Shown at the AMSRS National Conference 2013 this presentation on Behavioural economics by Ben Wright highlights the very interesting findings from a small exploratory study that could serve as the basis to the beginnings of a revolutionary measure in the market research industry.

1. Applications of
Behavioural Economics
to consumer insight
Testing the model…can we make it work?
Ben Wright
Quant Account Director
Direction First
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2. Behavioural Economics has exploded onto the scene in recent years.
From Nobel prize winning Daniel Kahneman’s seminal work “Thinking
Fast and Slow”, to “Nudge”, “Predictably Irrational”, “The Paradox of
Choice” -the list goes on.
The learnings from it have been applied
virtually everywhere - even Obama’s used it.
But, where is the application to market
research, specifically, our tools? There is
plenty of action in marketing, but not so much
our research.
So, we set out to test whether new metrics
could be incorporated into market research
surveys to make our models work better
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3. Contents
Why the explosion in behavioural
economics? Turns out it’s the brains fault,
so we’ll look at that first.
Then what we did, what we found, and
lastly where to next.
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5. From 400 million years ago to the present, the evolution of the brain can be divided into four general stages:
reptilian, mammalian, primate, & homo sapiens (including most recently, behavioural modernity).
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6. Condensing the
timeframe, if the
history of the
universe were
being measured
on a 24-hour
clock, the lizard
brain would have
been around for
41 minutes, the
mammalian for 6
minutes, the
primate brain for
about one minute;
and our modern
brains for around
a second.
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7. Looking at the timescales
involved, it’s not hard to
see why the more ancient
primal brains within us
might have more impact on
our behaviour, despite
being less accessible to
our conscious awareness.
What makes these stages
distinct is the functionality
associated with each.
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8. The innermost, oldest brain is the reptilian brain, and as any graduate
student will tell you there are “four F’s of reptile brain behaviour”:
• Feeding
• Fighting
Instinct, in other words…
• Fleeing, &
• Reproduction
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9. The mammalian brain is
the seat of emotion. It is
also the home of implicit
memory (memory beyond
our consciousness but
that can impact future
behaviour, an example
being riding a bike).
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10. The top layer is the primate brain, which most recently has evolved into the human brain with all the high level
functioning such as planning, abstract thought, logic and language.
This is where we all live mentally. This is where we see ourselves. But most of our mental existence is unknown
to us, happening sub consciously in the other brains.
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12. So how have
consumers been viewed
for so long...in a word,
mechanistically.
Economics saw us only
as the modern brain –
rational, utility-seeking
maximisers, acting in a
mathematically optimal
manner.
Behavioural Economics
has shown that our
decision-making is
guided by our
evolutionary baggage,
heavily influenced by
the ancient brains which
have been with us for so
long.
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14. This is easily demonstrated through a quick check...
Have you ever done any of the following activities on the previous slide?
From a rational perspective it would not makes sense to do many of these...but many of us still do,
and often.
Why?
Well, we basically can’t shut our pesky old brains up. And they aren’t wired for a modern world like
our recent brain bits. So while we have the mental ability to be rational, we tend towards being
irrational.
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15. Behavioural Economics conceptualises two modes of thinking that broadly reflect this rational/irrational difference:
• System 1 thinking which is spontaneous and intuitive and,
• System 2 thinking which is rational and deliberately controlled thinking.
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17. A wonderfully simple little test, the Cognitive Reflection Task (CRT) measures the tendency
of an individual towards one or the other of these styles of thinking – rational or intuitive.
Around three-quarters of people (including Harvard graduates) get these wrong.
Those that get them right we call system 2 or rational thinkers. What do they do....well they
monitor and where applicable override their thoughts.
It was these ‘monitoring’ and ‘overriding’ ability that led us to consider two additional
measures that might be related: self-efficacy and self-consciousness.
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18. Behavioural Economics studies these kinds of biases…and system 1 vs 2 thinking can be explored using Cognitive Reflection Task
(CRT) “The ability or disposition to resist reporting the response that first comes to mind”
Q
A bat and a ball together cost $1.10. The bat
costs a dollar more than the ball. How much
does the ball cost?
A
Q
It takes 5 machines 5 minutes to make 5 widgets.
How long will it take 100 machines to make 100
widgets?
A
Q
If you answered $10c – you are wrong!
The correct answer is 5c
If you answered 100 minutes – you are wrong again!
The correct answer is 5 minutes
In a lake there is a patch of lily pads. The patch
doubles in size every day. If it takes 48 days for the
patch to cover the entire lake, how long would it
take for the patch to cover half the lake?
A
If you answered 24 days – oops!
The correct answer is 47 days
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19. What is self-efficacy? Basically it’s our
inner roar. Why is it important?
Well the belief you have in your ability to
do something is tantamount to actually
doing it.
Those with higher self-efficacy tend to
approach tasks with a sense of serenity
and goal-activated thinking – in other
words with much greater mindfulness
that we would associate with system 2.
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20. Self-consciousness is a
dispositional tendency to
focus attention on the self
and it can help explain
self-regulation of
behaviour.
We likened this to the
overriding ability of
system 2 thinkers.
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21. So what did we do?
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22. Objectives & Approach
Can scales like CRT (Cognitive reflection), SCS (Self-Consciousness &
GES (Self-Efficacy) be effectively incorporated into a quantitative survey to
add a layer of information to help build predictive models of consumer
choices and add insight to segmentation and profiling
Online study – 15 minute (April/May 2013)
n = 1,030 nationally representative sample
(gender/age/location)
MGBs and recent holiday shoppers
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- Screener
- CRT/GSE/SCS exercises
- Shopping behaviour – low
involvement product category
- Holiday Shopping habits –
higher involvement service
category
- 5 point scale
- Shopping behaviour –
Max/Diff exercise
- Scale vs. Max/Diff evaluation
- Survey enjoyment

23. Objectives & Approach
We took the CRT, and scales from the Psychological literature
representing the other constructs and put them into a survey.
Big nationwide sample (using both Direction First’s panel – Izatso, and
YellowSquares)
And we looked at shopping behaviours in two categories – fmcg and
holiday, reflecting low and high involvement categories respectively.
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26. Findings I
We confirmed that most people are down the intuitive end of the spectrum.
Don’t worry if you got those CRT questions wrong, most do, including Harvard professors. It doesn’t matter how
much education you’ve had in your life, you’re going against 400 million years of ancient brain development.
More intuitive type thinkers are less likely to avoid other cognitive biases (and there are dozens and dozens of
other documented cognitive biases) and have less consistency in their choices over time. They are also over
confident when providing incorrect answers.
If it wasn’t bad enough that respondents tend to lie, give socially friendly answers, etc. even when they aren’t
they’re possibly still misleading us as they are not privy to the erroneous nature of their decision making.
This suggests that most consumers’ future consumption behaviours are likely to be poorly predicted by past
consumption behaviours. That’s a bit of an issue for researchers.
On the flip side, there are a group of more rational thinkers that have an ability to monitor and override their own
cognitive biases.
This group could be called super-respondents, and are certainly very interesting respondents at least, in helping to
explain their own and other consumers mental processes when making purchase decisions.
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28. Findings II
Self-efficacy – the higher it is, the more likely someone is to be a system 2 thinker. To our
knowledge this is the first study to ever directly link these two constructs.
System 2 thinkers are aware of their own cognitive biases, and are also aware that they can
overcome them sometimes. This gives them confidence.
So what? Well we found that this impacts on shopper behaviour. Those with greater selfefficacy/rationality are more likely to engage to seek out value in higher involvement
categories, and are less likely to shop on convenience in lower involvement categories.
These measures are helping us define consumer segments in terms of the way they shop.
This enables us to classify consumers on how they respond differently to harder tasks, or
less involved more habitual ‘autopilot’ tasks such as grocery shopping.
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29. Findings II
I would suggest it could be an even more important predictor of behaviour in the context of
complicated categories such as financial or insurance products.
These results also suggest that these measures would help us explain how consumers
respond differently to the paradox of choice (overwhelmed by choice).
‘Give me lot’s of options vs. just give me what I want’.
The point is that these measures look likely to help us understand consumer reactions to
reduced or greater options – in supermarkets, online, wherever.
The metric gets at the very nature of how consumers approach, frame and make decisions.
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30. Rational thinkers self-regulate mental effort
to the task at hand. Ramping up their
thinking in more involved categories, and
reducing it in low involvement categories.
Intuitive thinkers did not demonstrate this
shift.
To me, that is fascinating. Some consumers
are adjusting how miserly their cognitive
effort is in given contexts, and we’ve got a
measure that is capturing it.
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32. Findings IV
Part of our research also explored the impact of cognitive type and response to our scales.
While choice-based tasks have long been praised for their more naturalistic representation of consumer
decision-making, consumers preferred the rating scales.
Maybe the max-diff scale is doing its job – making consumers consider their responses more – and also
giving us more differentiated data.
Although, as we’ve just seen consumers differ on how engaged they like to be.
Of particular interest was that system 1 thinkers tended to rate the Max-Diff scale more preferably than
reflective thinkers.
Our more rational thinkers actually dislike the more naturalistic scale.
It shows there is an interaction with our instruments depending on cognitive disposition.…Like culture.
This should feature in our considerations of how we go about capturing data.
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34. Future Directions
IQ  EQ  RQ?
Development of a ‘rationality quotient’
“Dysrationalia” or what is missing in IQ tests – is it
missing in MR?
Choice and emotion, making buying decisions can
give rise to a sense of control and thereby increase
happiness in retail therapy
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35. Future Directions
The potential of a ‘rationality’ measure has most recently been evidenced in the commissioning of research to develop
the world’s first Rationality Quotient (or RQ), which happened smack bang in the middle of our study. The same guys
that did the CRT.
I think rationality as a cognitive metric is missing in market research, and I think we should certainly test it in a whole
host of areas.
It’s not just a self-report measure (which we know is plagued with problems), it’s a performance measure.
In my research I’ve discovered a multitude of findings that increasingly make me think this is a fundamentally exciting
measure.
For example, some recent research has found that buying decisions can even bring happiness into people’s lives when
it gives them a sense of control – this sense of control element relating to self-efficacy and system 2 thinkers’ ability to
monitor and override their mental activity. Who’d have thought we can make people happy through shopping?!
This was a relatively small exploratory study, and some very interesting findings emerged from it. Based on them I
think this could be a revolutionary measure in the market research industry.
As a quantifiable measure the magic of a metric such as the CRT, or the RQ once developed, is that our industry is
perfectly positioned to leverage this to keep us at the frontier, the edge, of research into consumers into the future.
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36. References
Campitelli, G., & Labollita, M. (2010). Correlations of cognitive reflection with judgments and choices. Judgment and Decision
Making, 5, 182 – 191.
Donald J. Scandell & Donald Scandell (1998). Journal of Social Behavior & Personality, 13(4), 579-593.
http://fenwayfranks.tripod.com/selfcon.htm
Ellsberg, Daniel (1961). "Risk, Ambiguity and Savage Axioms". Quarterly Journal of Economics 75 (4): 643–79. doi:10.2307/1884324.
Fenigstein, A., Scheier, M. F., & Buss, A. H. (1975). Public and private self-consciousness: Assessment and theory. Journal of
Consulting and Clinical Psychology, 43(4), 522-527. doi: 10.1037/h0076760
Gardner, Howard ([1985] 1987). The mind's new science : A history of the cognitive
revolution. New York: Basic Books.
Gigerenzer, Gerd and Selten, Reinhard. Bounded Rationality: The Adaptive Toolbox. Berlin: MIT Press, 2001.
Kahneman, Daniel. “Maps of Bounded Rationality: Psychology for Behavioral Economics”. The American Economic Review.
December 2003, pp. 1449-1475.
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37. References
Kahneman, D., & Frederick, S. (2002). Representativeness revisited:Attribute substitution in intuitive judgment. In T. Gilovich, D. Griffin, &
D. Kahneman (Eds.), Heuristics and biases: The
psychology of intuitive judgment (pp. 49–81). New York: Cambridge University Press.
Klonsky, Bruce G. and Dutton, Dawn L. (1990). Developmental antecedents of private self-consciousness, public self-consciousness and
social anxiety. Genetic, Social & General Psychology Monographs, 16, 3, 275-298.
http://www.cla.calpoly.edu/~nschultz/419/Scales/DevelopmentalSCS.html
Marshall, Alfred (1890 [1920]). Principles of Political Economy, v. 1, pp. 1–2 [8th ed.]. London: Macmillan.
Nasby, W. (1997). Self-consciousness and cognitive prototypes of the ideal self. Journal of Research in Personality, 31, 543-563.
Schwarzer, R., & Jerusalem, M. (1995). Generalized Self-Efficacy scale. In J. Weinman, S. Wright, & M. Johnston, Measures in health
psychology: A user’s portfolio. Causal and control beliefs (pp. 35-37). Windsor, England: NFER-NELSON.
Tisdell, Clem. Bounded Rationality and Economic Evolution: A Contribution to Decision Making, Economics and Management.
Cheltenham: Edward Elgar, 1996.
Toplak, M. E., West, R. F., & Stanovich, K. E. (2011). The Cognitive Reflection Test as a predictor of performance on heuristics and biases
tasks. Memory & Cognition, 39, 1275-1289. doi:10.3758/s13421-011-0104-1
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38. Thank You!
Lets Connect!
Ben Wright
Quant Account Director
www.directionfirst.com
Linked in: au.linkedin.com/pub/victor-benwright/1a/904/260
Email: ben.wright@directionfirst.com
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39. Thank You!
Lets Connect!
Erica van Lieven
Managing Director
www.directionfirst.com
Linked in: au.linkedin.com/in/ericavanlieven/
Twitter:
@erica_dfirst
Email: erica.vanlieven@directionfirst.com
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