I recently read Predictably Irrational.
It's a fascinating examination of why human beings are wired and conditioned to react irrationally. We human beings are a selfish bunch, so it's all the more surprising to see how easily we can be manipulated to behave in ways that run counter to our own self-interest.
This isn't just a "gee-whiz" observation; understanding how and why we behave irrationally is important. If you don't understand how these irrational behaviors are triggered, the marketing weasels will use them against you.
In fact, it's already happening. Witness 10 Irrational Human Behaviors and How to Leverage Them to Improve Web Marketing. Don't say I didn't warn you.
Let's take a look at the various excerpts presented in that article, and consider how we can avoid falling into the rut of predictably irrational behavior – and defend ourselves from those vicious marketing weasels.
1. Encourage false comparisons
When Williams-Sonoma introduced bread machines, sales were slow. When they added a "deluxe" version that was 50% more expensive, they started flying off the shelves; the first bread machine now appeared to be a bargain
When contemplating the purchase of a $25 pen, the majority of subjects would drive to another store 15 minutes away to save $7. When contemplating the purchase of a $455 suit, the majority of subjects would not drive to another store 15 minutes away to save $7. The amount saved and time involved are the same, but people make very different choices. Watch out for relative thinking; it comes naturally to all of us.
- Realize that some premium options exist as decoys – that is, they are there only to make the less expensive options look more appealing, because they're easy to compare. Don't make binding decisions solely based on how easy it is to compare two side-by-side options from the same vendor. Try comparing all the alternatives, even those from other vendors.
- Don't be swayed by relative percentages for small dollar amounts. Yes, you saved 25%, but how much effort and time did you expend on that seven bucks?
2. Reinforce Anchoring
Savador Assael, the Pearl King, single-handedly created the market for black pearls, which were unknown in the industry before 1973. His first attempt to market the pearls was an utter failure; he didn't sell a single pearl. So he went to his friend, Harry Winston, and had Winston put them in the window of his 5th Avenue store with an outrageous price tag attached. Then he ran full page ads in glossy magazines with black pearls next to diamonds, rubies, and emeralds. Soon, black pearls were considered precious.
Simonsohn and Loewenstein found that people who move to a new city remain anchored to the prices they paid in their previous city. People who move from Lubbock to Pittsburgh squeeze their families into smaller houses to pay the same amount. People who move from LA to Pittsburgh don't save money, they just move into mansions.
- Scale your purchases to your needs, not your circumstances or wallet size. What do you actually use? How much do you use it, and how frequently?
- Try to objectively measure the value of what you're buying; don't be tricked into measuring relative to similar products or competitors. How much does buying this save you or your company? How much benefit will you get out of it? Attempt to measure that benefit by putting a concrete dollar amount on it.
3. It's "Free"!
Ariely, Shampanier, and Mazar conducted an experiment using Lindt truffles and Hershey's Kisses. When a truffle was $0.15 and a kiss was $0.01, 73% of subjects chose the truffle and 27% the Kiss. But when a truffle was $0.14 and a kiss was free, 69% chose the kiss and 31% the truffle.
According to standard economic theory, the price reduction shouldn't have lead to any behavior change, but it did.
Ariely's theory is that for normal transactions, we consider both upside and downside. But when something is free, we forget about the downside. "Free" makes us perceive what is being offered as immensely more valuable than it really is. Humans are loss-averse; when considering a normal purchase, loss-aversion comes into play. But when an item is free, there is no visible possibility of loss
- You will tend to overestimate the value of items you get for free. Resist this by viewing free stuff skeptically rather than welcoming it with open arms. If it was really that great, why would it be free?
- Free stuff often comes with well hidden and subtle strings attached. How will using a free service or obtaining a free item influence your future choices? What paid alternatives are you avoiding by choosing the free route, and why?
- How much effort will the free option cost you? Are there non-free options which would cost less in time or effort? How much is your time worth?
- When you use a free service or product, you are implicitly endorsing and encouraging the provider, effectively beating a path to their door. Is this something you are comfortable with?
4. Exploit social norms
The AARP asked lawyers to participate in a program where they would offer their services to needy employees for a discounted price of $30/hour. No dice. When the program manager instead asked if they'd offer their services for free, the lawyers overwhelmingly said they would participate
- Companies may appeal to your innate sense of community or public good to convince you to do their work at zero pay. Consider carefully before choosing to participate; what do you get out of contributing your time and effort? Is this truly a worthy cause? Would this be worth doing if it was a paid gig?
- When it comes to the web, make sure you aren't being turned into a digital sharecropper.
5. Design for Procrastination
Ariely conducted an experiment on his class. Students were required to write three papers. Ariely asked the first group to commit to dates by which they would turn in each paper. Late papers would be penalized 1% per day. There was no penalty for turning papers in early. The logical response is to commit to turning all three papers in on the last day of class. The second group was given no deadlines; all three papers were due in the last day of class. The third group was directed to turn their papers in on the 4th, 8th, and 12th weeks.
The results? Group 3 (imposed deadlines) got the best grades. Group 2 (no deadlines) got the worst grades, and Group 1 (self-selected deadlines) finished in the middle. Allowing students to pre-commit to deadlines improved performance. Students who spaced out their commitments did well; students who did the logical thing and gave no commitments did badly.
- Steer clear of offers of low-rate trial periods which auto-convert into automatic recurring monthly billing. They know that most people will procrastinate and forget to cancel before the recurring billing kicks in.
- Either favor fixed-rate, fixed-term plans – or become meticulous about cancelling recurring services when you're not using them.
6. Utilize the Endowment Effect
Ariely and Carmon conducted an experiment on Duke students, who sleep out for weeks to get basketball tickets; even those who sleep out are still subjected to a lottery at the end. Some students get tickets, some don't. The students who didn't get tickets told Ariely that they'd be willing to pay up to $170 for tickets. The students who did get the tickets told Ariely that they wouldn't accept less than $2,400 for their tickets.
There are three fundamental quirks of human nature. We fall in love with what we already have. We focus on what we might lose, rather than what we might gain. We assume that other people will see the transaction from the same perspective as we do.
- The value of what you've spent so far on a service, product, or relationship – in effort or money – is probably far less than you think. Be willing to walk away.
- Once you've bought something, never rely on your internal judgment to assess its value, because you're too close to it now. Ask other people what they'd pay for this service, product, or relationship. Objectively research what others pay online.
7. Capitalize on our Aversion to Loss
Ariely and Shin conducted an experiment on MIT students. They devised a computer game which offered players three doors: Red, Blue, and Green. You started with 100 clicks. You clicked to enter a room. Once in a room, each click netted you between 1-10 cents. You could also switch rooms (at the cost of a click). The rooms were programmed to provide different levels of rewards (there was variation within each room's payoffs, but it was pretty easy to tell which one provided the best payout).
Players tended to try all three rooms, figure out which one had the highest payout, and then spend all their time there. (These are MIT students we're talking about). Then, however, Ariely introduced a new wrinkle: Any door left unvisited for 12 clicks would disappear forever. With each click, the unclicked doors shrank by 1/12th.
Now, players jumped from door to door, trying to keep their options open.They made 15% less money; in fact, by choosing any of the doors and sticking with it, they could have made more money.
Ariely increased the cost of opening a door to 3 cents; no change–players still seemed compelled to keeping their options open. Ariely told participants the exact monetary payoff of each door; no change. Ariely allowed participants as many practice runs as they wanted before the actual experiment; no change. Ariely changed the rules so that any door could be "reincarnated" with a single click; no change.
Players just couldn't tolerate the idea of the loss, and so they did whatever was necessary to prevent their doors from closing, even though disappearance had no real consequences and could be easily reversed. We feel compelled to preserve options, even at great expense, even when it doesn't make sense.
- If your choices are artificially narrowed, don't passively get funneled towards the goal they're herding you toward. Demand choice, even if it means switching vendors or allegiances.
- Don't pay extra for options, unless you can point to hard evidence that you need those options. Some options exist just to make you doubt yourself, so you'll worry about not having them.
8. Engender Unreasonable Expectations
Ariely, Lee, and Frederick conducted yet another experiment on MIT students. They let students taste two different beers, and then choose to get a free pint of one of the brews. Brew A was Budweiser. Brew B was Budweiser, plus 2 drops of balsamic vinegar per ounce.
When students were not told about the nature of the beers, they overwhelmingly chose the balsamic beer. When students were told about the true nature of the beers, they overwhelmingly chose the Budweiser. If you tell people up front that something might be distasteful, the odds are good they'll end up agreeing with you–because of their expectations.
- Whatever you've heard about a brand, company, or product – there's no substitute for your own hands-on experience. Let your own opinions guide you, not the opinions of others.
- Just because something is labelled "premium" or "pro" or "award-winning" doesn't mean it is. Research these claims; don't let marketing set your expectations. Rely on evidence and facts.
9. Leverage Pricing Bias
Ariely, Waber, Shiv, and Carmon made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours.
When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief. When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief. The more pain a person experienced, the more pronounced the effect. A similar study at U Iowa showed that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs.
- Price often has nothing to do with value. Expensive is not synonymous with quality. Investigate whether the price is justified; never accept it at face value.
- Don't fall prey to the "moneymoon"; just because you paid for something doesn't mean it's automatically worthwhile. Not everything we pay money for works well, or was even worth what we spent for it. We all make mistakes when buying things, but we don't want to admit it.
What I learned from Predictably Irrational is that everyone is irrational sometimes, and that's OK. We're not perfectly logical Vulcans, after all. The trick is training yourself to know when you're most likely to make irrational choices, and to resist those impulses.
If you aren't at least aware of our sad, irrational human condition, well … that's exactly where the marketing weasels want you.