Millions of shoppers prepare for Boxing Day bargains every year.
With Christmas just around the corner, and our shopping baskets ready to be filled to the brim with items we have gathered during the Boxing Day Sales. It is Britain’s equivalent of Black Friday, which gives psychologists and marketers plenty to study when itcomes to the predictably irrational behavior of consumers.
One of the main qualities people love to pride themselves in as a species is our exceptional flair when it comes to reason and rationality.However, it turns out that as much as we like to think of ourselves as the symbol of rationale; quite often we aren’t.
This is so much to the extent that it has guided an entire field within psychology and economics known as behavioral economics – which applies psychological insights of irrationality into the understanding of economics and business.
How often have we continued eating the food we don’t enjoy because we already paid for it or bought clothes we didn’t really need because they were on sale? Well, these are all daily examples of when we have acted irrationally – and behavioral economics has gone a long way to try and understand these unconscious biases which drive our behavior and decisions.
Daniel Kahnerman, famous for his ground-breaking book, Thinking Fast and Slow is the Nobel-winning psychologist who explored profoundly, the irrational processes that are present during our everyday decisions.
A very simple problem can be proposed:
A bat and ball cost $1.10. The bat costs one dollar more than the ball. How much does the ball cost?
If the answer that came to mind was $0.10 or 10 cents, sadly, you would be incorrect. However, you are not alone as over 50% of Harvard students also gave the same incorrect answer and over 80% did so in less selective schools!
The correct answer is in fact, 5 cents, or $0.05, yet your intuition immediately might have told you otherwise.
This is because intuition is not always accurate.
Kahneman suggested that our brain is split into two systems. System 1 which is intuitive and unconscious (used to drive us toward the wrong answer in the above example) and system 2, which is slower and more deliberate (this is what we use when making complex decisions.)
The whole concept is that humans are lazy – our brain employs cognitive shortcuts to speed up our capacity to make judgments and complete tasks.
Kahnerman described these mental shortcuts as heuristics and gave a few key examples of ones which we use:
The availability heuristic is used when we estimate frequency/probability based on the ease with which examples come to mind. This is probably why you think you do the washing up more often than your spouse/roommate because it is easier to recall the instances when you were actively cleaning the dishes than the other instances where you were watching TV instead.
Kahnerman demonstrated this effect in an interesting study where he asked participants to state whether there were more words in the English Language beginning with the letter ‘R’ than words containing R’ as the third letter. Despite there being twice as many words with R as its third letter – 70% of participants guessed incorrectly.
So, what does this mean for us?
It could be that our exposure to social media and the news has powerfully affected our accuracy to recall events and our judgment of its frequency.
For example, if you were asked which is more likely to kill you:
WASP OR SHARK?
You would probably say a shark, despite it contributing to only about 6 deaths every year. The Mother Nature Network made quite an entertaining list of things more likely to kill you, which included hippos and other sites including footballs and vending machines.
However, if you search “Shark Attack” on google, you will find countless results from news articles reporting fatal attacks caused by sharks.
Steven Pinker uses the availability heuristic to explain why so many people have a fear of flying, yet nearly nobody has a fear of cars (which kill thousands of people each year.) The reason is obvious, because plane crashes always make the news, yet car crashes never do.
Anchoring and Adjustment:
Another heuristic that sales-people love to take advantage of is called anchoring and adjustment. This is used when we begin with an initial estimate of the answer to a problem and then attempt to adjust this estimate even when the original value is obviously arbitrary.
To understand the effect of anchoring, a great example was given in a study by Tversky & Kahneman (1974) who spun a rigged wheel of fortune always exposing participants to either a 10 or 65. They were then asked if the percentage of African countries in the UN was smaller or greater than the number produced by the wheel.
When they were finally asked to estimate how many countries in the UN were African, people who landed on 65, gave an average estimate of 45%, whereas those who landed on 10, gave an average estimate of 25%.
Now although, this study might seem trivial (which it is) – Dan Ariely, author of the book Predictably Rational conducted a study which demonstrates how marketing can often be used to take advantage of this.
Ariely was scrolling through the economist’s website when he discovered that they were offering the following yet unusual subscription deals:
1) Online Subscription – $59.00
2) Print Subscription – $125.00
3) Print + Online Subscription – $125.00
Although, when he addressed the peculiarity to the Economist, it was very quickly updated – Ariely went onto investigating this in a study replicating the exact offers and what he found was astonishing!
Only 16% of participants opted in for the web-only subscription, and 84% would choose the print and web subscription. Zero chose the print-only subscription.
However, when the second choice was removed completely from the equation, leaving just the web-only subscription and the print and web subscription, the results shifted to 68% choosing the web subscription and only 32% choosing the print and web subscription for $125.
The mere exposure to an entirely unrelated option altered the results completely, demonstrating the power of using an anchor.
We are very susceptible to making irrational and impulsive decisions. However, understanding the unconscious forces behind this should hopefully discourage you from being ripped-off by cars salesmen or from being frightened that your Jaws nightmare will come to life.