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Five pitfalls of behavioural economics

Category: Blog & News

I was recently interviewed for a piece on how businesses were using behavioural economics, and where they were going wrong. While there’s plenty of upside in applying behavioural science, there are five pitfalls that you should know about so you can enjoy the spoils and avoid the foils.

Pitfall #1. Thinking it only applies to customers

Behavioural economics is the study of how emotional, social and cognitive biases and heuristics impact behaviour. Behaviour is the operative word here, because the same forces that impact your customer are impacting you, your colleague, your boss, your supplier and your stakeholder.

In short, behavioural economics applies to every interaction you have. That means you can use the same knowledge about how to influence a customer to influence anyone else. Limiting it to an external audience means you are short changing yourself.

  • Take an advertising agency, for example. Not only should their campaigns be based on insights from behavioural science, they should be using behavioural science to influence their client’s decision making. How? Being deliberate about how they communicate their ideas – what day, time, location, sequence?
  • For a marketer, they should not only be using their BE skills in copywriting and constructing a brief, they should be using them to influence finance for budget decisions, sales for campaign support and the CEO for endorsement of a creative idea.
  • For a business owner, not only should BE be used to maximise website conversion and the effectiveness of sales and customer service teams, it should be applied to staff attendance and performance, productivity and supplier negotiations.

And just like me, you too are susceptible to behavioural influence. You can use your knowledge of BE to improve your own health, productivity and wellbeing by designing your environment to reduce the likelihood of flawed decision-making. Being deliberate about where you store food, the size of your crockery, how you incorporate movement into your day, what times you do different types of task, what you read and who you have around you can have a significant impact on your life.

Pitfall #2. Not understanding the relationship between principles

Behavioural economics is a sprawling field with over 150 principles. The challenge is not only to understand all the biases and heuristics, but also understand the interplay between them.

The most obvious example of a tension between principles is how social norms relate to uniqueness. Where a norm signals the accepted “herd” behaviour, uniqueness is our need to define ourselves as individuals. Being too explicit about a norm can therefore impinge upon uniqueness and result in avoidance behaviour.

My way of helping clients wrap their arms around BE is to bring it back to a framework based on getting people to take action. If we want someone to move from A to B, what behavioural barriers are getting in the way? (More on that here)

Pitfall #3. Not considering what the current behaviour is

It can be tempting in this fast paced world to jump to solutions. We want customers to buy, website visitors to click, colleagues to do what they’re asked, stakeholders to endorse our plans and so on.

But before we can define the best solution we need to understand the problem. It starts by asking yourself two questions:

  • What are they currently doing? (current behaviour)
  • What do I want them to do? (desired behaviour)

Only by asking these two questions will you get a sense of the “delta” – the change required – upon which you can then layer behavioural economics.  Again, the framework I have created is designed to make this as easy as possible, first analysing the reasons for people not budging from their current behaviour (Apathy, Paralysis and Anxiety) and then designing solutions to address each of these three barriers.

Pitfall #4. Seeking to validate with rationalised decisions

I’ve seen this in market research and with marketers; they diligently apply BE to hypothesis generation and ideation only to revert to focus groups or opinions to validate their concept.  Here’s the problem. Asking people what they think engages a System 2, rationalised response where System 1 is usually the one making the decision. Had he listened to the people who said they didn’t want to see dust, Dyson would never have made one of the world’s most popular vacuum cleaners.

I get it though. Self-reported input is seductive – it feels like you are getting the answers directly from those you are targeting. But what people say and what they do can be very different things. Beware opinion and instead prioritise observation.

Pitfall #5. Not adopting a ‘test and learn’ mentality

While behavioural economics uses science to examine and demystify the curiosities of human behaviour, it is a recipe book rather than rulebook. As such, you’ll get maximum benefit from experimenting with BE – using it in small trials like an email campaign where half your list get the normal (control) version and half the BE version. Experiment with low exposure, low cost, measureable initiatives, frame it as a “BE pilot program” to reduce perceived risk and have some fun.

There's one final pitfall I'd like to mention, and that's pitfall #6, not using behavioural economics at all. While BE needs to be used properly to have the desired impact, sticking instead with how you've done things means you risk basing your business on a decision-maker that doesn't exist. If you want things to change, you need to change how you do things.

This article also appeared in Smartcompany.

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Bri Williams deletes all buying hesitation and maximises every dollar of your marketing spend by applying behavioural economics to the patterns of buying behaviour. More at www.briwilliams.com.au.


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