By Raphaela Ring, Experience Scientist, CODE Worldwide
I should start this by outing myself as a Behavioural Economist in theory but rarely in practise and while I still (albeit infrequently) reference my Economics degree and my MSc in Behavioural Economics, my Stata login has long expired. All this to say, that I – like a lot of us marketeers it seems – am constantly trying to find a structured approach to utilise my knowledge of the social sciences in my work. And if I am being honest, the approach rarely feels considered and intelligent enough for something that is routed in an extensively peer reviewed and incredibly clever social science.
Almost half a century ago, Kahneman and Tversky first published their seminal paper “Judgment Under Uncertainty: Heuristics and Biases” and since then Behavioural Economics has only become more wildly acknowledged, applied, and bent to fit a purpose. The social science, mainly rooted in explaining our irrationality in decision making processes, has been embraced by almost everyone from the British government to primary school cafeterias however nowhere is the terminology thrown around more liberally, more enthusiastically than in marketing. Endless books have been written on the subject, departments set up, workstreams funded and pitches won. Behavioural Economics has been the sexy assistant to the marketeer’s magic show for the past 20 years.
It is easy to feel overwhelmed at the sheer magnitude of the research, the endless lists of behavioural biases and use cases in marketing. The Cognitive Bias Codex for example is terrifyingly large in its literal and conceptual size. Research of inconsistent quality, loose psychological concepts and buzz words get condensed down to a subject line that uses a nod to loss aversion. This can obviously still be an informed use of Behavioural Economics, but I think we can do better. Let’s collectively put our copies of Thinking Fast and Slow down and go back to basics.
All in the game
Behavioural Economics is first and foremost linked to Game Theory (Game Theory is the ‘Economics’ bit of Behavioural Economics). The study of Game Theory is endlessly fascinating and deeply satisfying in its ability to “solve” complex decisions. By stripping back the complexity of irrationality, Game Theory can help us understand the core of decision making:
- Everyone has preferences
- Your decision will depend on your belief about others’ decisions
- The information we have or don’t have, matters
Introducing a game theoretic approach to the start of a problem-solving expedition, means we can view customer experiences differently. Instead of focusing on where and how we want to influence a decision, we can focus on the levers that customers are experiencing in their journey to that decision point.
I’ve recently been the not so reluctant recipient of many a Summer Sale ad. Most follow the classic formula of showing me items I might like based on my browsing behaviour and telling me they are now no longer £59 but a mere £47 (anchoring in action). Whilst I’m not going to pretend that I haven’t been intrigued by some of them, the ones that really make me click through are telling me that ‘only 1 item left in your size’ or ‘we only have one sale a year’ (Hello, loaf.com). Why do these hit differently? The answer (partially) lies in Game Theory.
I, like everyone else, have a preferred price I like to pay for the things I buy. Usually, the lower the better but there will be a range of prices that will make me want to hit ‘Buy Now’. If that linen summer dress I want but couldn’t justify at £120 goes on sale for £90, I might be tempted but really, I would prefer to pay £65. If I believe the dress will continue to go down in price, I will happily wait and buy it in two weeks at my preferred price. However, if I believe that either the dress won’t be reduced any further or that everyone else thinks that £90 is the best price and it sells out quickly, I will make that purchase and be delighted with it. For the brand that means that they don’t need to convince me that the dress is good value, they need to convince me that others will think it is good value (it all points to using some Herding techniques in this case).
In short, understanding Game Theory can help us change the why and might lead us to use a different how. It means our use of Behavioural Economics is no longer limited to a catch-all approach or whichever heuristic sounds the most fun.
I don’t want to claim that Game Theory is the only way someone could reach the conclusion that we should frame a sale in terms of the perception of the masses rather than the individual. I think Game Theory is another useful tool to understand, predict and tackle human behaviour. The pleasingly simple mathematics, clear matrix format and extensive peer reviewed literature, is a great starting point for shaping and re-shaping a response to established thinking; a way of stepping outside the box of Behavioural Economics buzz words and giving a sense of meaning to the use of them in our campaigns.
