The Top 10 Slap Down: Why you need Behavioural Economics

Strap yourself in for my top ten reasons why you need to know about Behavioural Economics.  More slap down than count down, prepare to be insulted!

You need Behavioural Economics because...

1. You're arrogant
You think other people succeed because of the situation but you succeed because you're ace.  But when things go wrong, it's the situation for you but a deep personal flaw in others.  After all, you never cut people off in traffic, but get cut off all the time.   (a.k.a. Actor Observer bias)

2. You're lazy
When you don't know what to do, you do nothing.  Inertia is your friend and default is your home. The easiest position is to stay with what you know. That's why you haven't changed banks...car insurance...partners yet.  (a.k.a Status Quo)

3. You take short cuts
Who can be bothered with all that thinking? Do what you've done before or just make some assumptions.  If you remember seeing that brand advertised, then it must be reputable.  If one product is more expensive than another, it must be better.  You'll order wine from the middle of the price range because you don't want to look stingy.  (a.k.a. Heuristics or Rules of Thumb)


4. You delude yourself
You love your thinking so much that whenever you look for evidence to support your point of view you can find it easily. (a.k.a Confirmation bias)

But when someone else puts forward an idea, it always seems to have more down sides. (a.k.a. Not Invented Here Bias).

5. You're a sheep
When you don't know what to do you follow what other people are doing.  Ever lined up in a queue without knowing what it was for?  Gone to a restaurant because it always seemed busy? Bought ill-fitting fashion?  An SUV?  (a.k.a Herding)

6. You're scared
Losing is scarier than winning. Bird in the hand and all that.  Safer to do nothing (as per point 2) or demand over the top guarantees before you'll make a move.  Stayed in a job too long?  Held on to an investment even though it was tanking?  Gone to a petrol station out of your way because you want to  save $2 with your shopper docket? (a.k.a. Loss aversion)

7. You're superficial
You operate most of the time at a superficial, top of mind level.  Listing 3-5 reasons you like or dislike something is easy because but beyond that gets tricky. It causes you a bit of mental anguish because you start to second guess your 'gut' feeling.  (a.k.a. Availability bias)

And you want rewards NOW!  Just like Veronica Salt in Willy Wonka (I want it now Daddy!) you hate to wait because you are not very good at imagining what the future will be.  (a.k.a. Short term bias)

8. You're not in control of your own mind
You set the alarm and then hit snooze. You intend to go to the gym but stay glued to the couch watching the Big Bang Theory.  You know superannuation is important but somehow can't find 10 minutes to read the brochure.  You are constantly fighting with yourself as your mind processes intent and actual behaviour.  This inner turmoil exhausts you so you revert to short-cuts (see point 3) and status quo (see point 2). (a.k.a. System 1 and System 2 thinking)

9. You fall for obvious tricks
You buy the yogurt that is 97% fat free instead of the yogurt that has 3% fat.  You pay for broadband plans with data quantities you will never reach.  You buy the shirt because it is marked down to half price.  You know you know that you are being tricked by the way something is communicated, but you can't help falling for it.  (a.k.a. Framing)

So that is you.  But don't worry, it's you and me and everyone else because we are beautifully complex, emotional and cognitive beings and being irrational is what we do.  The important lesson for anyone in business is that you need strategies and systems geared around this irrationality so you can best meet the needs of your market.  It's pretty clear that many businesses have not yet come to terms with the opportunity Behavioural Economics presents, so it's your chance to shake off your status quo bias, squash your fear of losing and instead grab on to a field that can deliver significant competitive advantage.

Oh. I almost forgot.


10. You need completion
You see a gap and you need to fill it.  A list of 10 with only 9 items becomes annoyingly distressing.  Failing to finish means you miss out on the entirety of the experience, so you go through with it even if there is no point.  (a.k.a. Completion)

Happy irrationality.

PS If you like my blog, I'd love you to consider supporting my fundraising trek of the Larapinta trail. Every bit helps so to find out more, visithttps://www.gofundraise.com.au/page/BriforICV Thank you!

The sweaty business of behavioural change

Imagine you are watching a focus group.  The topic is hygiene and in particular, how your gym can get people to wipe their sweat off the equipment. Low adherence to the policy has been causing complaints and some health issues around the club.  The discussion goes as expected with everyone agreeing they would feel revolted if they unknowingly use a machine that has not been wiped down, and all agreeing that they, of course, always wipe theirs off as long as it was easy to do so.  You watch as the group brainstorms some signs that can be placed to remind people of the policy and also where and how many hygiene-spray stations should be positioned in the gym. A few months after you've implemented the findings of the focus group and behaviour hasn't changed. Why?  

Awareness is not enough

This is the scenario my local gym is facing. Despite signs on every piece of gym equipment reminding clients to "Take your sweat home", "You have a towel - use it", and "Please wipe your sweat off",  and despite multiple convenient hygiene stations I reckon about one in seven people actually takes heed (and that one is, of course, virtuous me for a reason I'll come to).

So what's happening here?  Sure we all get grossed out by a stranger's sweaty trail, but when it comes to our own behaviour, could it be we don't think our sweat is offensive enough to mop up?

Give those doctors a hand

In a case well documented by Stephen Dubner and Steven Levitt of Freakonomics fame, Cedars-Sinai Medical Centre in the US decided to tackle a slightly more important issue of hygiene; hand-washing by doctors.  Did the medical staff know the importance of washing their hands? Of course.  But almost 4/10 failed to.   And this was contributing to bacterial infections sometimes leading to patient death.  So why were the doctors not washing their hands?  Ego was thought to play a big role.  The sense that "it's not my germs that harm people - it's those of my colleagues".  And before we shrug ego off as symptom of the profession, I think that's the same factor at play in the gym. 

Cedars-Sinai's aim was to get compliance up from 65% to 90% to meet required standards. They made some progress by running an awareness campaign by email and posters, providing bottles of disinfectant, and awarding spot coffee vouchers to those who washed their hands and this got them to 8/10.  For my gym, having staff parade the equipment and reward compliant clients might help, but seems like a lot of effort!

Why Cedars-Sinai Medical Centre has become a favourite case study is what they did next which saw compliance rocket to almost 100%.  One day after a typical lunch, a number of doctors were asked to take a culture of their palm, pressing it into a petri dish.  The results were striking, with the hidden to the eye bacteria seen vividly crawling around the flesh. Revolting. In a moment of brilliance the hospital then used one of these provocative petri images as a screen saver and watched as compliance rates soared.  Suddenly there was indisputable proof that it is you, me and everyone that carries germs, and simple actions can rid our hands of their bacterial dangers.  (And yes, this is why I am so vigilant when it comes to wiping off sweat.)

What it took for behavioural change

In the case of Cedars-Sinai Medical Centre, developing an awareness campaign was not enough.  And for my gym, whilst it is great to promote the expectation of hygiene on posters, it is not enough in itself to change people who intend-but-don't to intend-and-do.  As Dan and Chip Health cover in their book "Switch: How to Change When Change is Hard", use of negative emotion (like disgust) is great when people know intellectually they need to change. 

Cedars-Sinai made the issue personally confronting, overcoming the tendency we have through what is known as the Fundamental Attribution Error to rationalise our own behaviour due to the situation (I don't have time to wash my hands, I need to get on the bike before someone takes it) but judge the behaviour of others on the basis of character (I can't believe they are so irresponsible, how can they be so lazy?).   Cedars-Sinai levelled the playing field by demonstrating that all are equally impacted by germs. 

The lessons from Behavioural Economics

Let's look back to our focus group.  After the experience of the gym, we now know that there is a gap between what people say they'll do and what they actually will.  So what are some tips from Behavioural Economics that all businesses can use to help close this gap?

Vividness - a surprising and evocative image - like a hand in a petri dish - can shock us into new thinking.  Imagine if the gym had posters of bacteria on un-sanitised equipment?  Would it risk putting people off? Not if they are committed to exercise, and it would definitely get people to cleanse their machines before and after exercise.  

Herding - it is difficult to go against the herd because you risk being socially shunned. Even amongst a group of gym strangers, the more people you see wiping their machines, the more likely others are to.  Just like night clubs who pay cool people to show up, the gym could enrol and reward some clients for modelling correct behaviour.

Heuristics - we operate by rules of thumb, and are most likely to accept a new behaviour (wiping down) if it is connected to an existing one (exercising).  Imagine if the machine would not give you your work-out results unless you wipe it down first?  Or you needed to swipe a card to start the equipment, but the swipe card would only activate if it had been swiped first at a hygiene station?

Changing behaviour at the gym, at the hospital, in your line of work is tough, but it's also the reason why we are in business. After all, business is about moving people from an intended to actual purchase.  Here's the big tip; spend more time on what influences the actual behaviour and less on what people say they will do and you'll see your results flow. Happy changing.

PS If you like my blog, I'd love you to consider supporting my fundraising trek of the Larapinta trail. Every bit helps so to find out more, visit https://www.gofundraise.com.au/page/BriforICV  Thank you!

 Image from http://talktowarren.wordpress.com/tag/patient-safety/

McDonald's coffee guy; why complainers are hot

Bad coffee. For Melburnians, it is one of the sins along with disinterest in the weather and the absence of black clothing.  And so, McDonalds has launched its attempt to win custom back from people disgruntled by their burnt beans and insipid froth. Complaints, or more likely, declining sales have pushed McDonalds to admit it was dishing out bad product. 

Have you come across the TV ad?  It centers on a gentleman seen arguing with a bus driver. The scene is set that this fellow lives for complaining.  And yet, there he later sits enjoying a McDonalds brew without complaint.

What I find interesting about the ad is the portrayal of complainers.  This guy is a world weary, grey skinned, relatively unattractive man. Whilst McDonalds could have snaffled Hugh Jackman or a Cleo bachelor to play the role, that would have confused the message. McDonalds are inferring that complaints are an ugly behaviour, and that complainers are unattractive.

This is an interesting heuristic that is entrenched in most businesses.  The link between "complaints = problem = negative = cost = seek to eliminate" is extremely strong.  And this is where a fear of social media rears its head.  As long as you see complaints as a negative thing to be reduced, you are cutting yourself off from the best market feedback you can get.

 I know, I know.  You are going to say that customers are your priority, you take them seriously and you even monitor satisfaction.  But I would guess that the governing bias is still that when a complaint is received, it is seen as a problem for your business, not an opportunity.  Why?  Two principles from Behavioural Economics are at play.

Not Invented Here Bias - we have a tendency to shun the ideas of others. Working as a product manager, I certainly fall into the trap of thinking I know more than my customers...and I do, but about what the widget should do, not how that customer is experiencing it.  My subjective view must not blind me to the relatively objective view offered by the customer.

Status quo bias - it's more comfortable for us in the status quo.  A complaint might mean we have to step out of our rut and life might get more challenging. But here's the thing. Status quo is a misnomer in any market; you cannot stay stagnant because the world is not, and the complaints you receive are the market's way of telling you to get moving.

So here's my challenge to us all. When you next receive a complaint, I want you to imagine the person has the charm and looks of Hugh Jackman rather than the washed-out McDonalds man.  And I want you to take a deep breath, relax your shoulders, and absorb the gift of real-life market feedback.

PS as an aside, McDonalds is offering a free replacement coffee if you are dissatisfied with the brew.  A classic example of overcoming loss aversion by convincing customers they have nothing to lose (except of course their time).

Image from: http://static.rbi.com.au/Uploads/PressReleases/hosp/thumbnails/Images-20110602/Maccas2.jpg