What is Behavioural Economics or BE?
Behavioural economics was born after traditional economics got into bed with cognitive psychology. The love-child BE now investigates what happens when real people involve their emotions and use heuristics (short cuts) in decision making. For example, in a falling market, many people hold onto their shares for too long (the endowment effect means people overvalue what they have) and loss aversion means they really hate taking a hit on their trade. So they don’t minimise losses in the way a rational model would predict.
Governments and ad agencies (most visibly Rory Sutherland at the IPA) got very excited at the idea of ‘nudging’ populations to do the right thing through a combination of framing of choices and setting default options - a kind of libertarian paternalism. The BE books offer numerous examples of behaviour change through simple interventions. The UK Government is currently considering whether to make Organ Donation an opt out scheme rather than one people have to opt into, which could triple the number of organ donors.
While its important for researchers to be keenly aware of the main choice heuristics people use and their cognitive biases, there are a great many of them and they interact in mysterious ways. For example, loss avoidance should mean the end of gambling, but it maybe that some groups can make gambling normative, while salience of big winners makes a positive result more probable, which overcomes the loss aversion?!
Wikipedia lists something close to 100 biases – or at least too many many to count List_of_cognitive_biases … including Bias blind spot, which is the tendency to see oneself as less biased than other people……
Slightly concerning is the fact that many of the BE findings are based on experiments with mainly US undergraduates. The enthusiastic championing of the concepts, few memorable case studies, and a timely emphasis on social context have led to adoption of the ideas without a rigorous examination of the evidence they are based on.
Since some of the biases are about the effect of other people’s decisions, cognitive bias theory segues naturally into theories of persuasion. Ideas about framing choices, commitment bias (getting people to make a small commitment makes them more likely to follow up on a larger one) and social proof have been used for years in Direct Marketing. (See Tod Norman on The Bible, Direct Marketing and Research )
The implications for qualitative research include:
- Research as much in context as possible (Availability bias) – use immersive research and ethnography to back up your interviews
- Be careful of the order of talking about stuff/presenting stimuli (Anchoring bias)
- Look out for Confirmation Bias and various other selective attention biases; not to mention all the rationalisations that come into play once a choice is made.
- Using the EXPERIMENTAL method, test various forms of choice framing if you can (easily done online nowadays)
- Aim to work out what short cuts people use to make decisions in that segment
- If you are researching decision-making processes don’t recruit people who have already made the decision
- Don’t believe people who say they don’t respond to free offers and numerous other ‘ marketing gimmicks’
Cognitive Bias VideoSong A fabulous way of remembering some of the key cognitive biases and a good sing along too.
Related to this whole area of how people make decisions is the Elaboration Likelihood Model (mouseover and click to download). Despite its rather lateral name it is a useful theory about the amount of conscious rational thought that is put into a decision, when this happens, and what the effects are. It also has implications for mood management in research.
