I talked with Rory Sutherland, Vice-President of Ogilvy UK, a great thinker, public speaker and a champion in behavioral economics about trust, measurbation, and what changed in branding. Rory not only uses behavioral economics in his job but he also speaks about it on TEDx and other conferences. I recently saw his amazing presentation on iStrategy in The Hague.
Behavioral Economist vs. Economist
Behavioral economists are interested in the same topics that other economists are interested in: why people buy, how we make decisions, what the mechanisms in markets are…. but the starting point is different. Rather than assuming that people are rational, individual economic actors operating under artificial mathematical conditions where everyone has the benefit of perfect information and perfect trust, behavioral economists study people’s behavior in reality.
In truth, good behavioural economists would draw on a wide variety of disciplines to understand human behaviour: everything from evolutionary psychology to neuroscience to game theory. And we would use these various disciplines to identify where human behaviour typically deviates from the behaviour deemed to be “rational” in conventional economic thinking – in other words to spot where the assumptions of economic theory about human behaviour may be wrong.
I am, incidentally, very uncomfortable about using the word “irrational” to describe human behaviour, since the word is almost always used pejoratively. This may be quite unfair. Often, not always, you find that there is a hidden intelligence to people’s instinctive emotions. An “emotional” decision is usually assumed to be worse than a “rational” one – but I don’t accept this. In a world of imperfect information and imperfect trust, we often need to pay attention to information we can’t quantify, but that does not mean this information is irrelevant to your decision. Being reluctant to buy a second hand car from someone because they seem “a bit shifty” is undoubtedly an emotional decision, but I am willing to bet that, more often than not, your instincts should not be ignored completely, says Rory.
It’s important to remember the role of the emotions when we test new ideas and use market research. Sometimes people’s responses to research are post-rationalisations: a seemingly logical explanation of behaviour which may have little to do with the real reasons the behaviour took place. Essentially we don’t have introspective access to large parts of our brain’s decision-making apparatus, and so we tend to construct plausible-sounding explanations to make up the shortfall.
A good example, continues Rory is the airport lounge, if you ask people why they like the airport lounge you will hear something like: “Always be able to get a seat, healthy food, easy to access free wi-fi, an espresso coffee, free drinks” but the real reasons we prefer being in the lounge may be the more instinctive feeling of safety and trust. Let’s face it, if you leave your laptop in the airport unattended for 5 minutes, the chances that your laptop disappears are huge. In an airport lounge there is an atmosphere of heightened trust: we may subconsciously choose to go there because we feel safer – and free to leave bags and laptops unattended – but that’s not what we talk about when we explain our behaviour.
Therefore modern marketing, says Rory, should often be based on better understanding of human behaviour – even if the only way to obtain this understanding is through trial and error. We should be wary of blindly following either research findings or economic logic.
We should also spend more time looking for small changes which make a big difference to behaviour: One little thing can have a hugely disproportionate effect, just like the experiments with sign-up buttons run by e-commerce sites that have in one instance led to an increase of revenue of $300 million. Human behaviour is a complex system: it is not fair to assume that big changes are only obtained through big interventions. Not everything works in a predictable or proportionate fashion and outcomes cannot be achieved by just following set rules.