You might have read a bit about “Behavioural Economics” on this blog and around the traps and wondered whether it is worth knowing more. The answer is yes. And to make it come to life, let's use the age old question "why did the chicken cross the road?" to illustrate how Behavioural Economics can help us understand why customers do what they do. The story goes a little like this… Development of a highway was being delayed by protesters who were demanding protection of a known avian crossing point. That’s right, a section of road where chickens crossed from one paddock to another. To move things along, three firms were contracted by the road construction firm Total Tarmac* to shed light on why the chickens crossed the road. If they could stop the crossing without negatively affecting the chickens, they could expand the highway.
Firm 1 Qualitative Researchers R Us
The first firm specialised in qualitative research.
“It’s simple; we’ll run some focus groups with a sample of the chickens and have the chickens do homework before they come along. The chickens will take photos of each stage of their trip and describe their feelings in a journal”.
The focus group was a resounding success, with high energy and lots of eager participation (a sample transcript is available in a separate blog "Chicken talk") The research firm presented its conclusions to Total Tarmac.
“Total Tarmac, the reason the chickens cross the road is multifaceted. For some chickens, they are motivated by self development. For others, it is a functional experience. It would be our recommendation to run some quantitative analysis on the willingness of chickens to cross the road made of marble, which was brainstormed as a preferred road surface.”
Firm 2 Economists for You
The second firm was a group of economists.
“It’s simple; we’ll build a model that compares the economic benefit of paddock one to paddock two. Chickens, seeking to maximise their economic return, will cross the road to the paddock with greatest value. Ergo by eliminating value of paddock two whilst inversely increasing the value of paddock one, the chickens will of course stay where they maximise their benefit”
The firm went away and developed its model, presenting their findings to Total Tarmac with a dazzling array of charts, propensity models and road crossing projections.
“Total Tarmac, the reason the chickens cross the road is clear. Paddock two (the side to which they migrate) is 20% more abundant with feed and contains 30% more water. Therefore, maintaining optimal value conditions will stimulate chicken crossing. On the other hand, reducing value conditions will reduce chicken propensity to cross the road.”
Firm 3 Behavioural Actions Now
The third firm comprised a group of behavioural economists.
“It’s simple; we are not interested in 'why' the chickens cross the road. We are interested in the fact that they do, and in what can influence this behaviour according to your objectives. If you want to prevent chickens from crossing the road, what can inhibit the road-crossing behaviour?
The behavioural economists set up a number of experimental conditions and tested what the chickens did. The outcomes of these tests were explained to the client.
“Total Tarmac, chickens cross the road until they stop crossing the road. There are many ways you can change their behaviour, but we must first understand that the chickens themselves may not even know why they cross the road. If asked, the chickens can proffer a rationalised explanation (more feed, I was bored, change of scenery, I prefer marble), but this won’t help you change their behaviour. To change their behaviour, know that behaviour is not always rational and that we are subject to deeply ingrained biases of which we are not even aware. To know what will change their behaviour, we ran a battery (poor choice of words) of behavioural tests with the chickens. We found the following;
Herd behaviour: Chickens flock and in experimental condition A, when the leaders crossed the road, the other chickens followed. To prevent this, influence the leaders to stay in Paddock One.
Heuristic: The chickens have over the years developed a rule of thumb. After two days of heavy rain, they cross to the other Paddock to seek shelter. Paddock One becomes too soggy. In experimental condition C, shelter and additional drainage was provided in Paddock One which stopped the chickens from crossing the road.
Status quo bias: In experimental condition D we improved conditions in Paddock One, making it too comfortable to leave. This stopped the chickens from crossing to the other side because their natural state is status quo.
Confirmation bias: Every time the chickens cross the road, they are met with abundant feed and water. Once it runs out, they cross back to the other paddock, being rewarded once more with abundant feed and water. To prevent crossings, in experimental condition E we removed feed and water from Paddock Two so that the benefit of crossing was not confirmed. The chickens crossed the road twice to Paddock Two looking for the feed, after which they ceased trying.
Loss aversion: When it became apparent to the chickens in experimental condition E that they could not rely on food and water in Paddock Two but could in Paddock One, the chickens in experimental condition E became loss averse. They did not cross the road because to do so would risk what they had.
Adaptation: Experimental Condition F proved that chickens adapted faster to not crossing the road if they are not reminded of the change. Once conditions are improved in Paddock One and the chickens are properly advised of the benefits, do not keep talking to them about how they used to cross the road.
The behavioural economists went on to explain how anchoring and framing, sunk cost and other behavioural principles were evidenced through their experiments and how Total Tarmac could modify and influence chicken behaviour in small but meaningful ways.
And the winner is...
The team at Total Tarmac listened intently to all three presentations. The qualitative researchers who suggested further quantitative research on marble roads; the economists who suggested reducing the value of Paddock Two to remove the economic benefit, and the behavioural economists who provided insights into the behaviour of chickens and clear actions to take to modify chicken crossings.
If you were Total Tarmac, which approach best met your business requirements?
The power of Behavioural Economics
Behavioural Economics is a powerful methodology to get to answers for your business and the beauty of it is that you can make positive changes to every aspect of how you run your business without massive investment or reengineering. It is about tweaking existing touch points you have with humans (not chickens) like staff, customers, suppliers and stakeholders. The other great news? There are resources widely available to understand more - you don't even have to run experimental conditions to make a difference. To find out more about Behavioural Economics, you can;
- Join groups like Applied Behavioural Economics on LinkedIn
- Read books like Predictably Irrational by Dan Ariely and Nudge by Richard Thaler and Cass Sunstein
- View presentations available on YouTube by Dan Ariely and Wendy Gordon from
Acacia Avenue - Pick up my book, “22 Minutes to a Better Business: How Behavioural Economics can help you tackle everyday business issues” through Blurb.com
* This is a fictitious case study and any similarity to a real business or chicken is purely coincidental.
If I were CEO of Total Tarmac I would choose firm D: SRBWI Inc. (International Slightly Rusty Barbed Wire Inc). There! Problem solved.
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