual as we are.
The jewellery industry has worked hard to establish
its own convention governing the judgement of
wedding ring purchases: a man should spend the
equivalent of two months’ income on the ring that he
buys for his future wife. If we can establish whether
our couple are likely to be following this consciously
created heuristic then we may take a very different
view of the price of ring they are likely to buy than if
we went on their preferences and purchasing power
alone. However, just because a heuristic theoretically
exists does not mean that somebody is necessarily
following it. This particular heuristic was deliberately
established by the marketing of De Beers in the early
20th century, and it is most likely to be followed
in western markets, and in particular the USA.
Consumers in other cultures may follow it but they
may equally be unaware of it – or consciously reject
it, if it were pointed out to them (by a helpful sales
assistant, for example).
2013
Just because a heuristic theoretically exists does not mean
that somebody is necessarily following it.
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Behavioural economics: the complete picture?
Indeed, there are plenty of alternative heuristics
that our couple could be following in this scenario,
many of which are shaped by personal experience.
Some men, when buying jewellery for their wife or
partner (a purchase with more than its fair share
of subjective pressures and second-guesses) will
follow a version of the familiarity heuristic and buy
the item that is most similar to something they have
bought for them on a previous occasion; others
will always opt for a jewel that matches the colour
of their wife’s eyes. Many will make use of brands,
which can themselves act as heuristics, to guide their
perceptions of quality and value.
Such heuristics are classic examples of bounded
rationality in action, wherein we deliberately simplify
choices to make them more manageable. All involve
our jewellery purchasers effectively putting artificial
constraints on their decision; constraints that are
designed to steer them towards an acceptable
choice whilst significantly reducing the degree of
angst involved. Gigerenzer’s ‘stopping rule’ describes
how using a clearly defined hierarchy of heuristics to
judge a decision prevents us from having to weigh
up all the options in the style of a wholly rational
neo-classical economist. If weighing up our choices
according to the first rule of thumb in our hierarchy
produces a clear winner, there is no need to consider
any further.
Heuristics are classic examples of bounded rationality in
action, wherein we deliberately simplify choices to make
them more manageable.
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Behavioural economics: the complete picture?
Minding the rationality gap
An appreciation of heuristics and bounded
rationality brings us significantly closer to
understanding why many human decisions
(wedding ring purchases are one example, although
the choice of drink in a pub or breakfast cereal in a
supermarket are just as applicable) do not fit with
what we might expect if we sat down with pen,
paper and calculator and worked out likely courses
of action according to the neo-classical economic
model; or indeed, if we took brand tracker surveys
at face value and expected people to make the
choices they say they will and buy the brands
they say they prefer. Heuristics are accessed at the
moment of decision, by our experiencing self that
deals with the day-to-day business of life, rather
than by our remembering self, which evaluates
and explains it afterwards (and handles the task
of filling out questionnaires). As such they help to
explain why consumers themselves cannot always
accurately predict what they will do. However,
heuristics do not in themselves provide us with a
complete understanding of our happy couple.
Heuristics are accessed at the
moment of decision, by our
experiencing self that deals
with the day-to-day business
of life, rather than by our
remembering self.
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Behavioural economics: the complete picture?
A healthy dose of context
Behavioural economics also teaches us to be alive to
the contextual factors at play in this situation. And the
first and most obvious of these contextual factors is
the couple themselves. Our heuristics, which focused
for the most part on the decision making of the
man, gave us at best only part of the picture. He may
indeed be the one making the final purchase decision
(particularly if the couple are following tradition),
but the presence of his bride-to-be will have a huge
influence over that decision. The need to adjust one’s
own buying preferences to those of others often
exerts huge influence over purchases – and rarely
more so than in this situation.
Both members of the couple will be influenced
by other internal contextual factors in the form of
cultural norms and expectations that may easily
override the heuristics mentioned earlier. Some of
these cultural contexts are stable and enduring.
The convention that engagement rings should be
diamonds is one such, which is likely to override our
more personal eye-matching heuristic mentioned
earlier. However, such enduring cultural influences
can be challenged by momentary or new contexts
that may be less predictable. Suppose our couple
found that only three diamond rings were on display
at the jewellers, and on enquiring as to why, were
told that the trend this year is to use different jewels
in wedding bands. The enduring cultural convention
would be challenged, and the couple would then
have a choice to make about which cultural context
(new or old) they give primacy to.
The many cultural contexts in which decisions are
made include overlapping local or regional traditions,
religious influences, and family histories. If either
member of our couple comes from a conservative
religious background (if they originate from a
traditionally Buddhist family in Myanmar, say), then
any heuristics suggested by De Beers and others may
well be excluded from their judgement by powerful
family traditions that suggest purchases should never
be flamboyant or intended to express status.
Such social contexts are powerful influences, but
they are not alone in shaping the basis for the
engagement ring decision. One of the most intriguing
areas of behavioural economics is the way in which
the physical environment can shape a purchase in
ways that the actors in the scene are almost wholly
unaware of.
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Behavioural economics: the complete picture?
Contextual triggers
In our picture, the importance of physical context
begins with the shopping mall itself, or to be
precise, where the shopping mall is located. Is it
in an upmarket, sophisticated part of town that
has framed the couple’s decision making in a
way that tends them towards a more expensive
purchase? Did they take a special trip to get here,
setting expectations that this is a unique shopping
experience justifying a unique purchase price? Or
is the mall in fact, around the corner from their
home district, somewhere they walk through every
day? Is the jewellery store one they have passed on
numerous occasions on the way to buy something
else? In such a case they may well be less pre-disposed
to paying an ‘out of the ordinary’ price.
All sorts of subconscious phenomena, defined and
described by behavioural economics experiments,
could be at work in helping to prime our couple to
spend more or less on their ring. Transaction utility
describes how we are predisposed to pay more for
something that we visualise in an expensive setting;
priming helps to explain how we enjoy things more
when we are told that they are more expensive
(through their being sold in an upmarket store in
an upmarket location or simply commanding the
biggest price tag); anchoring shows how unrelated
numbers can affect our judgements, suggesting
that if our jewellery store stands next to a display
of expensive sports cars it may dispose our couple
to pay more for the rings in front of them. And it
would be a dangerous oversight to ignore the role of
our own visceral mood states in swaying decisions:
the types of day that our couple have experienced
are themselves a form of context that could exert
significant influence over their choices.
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Behavioural economics: the complete picture?
Beware the decoy
When it comes to comparing rings and choosing the
one for them, our couple are likely to be influenced
by the manner in which the rings are displayed – and
their relationship to one another. Let’s say that they
have narrowed their choice down to two rings, one
of which is set with three emeralds (matching the
lady’s eyes) and two diamonds and costs US$3,000;
the other set with a single emerald and single
diamond and costing US$2,500. They are torn
because it is difficult to weigh up the additional cost
against the additional gemstones, particularly given
the fact that this is also a subjective judgement about
which ring is most aesthetically pleasing, and which
suits them best.
Now let us consider a third ring, conveniently placed
between the two, which costs US$3,200 and is
set with two emeralds and a single diamond. Our
couple are unlikely to choose this ring (since its
gemstones are relatively far more expensive than the
other two), but its presence significantly increases
their likelihood of choosing the first ring over the
second. It acts as a decoy, providing a basis for
comparison between the other two. Since the first
ring is both less expensive than this third ring and
contains more gems, it is more likely to be chosen
than the second ring, which is less expensive than
the third, but contains fewer gems.
$3,000 $3,200
?
$2,500
$3,000 $2,500
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Behavioural economics: the complete picture?
Now imagine that our third ring is taken away
and replaced by another, which is set with only a
single diamond but costs US$2,750. Suddenly the
comparison shifts in favour of the second ring, which
now contains more gems than the decoy whilst
costing less. Our first ring also contains more gems
than the decoy but it also costs more. In this scenario,
the second ring becomes the ring more likely to be
chosen.
Or does it?
Because at the end of the day, the couple are not
diamond or sapphire traders. Their choice of ring is
not directed by their perceptions of its absolute value
but by their prediction of its value to them. They
are buying not a collection of gems and precious
metals but a token of their love for one another and
a promise of future happiness. In weighing up the
cost of rings with the difference their choice may
make to their future lives together, they are asked to
distinguish between two very different forms of value.
The task of assessing which form of value dominates
our judgement in a given situation is one of the most
challenging for behavioural economics – and for
research in general.
Assessing which form of value dominates our judgement
in a given situation is one of the most challenging for
behavioural economics and for research in general.
$3,000 $2,750
?
$2,500
$3,000 $2,500
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Behavioural economics: the complete picture?
Distinction bias and affect
Studies of distinction bias suggest that human
beings tend to over-estimate the value of something
that can be quantified, whilst under-stating the
value of something that cannot. When faced with
a choice between a stimulating and fulfilling job
paying US$60,000 a year and a tedious one paying
US$70,000, it seems that we are predisposed
(depressingly enough) to go for the bigger paycheck.
This might lead us to conclude that our husband-
to-be may hold back from spending more on a ring
just because it is more strikingly beautiful and may
make his wife and himself happier for life. But wait:
there are other forces stirring in this balancing act.
Behavioural economics experiments also point to the
influence of affective value (the extent to which things
align with our deepest personal motivations and
desires) over the monetary decisions that we make
– and behavioural economists are well aware of the
phenomena of loss aversion, whereby the threat of
loss is weighted far more heavily than the promise of
gain. How do such factors influence the value that we
place on efforts to make our partner happy for life?
Studies of distinction bias
suggest that human beings
tend to over-estimate the
value of something that
can be quantified, whilst
under-stating the value of
something that cannot.
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Behavioural economics: the complete picture?
Reaching a decision
It is at this point that the risks of interpreting our
couple as merely the sum of potential behavioural
impulses become apparent. True clarity can only come
to the picture when we integrate the importance of
our own consciousness in directing our decisions.
Consciousness provides us with the ability to delay
and deliberate, to put gratification on hold by trading
something good now for something better later, it
allows us to anticipate the future, to plan and to hope.
Understanding the purchase of a wedding ring
is wholly impossible without taking our unique
capacity for conscious thought and decision-making
into account. And our understanding of any other
consumer decision will be equally distorted if we push
consciousness out of the picture.
Many interpret the lesson of behavioural economics
as being that humans are inherently suggestible,
that we are the plaything of contextual triggers that
can be used to nudge us in one direction or another.
Behavioural economists themselves rarely think this
way. The fast and frugal heuristics that they describe
form a highly effective means of consistent decision-
making when faced with complexity, pressure and
uncertainty. It is a system that is highly individual,
composed and shaped by affective memories,
motivations and by our own rational, considered
choices. Viewing ourselves simply as a series of
unconscious buttons that marketers or governments
can push (as the term ‘System 1 brain’ has too often
come to mean), is every bit as blinkered as assuming
that human beings are always compelled to act
rationally.
For a complete, holistic view of human decision-
making, we need to respect human beings as
individuals, and focus the insights that behavioural
economics provides on the many and varied ways in
which those individuals make choices, whether they
are standing in a jewellery shop on a life-changing
occasion or travelling down the same supermarket
aisle they visit every week. This will involve integrating
the latest thinking in behavioural economics with key
learnings from other behavioural sciences (psychology,
sociology, even anthropology), to provide the best
foundation for understanding behaviour. The skills
involved in investigating memories, motivations and
rational choices are where many of research’s great
strengths lie; the challenge of behavioural economics is
not to abandon these skills but to integrate them with
new forms of insight as to the way decisions are made.
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Behavioural economics: the complete picture?
About the authors References
Darren Bhattachary heads up the Global Qualitative work
for one of TNS’s key accounts. He has spent much time
thinking about why people do things and how to nudge
them in new directions. He previously ran qual for TNS-BMRB
wrestling with such knotty issues as how to get people to
stay in pensions (when they’d rather spend the cash now)
and how to make it easy to be green. He holds a PhD in
Philosophy and started life as a marine biologist.
Mark Francas is interested in behaviour change, social
marketing and public policy development. He heads the
Behaviour Change Institute within the Political & Social
team at TNS, comprising senior researchers and leading
international academics. The Institute has developed an
industry-leading Framework - based on the latest thinking
in behavioural theory and behavioural economics - which
is used by national governments, major NGOs and donor
organisations.
Dr George Kyriakopoulos is a Statistician in the Survey
Methods and Sampling Team of TNS UK. With over ten years
of experience in academic and applied research, George has
worked with a variety of global clients in social and market
research and he is particularly interested in methodological
Hsee, C., & Zhang, J. (2004). Distinction Bias: Misprediction
and mischoice due to joint evaluation. Journal of Personality
and Social Psychology, 89 (5), 860-895
Ariely, D. (2008). Predictably Irrational: The Hidden Forces
That Shape Our Decisions. HarperCollinsPublishers: London.
Cialdini, R.B. (1993). Influence: The Psychology of
Persuasion. Quill: New York.
Gigerenzer, G. (2000). Adaptive Thinking: Rationality in the
Real World. Oxford University Press: New York.
Gigerenzer, G., Todd, P.M. and the ABC Research Group.
(1999). Simple Heuristics That Make Us Smart. Oxford
University Press: New York.
Kahneman, D. (2011). Thinking Fast and Slow. Farrar, Straus
and Giroux: New York.
Loewenstein, G., Lerner, J.S. (2003). The Role of Affect in
Decision Making, In Dawson, R.J.,
Simon, H.A. (1947). Administrative behaviour: A study of
decision-making process in administrative organization.
Macmillan: New York.
Thaler, R., Sunstein, C. (2008). Nudge: Improving Decisions
about Health, Wealth, and Happiness. Penguin Books:
London.
design and survey mode. George’s academic work in
Economic Psychology has focused on socio-cognitive
processes involved in decision making under conditions of
uncertainty or asymmetric information.
Adhil Patel is the Head of Thought Leadership, TNS
Global Brand Equity Centre. Over the years, Adhil has
focused his efforts on understanding and explaining
brand relationships, and the implications thereof. In his
role he is part of a team that is evolving the area of brand
equity measurement, and sharing and developing new
thinking.
Anjali Puri is Managing Director, TNS Qualitative, Asia
Pacific. A seasoned qualitative researcher with over two
decades in the industry, Anjali has been active in the
development of new qualitative methodologies, and
has contributed to shaping contemporary thinking in
qualitative research globally, particularly in the areas of
consumer choices, behaviour change and social media.
Passionate about understanding cultures and how they
shape our relationships with brands, Anjali is currently
working on understanding how archetypal needs
translate across cultures.
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Behavioural economics: the complete picture?
About In Focus
In Focus is part of a regular series of articles that takes an in-depth look at a particular subject, region or
demographic in more detail. All articles are written by TNS consultants and based on their expertise gathered
through working on client assignments in over 80 markets globally, with additional insights gained through TNS
proprietary studies such as Digital Life, Mobile Life and The Commitment Economy.
About TNS
TNS advises clients on specific growth strategies around new market entry, innovation, brand switching and
stakeholder management, based on long-established expertise and market-leading solutions. With a presence
in over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands
individual human behaviours and attitudes across every cultural, economic and political region of the world.
TNS is part of Kantar, the data investment management division of WPP and one of the world’s largest insight,
information and consultancy groups.
Please visit www.tnsglobal.com for more information.
Get in touch
If you would like to talk to us about anything you have read in this report, please get in touch via
enquiries@tnsglobal.com or via Twitter @tns_global
You may be interested in...
The value of context: or what qualitative research
can learn from behavioural economics >
Breaking the habit code >
The secret life of the brain >
Behavioural Economics : The complete picture ?

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Behavioural Economics : The complete picture ?

  • 1. Share this In Focus Behavioural economics: the complete picture? Brain Game
  • 2. Share this In Focus 2 Behavioural economics: the complete picture? One of the reasons that the teachings of behavioural economics have become so widely influential is that they are a lot more colourful, intriguing and, let’s face it, fun than the neo-classical approach to economics that largely dominates our world.
  • 3. Share this In Focus 3 Behavioural economics: the complete picture? The picture here shows a young couple taking part in one of shopping’s great rituals – the search for an engagement ring. It’s a routine that’s been established in the consumer mainstream since the late 1930s – and you would think that by now we would have a pretty robust idea of what takes place on such occasions. However, our view of this and other familiar shopping scenes has been transformed in recent years. We now know that an unseen landscape of contextual and unconscious factors has the potential to sway our couple’s choice in ways that they may well, themselves, be completely unaware of. The playing field of choice is by no means level – and we can’t resist the challenge of working out exactly how it might be slanted.
  • 4. Share this In Focus 4 Behavioural economics: the complete picture? Behavioural economics is as much a debate as it is a conclusion; a collection of insights that has much to add to traditional thinking, but is far from a complete, self-contained answer to why we behave the way that we do. Fun with behavioural economics This new perspective has been provided for us by behavioural economics, which has been pushed into the mainstream of politics and marketing by books such as Thaler and Sunstein’s ‘Nudge’, Dan Ariely’s ‘Predictably Irrational’, Timothy Wilson’s ‘Strangers to Ourselves’ and Daniel Kahneman’s ‘Thinking Fast and Slow’, as well as by the influential work of Gerd Gigerenzer. Behavioural economics has focused marketers and governments alike on the importance of fast and frugal heuristics, and the contextual triggers with which they interact in driving much of human choice and behaviour. And an entire industry has sprung up around detecting their presence and adjusting them to achieve desired ends. However, what devotees of pop behavioural economics sometimes forget is that the thinkers mentioned above do not put forward one single consensus view when it comes to just how our unconscious mental structures influence our behaviour. Behavioural economics is as much a debate as it is a conclusion; a collection of insights that has much to add to traditional thinking, but is far from a complete, self-contained answer to why we behave the way that we do. One of the reasons that the teachings of behavioural economics have become so widely influential is that they are a lot more colourful, intriguing and, let’s face it, fun than the neo-classical approach to economics that largely dominates our world. That neo-classical approach views human decision-making as a rational, calculable exercise, which can be predicted reliably by anybody with the patience to work out the best possible outcome for those concerned. It’s a take on human behaviour that’s far too like maths to cause widespread excitement. Behavioural economics is different. The insights that it puts forward resonate far more strongly with us as human beings. This does not make them any less scientifically established or credible as explanations; but it does perhaps help to explain why we are increasingly inclined to give them pride of place when it comes to decoding a picture such as this.
  • 5. Share this In Focus 5 Behavioural economics: the complete picture? Choose your heuristics When doing so, we could start by looking at the fast and frugal heuristics, the mental rules of thumb that our brains use to guide our decision-making, and which prevent us agonising over every possible permutation of our choices. These heuristics are the product of our own experiences as well as psychological, social, cultural and market influences. The reality of which heuristics we follow in different circumstances is often as individual as we are. The jewellery industry has worked hard to establish its own convention governing the judgement of wedding ring purchases: a man should spend the equivalent of two months’ income on the ring that he buys for his future wife. If we can establish whether our couple are likely to be following this consciously created heuristic then we may take a very different view of the price of ring they are likely to buy than if we went on their preferences and purchasing power alone. However, just because a heuristic theoretically exists does not mean that somebody is necessarily following it. This particular heuristic was deliberately established by the marketing of De Beers in the early 20th century, and it is most likely to be followed in western markets, and in particular the USA. Consumers in other cultures may follow it but they may equally be unaware of it – or consciously reject it, if it were pointed out to them (by a helpful sales assistant, for example). 2013 Just because a heuristic theoretically exists does not mean that somebody is necessarily following it.
  • 6. Share this In Focus 6 Behavioural economics: the complete picture? Indeed, there are plenty of alternative heuristics that our couple could be following in this scenario, many of which are shaped by personal experience. Some men, when buying jewellery for their wife or partner (a purchase with more than its fair share of subjective pressures and second-guesses) will follow a version of the familiarity heuristic and buy the item that is most similar to something they have bought for them on a previous occasion; others will always opt for a jewel that matches the colour of their wife’s eyes. Many will make use of brands, which can themselves act as heuristics, to guide their perceptions of quality and value. Such heuristics are classic examples of bounded rationality in action, wherein we deliberately simplify choices to make them more manageable. All involve our jewellery purchasers effectively putting artificial constraints on their decision; constraints that are designed to steer them towards an acceptable choice whilst significantly reducing the degree of angst involved. Gigerenzer’s ‘stopping rule’ describes how using a clearly defined hierarchy of heuristics to judge a decision prevents us from having to weigh up all the options in the style of a wholly rational neo-classical economist. If weighing up our choices according to the first rule of thumb in our hierarchy produces a clear winner, there is no need to consider any further. Heuristics are classic examples of bounded rationality in action, wherein we deliberately simplify choices to make them more manageable.
  • 7. Share this In Focus 7 Behavioural economics: the complete picture? Minding the rationality gap An appreciation of heuristics and bounded rationality brings us significantly closer to understanding why many human decisions (wedding ring purchases are one example, although the choice of drink in a pub or breakfast cereal in a supermarket are just as applicable) do not fit with what we might expect if we sat down with pen, paper and calculator and worked out likely courses of action according to the neo-classical economic model; or indeed, if we took brand tracker surveys at face value and expected people to make the choices they say they will and buy the brands they say they prefer. Heuristics are accessed at the moment of decision, by our experiencing self that deals with the day-to-day business of life, rather than by our remembering self, which evaluates and explains it afterwards (and handles the task of filling out questionnaires). As such they help to explain why consumers themselves cannot always accurately predict what they will do. However, heuristics do not in themselves provide us with a complete understanding of our happy couple. Heuristics are accessed at the moment of decision, by our experiencing self that deals with the day-to-day business of life, rather than by our remembering self.
  • 8. Share this In Focus 8 Behavioural economics: the complete picture? A healthy dose of context Behavioural economics also teaches us to be alive to the contextual factors at play in this situation. And the first and most obvious of these contextual factors is the couple themselves. Our heuristics, which focused for the most part on the decision making of the man, gave us at best only part of the picture. He may indeed be the one making the final purchase decision (particularly if the couple are following tradition), but the presence of his bride-to-be will have a huge influence over that decision. The need to adjust one’s own buying preferences to those of others often exerts huge influence over purchases – and rarely more so than in this situation. Both members of the couple will be influenced by other internal contextual factors in the form of cultural norms and expectations that may easily override the heuristics mentioned earlier. Some of these cultural contexts are stable and enduring. The convention that engagement rings should be diamonds is one such, which is likely to override our more personal eye-matching heuristic mentioned earlier. However, such enduring cultural influences can be challenged by momentary or new contexts that may be less predictable. Suppose our couple found that only three diamond rings were on display at the jewellers, and on enquiring as to why, were told that the trend this year is to use different jewels in wedding bands. The enduring cultural convention would be challenged, and the couple would then have a choice to make about which cultural context (new or old) they give primacy to. The many cultural contexts in which decisions are made include overlapping local or regional traditions, religious influences, and family histories. If either member of our couple comes from a conservative religious background (if they originate from a traditionally Buddhist family in Myanmar, say), then any heuristics suggested by De Beers and others may well be excluded from their judgement by powerful family traditions that suggest purchases should never be flamboyant or intended to express status. Such social contexts are powerful influences, but they are not alone in shaping the basis for the engagement ring decision. One of the most intriguing areas of behavioural economics is the way in which the physical environment can shape a purchase in ways that the actors in the scene are almost wholly unaware of.
  • 9. Share this In Focus 9 Behavioural economics: the complete picture? Contextual triggers In our picture, the importance of physical context begins with the shopping mall itself, or to be precise, where the shopping mall is located. Is it in an upmarket, sophisticated part of town that has framed the couple’s decision making in a way that tends them towards a more expensive purchase? Did they take a special trip to get here, setting expectations that this is a unique shopping experience justifying a unique purchase price? Or is the mall in fact, around the corner from their home district, somewhere they walk through every day? Is the jewellery store one they have passed on numerous occasions on the way to buy something else? In such a case they may well be less pre-disposed to paying an ‘out of the ordinary’ price. All sorts of subconscious phenomena, defined and described by behavioural economics experiments, could be at work in helping to prime our couple to spend more or less on their ring. Transaction utility describes how we are predisposed to pay more for something that we visualise in an expensive setting; priming helps to explain how we enjoy things more when we are told that they are more expensive (through their being sold in an upmarket store in an upmarket location or simply commanding the biggest price tag); anchoring shows how unrelated numbers can affect our judgements, suggesting that if our jewellery store stands next to a display of expensive sports cars it may dispose our couple to pay more for the rings in front of them. And it would be a dangerous oversight to ignore the role of our own visceral mood states in swaying decisions: the types of day that our couple have experienced are themselves a form of context that could exert significant influence over their choices.
  • 10. Share this In Focus 10 Behavioural economics: the complete picture? Beware the decoy When it comes to comparing rings and choosing the one for them, our couple are likely to be influenced by the manner in which the rings are displayed – and their relationship to one another. Let’s say that they have narrowed their choice down to two rings, one of which is set with three emeralds (matching the lady’s eyes) and two diamonds and costs US$3,000; the other set with a single emerald and single diamond and costing US$2,500. They are torn because it is difficult to weigh up the additional cost against the additional gemstones, particularly given the fact that this is also a subjective judgement about which ring is most aesthetically pleasing, and which suits them best. Now let us consider a third ring, conveniently placed between the two, which costs US$3,200 and is set with two emeralds and a single diamond. Our couple are unlikely to choose this ring (since its gemstones are relatively far more expensive than the other two), but its presence significantly increases their likelihood of choosing the first ring over the second. It acts as a decoy, providing a basis for comparison between the other two. Since the first ring is both less expensive than this third ring and contains more gems, it is more likely to be chosen than the second ring, which is less expensive than the third, but contains fewer gems. $3,000 $3,200 ? $2,500 $3,000 $2,500
  • 11. Share this In Focus 11 Behavioural economics: the complete picture? Now imagine that our third ring is taken away and replaced by another, which is set with only a single diamond but costs US$2,750. Suddenly the comparison shifts in favour of the second ring, which now contains more gems than the decoy whilst costing less. Our first ring also contains more gems than the decoy but it also costs more. In this scenario, the second ring becomes the ring more likely to be chosen. Or does it? Because at the end of the day, the couple are not diamond or sapphire traders. Their choice of ring is not directed by their perceptions of its absolute value but by their prediction of its value to them. They are buying not a collection of gems and precious metals but a token of their love for one another and a promise of future happiness. In weighing up the cost of rings with the difference their choice may make to their future lives together, they are asked to distinguish between two very different forms of value. The task of assessing which form of value dominates our judgement in a given situation is one of the most challenging for behavioural economics – and for research in general. Assessing which form of value dominates our judgement in a given situation is one of the most challenging for behavioural economics and for research in general. $3,000 $2,750 ? $2,500 $3,000 $2,500
  • 12. Share this In Focus 12 Behavioural economics: the complete picture? Distinction bias and affect Studies of distinction bias suggest that human beings tend to over-estimate the value of something that can be quantified, whilst under-stating the value of something that cannot. When faced with a choice between a stimulating and fulfilling job paying US$60,000 a year and a tedious one paying US$70,000, it seems that we are predisposed (depressingly enough) to go for the bigger paycheck. This might lead us to conclude that our husband- to-be may hold back from spending more on a ring just because it is more strikingly beautiful and may make his wife and himself happier for life. But wait: there are other forces stirring in this balancing act. Behavioural economics experiments also point to the influence of affective value (the extent to which things align with our deepest personal motivations and desires) over the monetary decisions that we make – and behavioural economists are well aware of the phenomena of loss aversion, whereby the threat of loss is weighted far more heavily than the promise of gain. How do such factors influence the value that we place on efforts to make our partner happy for life? Studies of distinction bias suggest that human beings tend to over-estimate the value of something that can be quantified, whilst under-stating the value of something that cannot.
  • 13. Share this In Focus 13 Behavioural economics: the complete picture? Reaching a decision It is at this point that the risks of interpreting our couple as merely the sum of potential behavioural impulses become apparent. True clarity can only come to the picture when we integrate the importance of our own consciousness in directing our decisions. Consciousness provides us with the ability to delay and deliberate, to put gratification on hold by trading something good now for something better later, it allows us to anticipate the future, to plan and to hope. Understanding the purchase of a wedding ring is wholly impossible without taking our unique capacity for conscious thought and decision-making into account. And our understanding of any other consumer decision will be equally distorted if we push consciousness out of the picture. Many interpret the lesson of behavioural economics as being that humans are inherently suggestible, that we are the plaything of contextual triggers that can be used to nudge us in one direction or another. Behavioural economists themselves rarely think this way. The fast and frugal heuristics that they describe form a highly effective means of consistent decision- making when faced with complexity, pressure and uncertainty. It is a system that is highly individual, composed and shaped by affective memories, motivations and by our own rational, considered choices. Viewing ourselves simply as a series of unconscious buttons that marketers or governments can push (as the term ‘System 1 brain’ has too often come to mean), is every bit as blinkered as assuming that human beings are always compelled to act rationally. For a complete, holistic view of human decision- making, we need to respect human beings as individuals, and focus the insights that behavioural economics provides on the many and varied ways in which those individuals make choices, whether they are standing in a jewellery shop on a life-changing occasion or travelling down the same supermarket aisle they visit every week. This will involve integrating the latest thinking in behavioural economics with key learnings from other behavioural sciences (psychology, sociology, even anthropology), to provide the best foundation for understanding behaviour. The skills involved in investigating memories, motivations and rational choices are where many of research’s great strengths lie; the challenge of behavioural economics is not to abandon these skills but to integrate them with new forms of insight as to the way decisions are made.
  • 14. Share this In Focus 14 Behavioural economics: the complete picture? About the authors References Darren Bhattachary heads up the Global Qualitative work for one of TNS’s key accounts. He has spent much time thinking about why people do things and how to nudge them in new directions. He previously ran qual for TNS-BMRB wrestling with such knotty issues as how to get people to stay in pensions (when they’d rather spend the cash now) and how to make it easy to be green. He holds a PhD in Philosophy and started life as a marine biologist. Mark Francas is interested in behaviour change, social marketing and public policy development. He heads the Behaviour Change Institute within the Political & Social team at TNS, comprising senior researchers and leading international academics. The Institute has developed an industry-leading Framework - based on the latest thinking in behavioural theory and behavioural economics - which is used by national governments, major NGOs and donor organisations. Dr George Kyriakopoulos is a Statistician in the Survey Methods and Sampling Team of TNS UK. With over ten years of experience in academic and applied research, George has worked with a variety of global clients in social and market research and he is particularly interested in methodological Hsee, C., & Zhang, J. (2004). Distinction Bias: Misprediction and mischoice due to joint evaluation. Journal of Personality and Social Psychology, 89 (5), 860-895 Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollinsPublishers: London. Cialdini, R.B. (1993). Influence: The Psychology of Persuasion. Quill: New York. Gigerenzer, G. (2000). Adaptive Thinking: Rationality in the Real World. Oxford University Press: New York. Gigerenzer, G., Todd, P.M. and the ABC Research Group. (1999). Simple Heuristics That Make Us Smart. Oxford University Press: New York. Kahneman, D. (2011). Thinking Fast and Slow. Farrar, Straus and Giroux: New York. Loewenstein, G., Lerner, J.S. (2003). The Role of Affect in Decision Making, In Dawson, R.J., Simon, H.A. (1947). Administrative behaviour: A study of decision-making process in administrative organization. Macmillan: New York. Thaler, R., Sunstein, C. (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness. Penguin Books: London. design and survey mode. George’s academic work in Economic Psychology has focused on socio-cognitive processes involved in decision making under conditions of uncertainty or asymmetric information. Adhil Patel is the Head of Thought Leadership, TNS Global Brand Equity Centre. Over the years, Adhil has focused his efforts on understanding and explaining brand relationships, and the implications thereof. In his role he is part of a team that is evolving the area of brand equity measurement, and sharing and developing new thinking. Anjali Puri is Managing Director, TNS Qualitative, Asia Pacific. A seasoned qualitative researcher with over two decades in the industry, Anjali has been active in the development of new qualitative methodologies, and has contributed to shaping contemporary thinking in qualitative research globally, particularly in the areas of consumer choices, behaviour change and social media. Passionate about understanding cultures and how they shape our relationships with brands, Anjali is currently working on understanding how archetypal needs translate across cultures.
  • 15. Share this In Focus 15 Behavioural economics: the complete picture? About In Focus In Focus is part of a regular series of articles that takes an in-depth look at a particular subject, region or demographic in more detail. All articles are written by TNS consultants and based on their expertise gathered through working on client assignments in over 80 markets globally, with additional insights gained through TNS proprietary studies such as Digital Life, Mobile Life and The Commitment Economy. About TNS TNS advises clients on specific growth strategies around new market entry, innovation, brand switching and stakeholder management, based on long-established expertise and market-leading solutions. With a presence in over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands individual human behaviours and attitudes across every cultural, economic and political region of the world. TNS is part of Kantar, the data investment management division of WPP and one of the world’s largest insight, information and consultancy groups. Please visit www.tnsglobal.com for more information. Get in touch If you would like to talk to us about anything you have read in this report, please get in touch via enquiries@tnsglobal.com or via Twitter @tns_global You may be interested in... The value of context: or what qualitative research can learn from behavioural economics > Breaking the habit code > The secret life of the brain >