Behavioural Economics – the Missing Piece of the Marketing Strategy

 

The following is an extract from my interview with ‘The Wiki Man’ Rory Sutherland.

You may know him from that one Ted Talk we’ve definitely all seen and shown to our mammies – Lessons from an Ad Man (although she still doesn’t quite know what you do).

 Generally, Rory is seen as a very engaging and entertaining figure in adland – with the added bonus of being one of the few people who seems to be able to explain how marketers can potentially add great value. However, he is also one of the few people in our industry who regularly speaks about the importance of behavioural economics in understanding how people really think – rather than what they report in a focus group or in knee-jerk response to questions ‘Why did you choose that particular car/college/political party/husband/low-fat-own-brand yogurt?!  An area that – in today’s world of mysteriously guarded algorithms, the Never-Seems-to-Quite-Get-off-the-Ground-Year-of-the-Techy-Yoke’ and mechanics masquerading as ideas, is a sadly rare thing. As such, attention should be paid. Advice should be taken. He is someone who’s regular musings in the likes of The Spectator and WARC, have spurred on my own obsessive interest over the last few years, in the theories of behavioural economics – particularly from the perspective of how they may be applied to making better marketing…

You can listen to the full half-hour interview here. If you find it interesting there are a mountain of books worth. Dan Ariely is a particularly good starting point. You also really really should check out Kilkenomics this year – a far more worthwhile excursion for any marketer than an actual ‘marketing’ or ‘digital’ conference.

Why Behavioural Economics Matters to Business and Marketing

We live in an era of rapid innovation and change. Meanwhile, however, our brains have stayed much the same as our neolithic ancestors. When it comes not only to marketing but getting things right in tech, business and public policy this is a big problem because it’s often completely forgotten when it comes to approaching challenges and the solutions we arrive at.

Human beings are not, rational (you only have to look to the last year in politics to understand that) but doesn’t mean they cannot be a lot better understood than currently…

Rory:

The problem, I think, is that a large number of people  – no ‘normal’ people, no commonsense everyday people – but a large number of people in the policy making, or high in the chain of command in business, tend to use economic theory as a proxy for psychological understanding. They presume that people will behave in a way that’s in accordance with these economic models because it seems kind of initially plausible. Now, if you do have that belief, the problem is you’ll start introducing policies or products or start promoting products in ways that will be surprisingly unsuccessful because you’ve missed that extra dimension of human behaviour. And my view is that whole discipline needs to be evolutionary psychology and it needs to be heavily informed by what you might the decision sciences and the difficulty of making decisions with imperfect information and uncertainty.

Economics – to make everything mathematically neat – makes a series of assumptions, one of which is that people have perfect information when they decide and they’re doing it in an atmosphere of perfect trust. Firstly, such imaginary conditions virtually never exist. Secondly, even if you could create those conditions, our brains did not evolve to make decisions under those conditions. Because in our ancestral environment – as today – those conditions were so rare, except in cases of things like maths problems – where there is a single ‘right answer’. But most real world decisions are nothing like that. You don’t have all the information you need and you can’t come up with a single, optimal, right answer. And my contention is that what we do is something fundamentally different and that is that we have a pretty good answer and when you have a degree of uncertainty when you make a decision (in other words, you are deciding probabilistically) you can’t just factor in what the best thing will be on average, you also have to factor in the variants. There could be a course of action which 95% of the time is very good, and 5% of the time is catastrophic. So let’s say you’re in the Amazon and you see some particularly fine fruit on the top of a tree. It’s the best fruit on the top of the tree… but it comes with a 1% chance of getting killed. Is it really worth climbing the extra 20ft?  In terms of effort, ‘yes’. Once you factor in the potential for extinction, evolution tends to weed out those people who aren’t well attuned not only to the question of what is good but also to ‘what’s the worst that can happen?’ I would say that a large amount of human behaviour – in fact pretty much all of it – can only be understood from understanding people are not only looking for ‘good things’ but avoiding catastrophe and disaster. A very very large amount of business behaviour isn’t really optimising anything, it’s asking the question unconsciously ‘How can I avoid being fired?‘ and ‘How can I avoid being shouted at?’

So once you understand that the avoidance of negatives brings with it different rules for the pursuit of positives, you think about decision making differently!

Check out the full interview – in the much easier to digest audio format on Soundcloud. Be sure to follow the deadly Kilkenomics team on the social so you don’t miss the next event – tickets sold out fast last time!

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