Behavioral Economics
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Transcript of Behavioral Economics
Behavioral EconomicsA Story About Chemical Incentives and Decisions
Presented By: Jeff Otto
www.productcollaborative.com
What Is It?
Conventional Economics“Human Decision Making Is Rational” “Eh..Not So Much…”
Hit Me!
Behavioral Economics
A Little History…
Adam Smith
Human behavior is under the influence of the passions
The Godfather of Behavioral Economics
Deep In Our Brain, Chemicals Drive Us
(3) Neocortex Brain
– Our Analytical Mind
(2) Limbic Brain
– Our Emotional Mind
(1) Reptilian Brain
– Our Instinctive Mind
Deep In Our Brain, Chemicals Drive Us
DopamineSerotoninOxytocinCortisol
Why Is This Relevant To You?
(there is a dark side)
Get Your Money’s Worth…
DOPAMINE (SIMPLIFIED)
Dopamine - The Brain’s Candy
YOUR BRAIN ON DOPAMINE
The Feeling of Accomplishment
= =
Practical Example To Triggering Dopamine
Trey Parker and Matt Stone’s Take On This
YOU DIDN”T BUILD A MOBILE GAME, YOU BUILT
AN “ADDITION MACHINE”!!!
Serotonin Addiction (Personified)
Practical Example To Triggering Serotonin
Give PUBLIC Recognition and Status To Your Users, Customers, Employees:
Oxytocin – The Love & Trust Molecule
Practical Example To Trigger Oxytocin
Build User / Customer Communities and Encourage:
Cortisol – The Stress Hormone
Too Much Jam! - Triggering Decision Paralysis
60% of people stopped at the booth with more choices
60%
40%
40% 60%
But…10x more people purchased from the booth with fewer choices
3%
30%
67%
30% 3%
Analyzing Decision Paralysis
1 – 6 Choices 7 – 20 Choices 21 + Choices
I can handle that.. I’m a little overwhelmed Ahh… I need help deciding!
Consumers are initially attracted to a broad variety BUT when making a purchase decision…
They Freeze Up
Four Options Is The Psychological “Sweet Spot”
Recap of Key Take Aways
Chemical What is it?How to trigger it(or avoid triggering it)
Dopamine “Brain Candy”Congratulate, set markers to show progress, and remind users of the reward at the end.
Serotonin “Power Molecule”Give status, give badges of honor, and give them publicly
Oxytocin “Love & Trust Builder”Let your user community share, collaborate and let them “like” each other.
Cortisol “The Stress Hormone”Make decisions easy, don’t give prospects more than 4 options and default their choices.
Want to dig deeper? - Works Cited In Today’s Talk:
• A Random Walk Down Wall Street, The Time-Tested Strategy for Successful Investing - Burton Malkiel
• Manipulate Me: The Booming Business In Behavioral Economics – Ben Steverman, Bloomberg.com
• Adam Smith, Behavioral Economist? Interview with Professor Nava Ashraf, Harvard Business School
• Leaders Eat Last – Why Some Teams Pull Together And Others Don’t – Simon Sinek
• Predictably Irrational, Hidden Forces That Shape Our Decisions – Dan Ariely
• 5 Behavioral Economics Principles Marketers Can't Afford to Ignore – Piyanka Jain and Mukul Patki, Forbes March 1st 2013
• When Choice is Demotivating: Can One Desire Too Much of a Good Thing? Sheena S. Iyengar and Mark R. Lepper, Columbia University
• Too Many Choices: A Problem That Can Paralyze, Alina Tugend, New York Times
• Cowan, Nelson (2001). "The magical number 4 in short-term memory: A reconsideration of mental storage capacity". Behavioral and Brain Sciences 24(1): 87–114; discussion 114–85.
Thank You!
Jeff Otto
www.productcollaborative.com