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Behavioral Economics - and the customer journey

27.02.2013

If by looking at the picture above you think that the vertical table is longer than the horizontal one, then you are victim of a visual illusion.

A result of evolution, a large part of our brain is dedicated to vision and we make use of it most hours of the day. Yet our intuition fools us in a consistent, persistent way. If we make these repeatable, predictable mistakes in vision, what’s the chance that we don’t make even more mistakes in something that we are not physically ‘designed’ to do?

Let’s take financial decision making, something we don’t have a specialized part of the brain for. What is worse? With visual illusion it is easy to demonstrate the mistakes (take a ruler and measure the two table tops). With ‘cognitive illusions’ it’s much harder to demonstrate the mistakes. We don’t have an easy way to ‘see’ them.

A field that increasingly recognized in providing insights into understanding this is Behavioral Economics. This field, popularized by a range of writers including Malcolm Gladwell to Daniel Khanneman, has built a strong following among a range of professionals concerned with consumer behavior not simply from a commercial perspective, but right through to what this means for shaping public policy.

Behavioral Economics is the idea that people don’t always make strictly rational decisions. This is not to say that we are always destined to make the wrong decision; patently we don’t. Within the limits of our brainpower and our ability to process all relevant information to the problems we have to solve, we are able to function effectively for the majority of our needs. But because this is done by using simple rules of thumb (in other words, making shortcuts and not always using optimal (strategies), we occasionally get things wrong.

So how can the understanding of consumers that Behavioral Economics gives us assist in the design and marketing of products and services? The answer is in many different ways, but here we have picked out some important principles that are relevant. This is by no means an exhaustive list but provides a useful starting point for thinking about how to apply Behavioral Economics to your business issues.

Download our full report now.

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