Daniel Kahneman’s version of the division of the brain is gradually replacing the models, although it shares much in common with the older view of the “triune” brain. In the triune model there area three parts, the reptilian brain (home of the basic functions like homeostasis, breathing, feeding, sex), the mammalian brain (home of the emotions) and the neocortex (home of memory, higher level sensory processing and self-reflection and rational thinking).Daniel Kahneman’s System 1 is closest to a combination of reptilian and mammalian brains (survival and emotion) although it also incorporates some higher level sensory processing too. Read more »
Archive for the 'behavioural economics' Category
In my last post on the psychology of money, I looked at pricing through the lens of the SNAPP behaviour framework. I left out many examples due to time and space, especially under the theme of PATTERNS, where there are many well known examples of Framing and Priming of behaviour. In this article I will focus on some more examples of the importance of PATTERNS in human decision-making, especially in how the brain interprets pricing and value. Read more »
“Price is what you pay. Value is what you get.” - Warren Buffett
Price is definitely not the same as value, although classical economics continues to assume it is. In their rational models, economists (and many researchers) believe that humans are calculating machines summing up the costs and benefits of a decision with perfect information and reaching a rational conclusion (so-called Homo Economicus). The reality is quite different, in that many of our decisions are habitual (automated) and those that aren’t are most often made by using simple heuristics (mental rules of thumb) as proxies for more effortful analysis of what to do. Read more »
Over the last year, TapestryWorks has been helping many clients decode the complexity of human behavior to optimise marketing plans, brainstorm behavioral promotional campaigns, audit in-store execution and understand shopper behavior. We’ve worked across many different categories and one of the most common questions is whether “System 1” (implicit) decision-making applies to business in the same way as it applies to consumers. My answer is that it does, because ultimately it’s always about people. That is, B2C and B2B are both P2P.
Decoded is one of the very first books to fully embrace Daniel Kahneman’s view of human decision-making and apply this to marketing and market research. It is full of examples of the practical implications of behavioral economics on shopper behavior, backed by references to many of the key scientific papers that can help explain what marketers need to know about the science of decision making. It is backed by 25 years of experience both as decision scientist working with clients and a marketing professional applying the principles at Unilever, Diageo and T-Mobile.
“They know the price of everything and the value of nothing.” - Oscar Wilde
Priceless is a great read for anyone who wants to explore the psychology behind pricing (and currently only one of two books that really addresses this topic – I’ll be reviewing the other soon). Although it lacks an overall storyline and structure, the book is easy to read (spread across 57 chapters) and full of anecdotes and case studies. It contains extensive discussions of some of the underlying theories which can help explain some of the strange and quirky ways in which humans deal with issues of money, most notably those of behavioural economics and its chief spokesperson Daniel Kahneman. Read more »
The UK supermarket wars are hotting up, as Waitrose’s boss trades insults with his competitors, and gets some bad press on social media too. Looking behind the flood of words, it does seem that Waitrose’s recent innovations with its loyalty card have had a clear impact on business performance: sales were up 7.6% in Q3 of 2013 (compared with other chains who’s growth was nearer 3%, although Waitrose was starting from a smaller base). They had their busiest ever shopping day on 23 December 2013.
I’ve been intrigued reading about the J.C. Penney debacle. While I think there is a lesson to be learnt about the communication of promotions, I don’t believe the lesson is that simplicity does not work. In fact, J.C. Penney’s strategy of simplifying shopper decision making failed in two fundamental ways. Firstly, the communication of the new strategy was ineffective, making the store proposition more complicated rather than less. Secondly, in many other ways, J.C. Penney made shoppers’ lives more complicated by losing the focus of their brand identity and sending mixed messages to customers about what they stand for. Read more »
In the last blog I discussed how the cognitive biases fall into five main themes or categories (read here). But how do these biases relate to habitual behaviours and more importantly to behavioural change? In fact the biases are mostly influenced by contextual factors and the emotional rewards that we all seek. Read more »
Learning and applying the principles of behavioural economics and the mental shortcuts or biases which we are all prone to can be bewildering and frustrating. When I checked on Wikipedia, there are 173 pages relating to biases of judgement and decision making, including long lists of decision making, belief and behavioural biases, social biases, and memory errors (link below). Similarly, The Visual Guide to Cognitive Biases by the Royal Society for Account Planners (worth reading, link below) lists over 100 different biases. Surely there must be some key principles to these?