Behavioural Economics – Page 6

Why focus groups cannot be relied upon

Published September 2, 2015 by Anand Damani

Marketers rely a lot on traditional research like focus groups to understand consumer’s motivations toward their brand, product and category. Researchers ask people for their opinion about their product, packaging or concepts to pick insights about their appeal, and get wonderful feedback that is sincere, detailed, and emphatic but has little relation to the truth.

Imagine you’re coming back from a party that was at a lavish penthouse of an industrialist. You say you had a lovely time and I ask you what you liked about it. You say “the drinks”. But did your joy really come from talking to the attractive woman who wrote the latest fictional best seller? Or was it something you really relished like the food? Or was it something subtler, like the quality of the music? Or the scent of citrus that filled the house? Or was it the fact that you got to network with influential people?

Leonard Mlodinow, author of many books including ‘Subliminal’ says, when we come up with an explanation for our feelings and behaviour, our brain searches our mental database of cultural norms and picks something plausible. In the above case, your brain might have asked ‘Why do people enjoy parties?’ and chosen ‘the drinks’ as the most likely hypothesis, if ‘drinks’ happen to conform to a set of standard reasons, expectations, cultural and societal explanations for a given preference.

In a study mentioned in ‘Subliminal’, women were shown four pairs of silk stockings that were absolutely identical, except that each had a different and very faint scent applied to it. The women were asked to choose their favourite and they found no difficulty in telling why one pair was better than the other. They spoke of perceived differences in texture, weave, feel, sheen and weight. Everything but the scent. In reality, stockings with one particular scent were rated the highest, much more often than the others, but the women denied using scent as a criterion. In fact only 6 out of the 250 women even noticed that the stockings had been perfumed.

Truth is we most often don’t understand our own preferences. Despite that, we usually think that we do. And when asked to explain why we feel a certain way, most of us, after giving it some thought, have no trouble supplying many reasons that sound plausible.

It’s a market researchers nightmare – you can’t even trust people to know what they prefer, leave alone why. That’s why we rely on the knowledge of the human brain, human physiology, cognitive neuroscience, behavioural economics and proven experiments conducted by the best in the world to understand human behaviour and create Behavioural Design solutions.

Why 99% of Austrians donate their organs

Published August 11, 2015 by Anand Damani

Eric Johnson and Dan Goldstein conducted an interesting online experiment in 2003, asking people whether they would be willing donors. Some people were told that the default was not to be an organ donor, and they were given the option of confirming or changing the default status. Others were told that the default was to be an organ donor, and again, they were given the option of confirming or changing the default status. When participants had to opt in to being an organ donor, only 42% did so. But when they had to opt out, 82% agreed to be donors.

To get a sense of the power of the default rule, consider the difference in organ donation rates between two similar European countries, Germany and Austria. In Germany, which uses an opt-in system, only 12% of citizens gave consent, whereas in Austria which uses an opt-out system, nearly everyone (99%) did.

Of course a successful organ donation program needs the infrastructure of the medical system in matching donors with recipients, transporting organs and performing successful transplants. But keeping everything constant, default option still plays a major role in increasing the donation rate.

In some countries like France, though the default rule is to be a donor, doctors still ask the family members for permission. Even then the default rule matters. As Childress and Liverman put it, “The next of kin can be approached quite differently when the decedent’s silence is presumed to indicate a decision to donate, rather than when it is presumed to indicate a decision not to donate.”

How many of you have changed the default settings of your mobiles? This power can be harnessed to change behaviour. Setting default options can have huge effects on the outcomes, from increasing organ donations to increasing personal savings to making better investments. Never under-estimate the power of inertia.

Sources: Eric J. Johnson & Daniel G. Goldstein – Do Defaults Save Lives? Science, Vol. 302, pp. 1338-1339 (2003)

Alberto Abadie & Sebastien Gay – The Impact of Presumed Consent Legislation on Cadaveric Organ Donation: A Cross Country Study – Journal of Health Economics 25, 599–620 (2006)

Smoking – the toughest habit can be broken

Published July 14, 2015July 14, 2015 by Anand Damani

We’re non-smokers, but we empathize with those who want to quit after years of smoking. It’s not easy. People try lots of things to quit smoking – nicotine patches, cold turkey, replacing the cigarette with something to keep them busy, avoiding the spots where smokers congregate, making new year resolutions, promising their kids/wives/girlfriends, what not. Few succeed, most fail.

We’ve chanced upon something that has proved to be more successful than any other way to quit smoking. CARES – Committed Action to Reduce and End Smoking – is a savings program offered by the Green Bank of Caraga in Mindanao, Philippines. Here’s how the savings program works. The smoker opens an account with a minimum balance of $1. For 6 months, the smoker deposits the amount of money he (includes ‘she’) would otherwise spend on cigarettes into the account. After 6 months, the client takes a urine test to confirm that he has not smoked. If he passes the test, he gets his money back. If he fails the test, the account is closed and the money is donated to charity.

Results of this program have been evaluated by MIT’s Poverty Action Lab and look better than other anti-smoking tactics. Opening an account makes those who want to quit 53% more likely to achieve their goal. In a study done by Xavier Gine, Dean Karlan and Jonathan Zinman, those who were offered CARES, including those who turned it down, were about 45% more likely to pass the nicotine test than the control group. Would smokers relapse once the 6 months were over and the pressure was off? After another six months of the 6-month program, researchers found that customers who took up CARES and even those who were offered but didn’t enroll, did markedly better than the control group.

If you wish to quit smoking in the same manner by depositing money with us, email us at anand@brief-case.co Seriously, no kidding. We’ll do a test after around 6 months. We can agree to donate to a charity you don’t like. So that adds to your motivation to quit. And, if you want to commit to any other self-improvement, we’re open provided it can be verified whether you have achieved it or not.

Source: Xavier Gine, Dean Karlan, Jonathan Zinman – Put your money where your butt is: A commitment contract for smoking cessation – American Economic Journal: Applied Economics 2(4):1-26 (2010)

Small ideas make a big difference

Published May 5, 2015 by Anand Damani

There are lots of small everyday things that could benefit from being designed better. Things we take for granted in everyday life. But when designed well, things just work, leading to enhanced experience, satisfied customers, appropriate actionability, increased sales, etc. This post is about few of such small everyday ideas.

Like handles on doors. If there is a handle on the door, the tendency is to pull it. But almost all doors have a handle on the side it says push, too. If the door needs to be pushed, why have a handle? Simply keep it flat and we’ll push it.

When composing emails, wish there was a reminder to attach our files, when words like ‘attached’ or ‘attachment’ were found in the composed email.

‘No Parking on Odd dates 1 3 5’ and ‘No Parking on Even dates 2 4 6’ tend to be so cumbersome. We need to first think about what date it is today, then figure that its ‘No Parking’ on that side, which means we can park on the opposite side. Instead what if we had ‘Parking on Odd dates only’ and ‘Parking on Even dates only’.

Because there are two traffic signals in view at all times, one after the zebra crossing and one much ahead on the other side of the junction, we Indians always push ahead wanting to be first (in whichever race that is) therefore not stopping at the zebra crossing and not allowing pedestrians to cross. So to get cars to stop at the zebra crossing, only one traffic signal needs to be there, placed just before the stripes begin.

Instead of having to choose from financial retirement plans with complicated numbers, what if we could choose, by looking at pictures of different homes (1, 2, 3, 4 BHK) that could be bought with different levels of retirement income.

I often get asked about what mega-pixel camera on the phone is good. Fact is that we don’t understand what mega-pixels mean. What will be useful to us is the information of what mega-pixel matched what size of print. But we know this one won’t happen, else phone and camera manufacturers won’t be able to convince us to mindlessly upgrade.

Remember using the plastic card key in your hotel room to start and switch off the power. Wouldn’t it be convenient to have one in our home, so that we could start/switch off the power with one stroke and do away with the nagging feeling of not having turned off the geyser or gas or some other appliance after leaving home?

The tendency is to think of these design ideas as small (insignificant) ideas, but they are the ones that make for the most awesome product, service experiences and of course get us to behave.

The way a restaurant bill gets split affects what’s ordered

Published March 31, 2015March 31, 2015 by Anand Damani

How do you split the bill while eating out at a restaurant with friends? Equally? Or depending on whose had what?

In Germany diners usually figure out the price of their individual bills and no one feels bothered. But in Israel or US or India for that matter, such behaviour may be considered rude. Irrespective, the interesting part is how splitting the bill affects ordering behaviour.

Behavioural economist Uri Gneezy and colleagues divided students who didn’t know each other, into 3 groups of diners, based on how they paid the bill. In the first group, six diners (three men and three women) paid individually. In the second, they split the bill evenly. In the third, the researchers paid for the whole meal.

Turns out, the way you split the bill affects what you order. Of course people ate the most when the researchers paid. But when it came to the equal bill-splitting group, people tended to order more expensive items, than they did when each person paid for his or her own meal. Because for every rupee/dollar they ordered, they had to pay only one-sixth of the cost. So why not order the most expensive dishes? It’s about the incentives, not about individual personalities.

Uri Gneezy, says, “This is an example of negative externality – someone else’s behaviour affects your well-being. Let’s say you are a non-smoker, and a smoker sitting next to you decides to light up. He enjoys his cigarette, but you are also ‘consuming’ his smoke. The guy smoking has bestowed a negative externality on you. The party consuming the goods is not paying all of its cost. In the bill-splitting situation, the person enjoying the large, expensive lunch is doing the same thing. People simply react to the incentives they are facing.”

Source: Uri Gneezy, Ernan Haruvy and Hadas Yafe – The inefficiency of splitting the bill – Economic Journal 114, no. 495: 265-280 (April 2004)

Women are better stock investors than men

Published February 24, 2015February 24, 2015 by Anand Damani

Most of us including women, stereotype genders. We tend to think women are better at home in the kitchen while men are better at earning money. While some stereotypes are true, this one about whose the better investor is a counter-intuitive one.

Terry Odean, a University of California professor, has studied stock picking by gender for more than two decades. A seven-year study found single female investors outperformed single men by 2.3 percent, investment groups with females outperformed male counterparts by 4.6 percent. Why? The short answer is overconfidence. Men have more knowledge about investment, but it makes them overconfident and take undue risks. Women on the other hand, take fewer undue risks, rely on simple heuristics such as ‘buy what you know’ and ‘diversify equally’, which have been tested to give better returns.

Additionally, men hold onto their losers a lot longer than women. They’re sure the stock will come roaring back — even as it sinks. Men with our macho-ness don’t want to admit we’re wrong. So we tend to hold on to loser stocks. Women are more loss averse than men, more emotionally unattached and are far quicker to unload losers.

Though science proves women make for better investors, men will likely continue to think otherwise. Men will be men.

Sources: B. M. Barber and T. Odean – Boys will be boys: Gender, overconfidence and common stock investment – The Quarterly Journal of Economics 1, 261-92 (2001)

Ortmann, G. Gigerenzer, B. Borges and D. G. Goldstein – The recognition heuristic: A fast and frugal way to investment choice? – C. R. Plott and V. L. Smith (Eds.) – Handbook of experimental economics results: Vol. 1 (pp. 993-1003): Amsterdam: North-Holland.

The smartest thing on the idiot box

Published January 19, 2015January 19, 2015 by Anand Damani

Behavioural Design is on National Geographic Channel.

Behavioural scientist Daniel Pink is doing a show called Crowd Control. Its a series of experiments that use behavioural science to solve public problems like how to get kids to not pee in the pool, how to get people to follow instructions in emergency flight landings, etc.

It’s on National Geographic Channel on Mon-Thur 10pm India time.

Because it’s a TV show, they’ve had to factor in the entertainment quotient. That’s why few of the solutions are not scalable. Nevertheless they make for some of the smartest ideas you’ll see on TV.

See the edited video clips of the experiments right now here.

Talk on Investor behaviour (Franklin Templeton)

Published November 8, 2017December 29, 2014 by Anand Damani

We spoke on Investor Behaviour at Franklin Templeton’s Independent Financial Advisor convention in Bali on 12th December.

Our presentation was about investor’s biases, heuristics and rules of thumbs. We also conducted a live auction that brought alive our irrational behaviour amongst the audience who participated in it.

The rest again is confidential material. But we will be posting many articles on behaviour – consumer, employee, shopper, investor, public that we promise.

Have an awesome year.

Behavioural Design for The Economist

Published February 11, 2015December 9, 2014 by Anand Damani

In a pilot for The Economist India, Briefcase demonstrated 20% savings of the customer retention budget.

In the challenging environment of magazine subscription renewals, Briefcase achieved similar subscription renewals as existing levels, but at 20% lesser cost. Thus demonstrating a 20% savings in the customer retention budget.

The rest of course is confidential.

People Power video (2min)

Published February 11, 2015November 7, 2014 by Anand Damani

Our experiment People Power in which we got people to reduce power consumption at no cost, explained in under 2 minutes. To know about the power crises in India and the details about the experiment please click here.

People Power has been featured in Fast Company, The Times of India, DNA and has got more than 1,50,000 views on The Logical Indian.

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