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.
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Status quo bias – comfort in sticking to what we know, and
Loss aversion – being more fearful of losing what we have than risking a gain
There’s a lot of comfort in a big, professional document because that implies safety, thoroughness and, frankly, that someone else has done the thinking so we don’t have to. (It also helps to justify the expense on the research because quantity still trumps quality a lot of the time in perception management).
Of course it's not just market research that taps into our desire for credibility. Just think about the business documents and spreadsheets we slave over that your boss may not even read. Executive summaries are there for a reason after all.
The other interesting thing we can draw from behavioural economics is the “not invented here” bias that we are subject to – in this case it explains why a lot of those research findings don’t go anywhere. To get traction, the stakeholders need to be part of the insights generation phase, otherwise the outputs are likely to be filed away in a drawer.
So what's the answer? How about we take some chances and throw away the templated documents, the proforma Powerpoint presentations, the phone book sized research reports and instead throw some reflections up on a whiteboard to discuss, challenge, laugh about, but ultimately get stimulated enough to take action? Getting your researchers to evoke insights rather than yawns? Sounds good to me.
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