Post on 16-Aug-2015
A Presenta*on from The Fes*val of NewMR – Training Day
3 December 2012
An Introduction to Behavioural Economics
Bri Williams (B. Acc, B. Psych, CPA), People Pa(erns
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Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
An Introduc*on to Behavioural Economics
Bri Williams (B. Acc, B. Psych, CPA) Specialist in Buying Behaviour
People Pa(erns Pty Ltd 3 December 2012
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Consumers are “irra;onal”
3% fat 97% fat free
$2 fee
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
“Irra;onality” is predictable
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
The study of emo;onal, cogni;ve and social influences on economic decision making behaviour.
What we do. How we are influenced. What we are likely to do.
Behavioural Economics
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Two applica*ons of Behavioural Economics in Market Research firms
1. Methodology: Controlling impacts
2. Client value: Bridging gap between intended and historical behaviour
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Two applica*ons of Behavioural Economics in Market Research firms
1. Methodology: Controlling impacts
2. Client value: Bridging gap between intended and historical behaviour
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Principle 1.
System 1 and System 2 thinking
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats (“Fast”)
• System 2 = bursts, delibera;ve
(“Slow”)
Principle 1.
System 1 and System 2 thinking
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Wilson & Schooler (1991)
Delibera;ve thinking changed the results
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats (“Fast”)
• System 2 = bursts, delibera;ve
(“Slow”)
Implica*ons
• May be engaging System 2 in
System 1 task
• Ra;onalised response which
won’t translate into real
behaviour
Principle 1.
System 1 and System 2 thinking *
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats (“Fast”)
• System 2 = bursts, delibera;ve
(“Slow”)
Principle 1.
System 1 and System 2 thinking
Applica*ons
• Methodology to engage
System 1 if that is the
business objec;ve
• Client plan to ‘normalise’
System 2 result as System 1
behaviour (habitua;on)
* Implica*ons
• May be engaging System 2 in
System 1 task
• Ra;onalised response which
won’t translate into real
behaviour
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Principle 2.
Deple*on effects
70% vs 10%
Levav, Danziger & Avnaiim-‐Pesso (2011)
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 2.
Deple*on effects
What?
• Cogni;ve strain accumulates,
impac;ng subsequent
behaviour
Implica*ons
• Length of session
• Tasks required
• Time of day
• Decisions taken to get to
research (parking, food,
introduc;ons…)
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 2.
Deple*on effects
What?
• Cogni;ve strain accumulates,
impac;ng subsequent
behaviour
Implica*ons
• Length of session
• Tasks required
• Time of day
• Decisions taken to get to
research (parking, food,
introduc;ons…)
Applica*ons
• Client can use deple;on
to advantage if
‘indulgent’ product
• Eliminate or leverage
cogni;ve load in buying
process
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 3.
Status Quo (Default) bias
Opt in Opt out
☐
Thaler & Sunstein (2008)
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 3.
Status Quo (Default) bias
What?
• Strong preference to leave
things as they are
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 3.
Status Quo (Default) bias
What?
• Strong preference to leave
things as they are
Implica*ons
• Forcing opinion in session m
ay
not translate to real world
where there is always a defau
lt
– usually do nothing
• Clients may need help to move
beyond own status quo
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 3.
Status Quo (Default) bias
What?
• Strong preference to leave
things as they are
• Status quo
Applica*ons
• Test for do nothing – it may
be the most realis;c
outcome
• Overcoming iner;a requires
deliberate strategies
• Request pre-‐commitment
from client about what they
will do with results
Implica*ons
• Forcing opinion in session m
ay
not translate to real world
where there is always a defau
lt
– usually do nothing
• Clients may need help to move
beyond own status quo
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 4.
Anchoring
6, 7, 8, 9
1, 2, 3, 4
$
Ariely, Loewenstein & Prelec (2003)
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 4.
Anchoring What?
• Value anchored by first
available informa;on
• Does not have to be
contextually relevant
• Adjustment in reference
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 4.
Anchoring What?
• Value anchored by first
available informa;on
• Does not have to be
contextually relevant
• Adjustment in reference
Implica*ons
• Subjects will be anchored by
content available to them in
the research environment
• Anchoring will impact results in
real world
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 4.
Anchoring What?
• Value anchored by first
available informa;on
• Does not have to be
contextually relevant
• Adjustment in reference
Implica*ons
• Subjects will be anchored by
content available to them in
the research environment
• Anchoring will impact results in
real world
Applica*ons
• Control for research effects
of anchoring
• Manage client expecta;ons
re anchoring in real-‐world
context
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 5.
Framing
80% chance of survival
20% chance of mortality
X 2
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 5.
Framing What?
• Respondents and Clients will
draw different conclusions
depending on how data is
presented
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
1-‐4 5-‐8 9-‐12 13-‐16 17-‐20 >20
1-‐2 3-‐4 5-‐6 7-‐8 9-‐10 >10
Avg 9-‐12 hrs
Avg 5-‐6 hrs
Please es;mate the average number of hours you watch television per week…
Shafir (2005) cited by Ian McAuley
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 5.
Framing What?
• Respondents and Clients will
draw different conclusions
depending on how data is
presented
Implica*ons
• Results may be tainted by
framing that is ar;ficial vs
real world
• Everything about the
research process is framed
• Decisions about how
informa;on is presented
must be deliberate
• Selec;ve use of verba;ms
and data
•
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
6/10 did… 4/10 did not…
60% did…
Six people out of ten…
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
What?
• Two systems drive thinking
• System 1 = auto pilot, habitual,
threats
• System 2 = intensive bursts,
asks & receives ques;ons
Principle 5.
Framing What?
• Respondents and Clients will
draw different conclusions
depending on how data is
presented
Applica*ons
• Control effects of framing;
randomisa;on or isolate
consistent use
• Use the topic of research as th
e
frame to determine its effects
• Separate data from narra;ve?
• Pre report-‐out workshop wit
h
emphasis on un-‐interpreted data
?
Implica*ons
• Results may be tainted by
framing that is ar;ficial vs
real world
• Everything about the
research process is framed
• Decisions about how
informa;on is presented
must be deliberate
• Selec;ve use of verba;ms
and data
•
*
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Methodology: Controlling impacts
1. System 1 & System 2
2. Deple;on effects 3. Status Quo bias 4. Anchoring 5. Framing
5 Principles we’ve covered:
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Two applica*ons of Behavioural Economics in Market Research firms
1. Methodology: Controlling impacts
2. Client value: Bridging gap between intended and historical behaviour
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Businesses seek to resolve issues
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
When they are really looking to resolve behaviour
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
From
Browser
Competitor
Occasional
Low spend
Small
To
Buyer
You
Frequent
High spend
Large
Business is about behavioural change
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Our issue Research Resolution
Businesses turn to Research to resolve this uncertainty
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
I will… I would… I think…
They did… I observed…
But most research is based on
might do or have done
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
I will… I would… I think…
They did… I observed…
When clients want will do
What will they do?
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
I will… I would… I think…
They did… I observed…
Behavioural Economics can
bridge the gap
Behavioural Economics
They are likely to…
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
How I apply Behavioural Economics
We navigate the world through filters
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Ambiguity effect Anchoring
Bandwagon effect
Certainty bias
Choice bracke;ng
Clustering illusion
Decoupling
Endowment effect
Diagnosis bias
Framing
Hedonic framing Hyperbolic discoun;ng
Informa;on avoidance
Actor-‐observer bias
Availability bias
Impact bias
Mental accoun;ng
Loss aversion
Representa;veness
Resolving cogni;ve dissonance
Status Quo(default) bias
Adapta;on
Comple;on
Contra free loading Drop in the bucket effect
Herding
Ikea effect
Not invented here bias
Pa(ern recogni;on Procedural fairness
Rela;vity Revenge
Short term bias
Self herding
Sunk cost
Vividness Fluency
Judgment heuris;c Halo effect
Systems 1 & 2
Scarcity percep;on
Heuris;cs
Deple;on effects
Free
Inter temporal choice
Confirma;on bias Choice paradox Rules of thumb
Behavioural Economics iden*fies and labels these filters
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
I’ve mapped each behavioural principle to one of four higher order themes
1. System 1 & System 2
2. Deple;on effects 3. Status Quo bias 4. Anchoring 5. Framing
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
I’ve mapped each behavioural principle to one of four higher order themes
1. System 1 & System 2
2. Deple;on effects 3. Status Quo bias 4. Anchoring 5. Framing
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
The four layers framework can be u*lised across each stage of research
Proposal Method In field Analysis Report Extension
✔ ✔ ✔ ✔ ✔ ✔
Behaviour
al
checklist
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Our issue Research Resolution
And applied to help resolve the client issue
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Two applica*ons of Behavioural Economics in Market Research firms
1. Methodology: Controlling impacts
2. Client value: Bridging gap between intended and historical behaviour
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1
Bri Williams
Email bri@peoplepa(erns.com.au
Call 0408 392 173
Follow @peoplepa(erns
Visit www.peoplepa(erns.com.au
Read more on Behavioural Economics
Bri’s blog www.peoplepa(erns.com.au
Bri’s book 22 Minutes to a Be(er Business
Bri Williams, People Patterns, Australia Festival of NewMR 2012 – Training Day – Session 1