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A quick tour of behavioural economics
- 1. A quick tour of behavioural economics 10 th Feb 2009 Alison Hardy Dan Metcalfe
- 4. Everyone prioritises now over later (hyperbolic discounting) misleading rules of thumb
- 5. Instant feedback vs. long term (misleading rules of thumb)
- 6. Other people’s behaviour (really) matters (Social norms)
- 7. Promises make a profound difference (Misleading rules of thumb)
- 8. “ of those who have this procedure, 90% are alive after five years” “ of those who have this procedure, 10% are dead after five years” Everyone is bad at working out risk (how choices are presented)
- 12. Breaking behaviour down into small steps makes change easier (priming) “ We are likely not only to think ourselves into a way of acting, but also to act ourselves into a way of thinking“
Notas do Editor
- DAN: A quick tour of behavioural economics. Because it’s mentioned a lot by the opposition, give a brief primer to make sure consistent with language etc.. Plus, it’s interesting. Healthy mix of common sense and counter-intuitive. Thank you for doing the quiz. An experiment to see if marketing team got the same results as MIT students. You did. All started with some work done by a psychologist called Danny Kahneman published in 1979. Interested in judgement and decision making. He won a nobel prize for coming up with this insight.
- Everyone makes decisions using two interacting systems… System 2/ Conscious/ reasoning is a slow but sophisticated process that is very flexible and can be changed and improved by learning; but it can only concentrate on one thing at a time, and it requires effort and control. System 1/Intuitive/ it is fast, automatic, effortless, and difficult to control or modify. It is adaptive because it gets things approximately right when it is important to act quickly. (Sometimes described as Homer Simpson and Dr Spock – but that implies one is smart and one is stupid. THE PROFOUND BIT, IT’S NOT ABOUT INTELLIGENCE OR IDIOCY – EVERYONE IS LIKE THIS, IT’S NOT INSULTING OR NEGATIVE VIEW OF BEHAVIOUR) Marketers have always known that we don’t make really make decisions by analysing the cost-benefits . (Why would a celebrity promoting something or a free sample make you any more likely to buy it, or removing the £ sign from menus?) Think about the important decisions in your life. Who you marry, the house you buy, the car you drive. How often can you honestly say you only used a cool, collected and rational process to do so? Understanding the way people make decisions about behaviour could help us to be more effective . Small changes can have big effects. Not about sinister creepiness- you can still smoke, eat or drink as you like, but design things that people say they want in a way that doesn’t make excess the default option. 30 years later it boils down to 3 key principles.
- DAN: Boils down to three key principles. Alison and I will run through some examples of them in action.
- ALISON Everyone is loss-averse and hang on to what they consider ‘theirs’. - Save more tomorrow Everyone prioritises now over later. (Hyperbolic discounting) Today vs. tomorrow. “We usually prefer smaller, more immediate payoffs to larger, more distant ones. £10 today may be preferred to £12 tomorrow. But £12 in eight days may be preferred to £10 in a week’s time. This implies that we have a very high discount rate for now compared to later, but a lower discount rate for later compared to later still.” “two-thirds of people believe they are saving too little, one-third of these plan to increase their savings rates within the next two months, and virtually none of them actually do so”. – FEELS LIKE A LOSS. SAVE MORE TOMORROW. Implications for us. Accentuate the positive. Make things feel like a gain, not a pain. Plus chunking – gym subscriptions or charity giving.
- Thanks to these little faces, the number of people exceeding the speed limit in the Lanarckshire area fell by 53% . These things operate at about 2% of the cost of a speed camera , Applied to us. Making information/habits visible at the right place and time makes a big difference (hand hygiene, electricity, snacking on tables in room)
- Other people’s behaviour (really) matters : everyone does many things UNCONSCIOUSLY by observing others and copying, and people are encouraged to continue to do things when they feel other people approve of their behaviour. ‘Social norms’. Simple: buskers who have a substantial sum of money in their hat are more likely to receive more and larger donations More unlikely: Rubbish – harvard professors common room. Disorder – 59% litter. Order 18% litter. preventing petrified wood For example, two signs were placed in different areas of a national park. One sign urged visitors not to take wood and depicted a scene showing three thieves stealing wood, while the second sign depicted a single thief – indicating that stealing is definitely not a social/collective norm. The first message, subtly conveying a norm, increased the amount of wood stolen by 7.92%, while the other sign increased it by 1.67%.50 hotel laundry messages When a hotel room contained a sign that asked people to recycle their towels to save the environment, 35.1% did so. When the sign used social norms and said that most guests at the hotel recycled their towels at least once during their stay, 44.1% complied. And when the sign said that most previous occupants of the room had reused towels at some point during their stay, 49.3% of guests also recycled. Energy reduction. In Sacramento, an energy company has harnessed the insights of behavioural science, and prints information on energy bills that allows households to compare their energy use with similar homes. This simple change led to a fall in overall energy consumption as homes using more energy than their neighbours quickly adjusted their behaviour to fit in with the norm. Very unlikely: Dubious studies on alcohol in US universities. Applied to us. Emphasise good news – e.g. how few people smoke. (problem with the smokefree legislation is it increases the visibility of smoking) Be smart about minority behaviours. FRANK – know that if we do mass media have the opposite effect, make drugs seem normal. Instead drug users are isolated and shabby, very targeted media. Knife crime is minority. Think about groups, not individuals – peer pressure, Sexual Health SIM. NOT ABOUT ‘MAVENS’, is about SYSTEMS.
- Promises make a profound difference: Cognitive consistency. Don’t want to be inconsistent - everyone wants their actions to be in line with their values and their commitments. In a staged crime, individuals who had agreed to watch over a bag were four times more likely to attempt to prevent a theft as individuals who were aware the bag was being stolen but who made no commitment to watch over it. When voters in the US were asked one day before an election “Do you expect you will vote or not?” they all agreed - this action increased their likelihood of voting by 41%. Reciprocity – placed in some sort of debt. E.g. wine tasting. Implications for us. Ask people to promise or pledge. It has a profound effect on behaviour (but not 100% success).
- Everyone is bad at working out risk. E.g. 1 they are strongly influenced on how the problem/information is presented to them. EG. When a risky medical procedure is proposed, people (including doctors) are far more likely to agree to it when it is positively framed (radelmeier)
- Representativeness heuristic. (Ignores the base rate). Nearly everyone says 90%.
- Representativeness heuristic. (Ignores the base rate). Everyone is bad at working out risk. E.g. 2. The base rate really matters: Of the 8 who do have condition the test identifies 7 of them Of the 992 women who do not have the condition 99 will test positive So, of the 107 embarrassed people who test positive only 8 will actually have cause to be embarrassed. The chance if you test positive of being positive is about 8%, not 90%. This is an amazing difference, and one that has the power to cause immense embarrassment
- DAN Group A had a higher anchor –Group B has a lower anchor – This applies to everyday life. - If you work for a charity and want people to give more, here’s a way of doing it! When a credit card statement had a 2% minimum payment on it, people repaid £99 of a £435 bill on average; when there was no minimum payment, the average repayment was £175. In other words, presenting a minimum payment dragged repayments down.56 Insights Even applies to restaurant menus – art form for getting you to spend more. Removing the £ sign makes a difference.
- DAN Confirmation bias. Look for things that reinforce our existing view of the world.
- Start by thinking about the complexity of behaviour Information is necessary, but it doesn’t change behaviour. Attitudes can change and behaviour doesn’t (which is why asking people about their behaviour in surveys is so problematic) Check whether you have accounted for the top heuristics in your solutions. Make it APPEAR fast, effortless and automatic.
- This is a canter through. If you’d like any more then let us know.