Recently I took this course on Behavioral Economics on Coursera by Dan Ariely. It had some common sensical but good analyses of the irrationality in our economic behavior. Over next few blogs I would present some of the analyses. See if you can make use of them(at worse, this exercise will at least help me revise ;)
The answer seems to be no! A lot of what we decide seems to depend on the options that we are presented with and the nature of the options( whether they are default or not). Defaults matter a lot in decision making and most of the time people go for the default options; especially when the options became complex
An interesting fact is, when people opt for defaults without putting much thought into it, do they really realize it? No! most of the time people have no idea why the took a certain decision and they create stories to justify their action.
More options are more attractive as they give more choice to choose from but when it comes to action, to the act of actually choosing from among the options, less options lead to higher proportions of actual action. Why would that happen? Perhaps because more choice seems more attractive but it confuses people to the point that they decide to go with the default option of taking no action at all!
People love status quo. They will avoid taking an action toward change even if they are minor and another path is clearly better! The probability of taking an action decreases as the alternatives involve more effort (mental/physical).
So, how to apply these in real life? Suppose you come up with a scheme in which you really want people to not participate. You can design the sign-up form for the scheme in this way:
Make opt-out as the default option (people must check some box or sign somewhere to avail the scheme)
Give a lot of ways in which the user can opt-in(remember, a lot of choices = more attraction, less action)
Involve a lot of effort in submitting the form ( e.g people must go to a particularly far address to submit it)
Relativity principle: When we add an undesirable option, it makes the other neutral option more attractive; even in comparison to unrelated options. That means if you are in my store to buy a new refrigerator, I must keep some refrigerators with undesirable features to just make the good refrigerators seem even better!
Once we take a decision, it becomes a reference point and it becomes an anchor for our future decisions - first decisions are important! So, as a marketer, suppose I introduce an expensive bottled drinking water. Now that's absurd because people don't buy water in that area. There reference point is "zero price for water". But if I somehow induce customers to buy water at least once(e.g through adverts), that decision will become a reference point for such customers for further decisions. When they see the packaged water next time, the reference point for them is that they have already bought it so they might buy it again as well!
Other similar posts:
Why do we spend irrationaly?
Who is in control of your decisions?
Follow Dan Ariely at: http://danariely.com
More options -> necessarily better ?
An interesting fact is, when people opt for defaults without putting much thought into it, do they really realize it? No! most of the time people have no idea why the took a certain decision and they create stories to justify their action.
More options are more attractive as they give more choice to choose from but when it comes to action, to the act of actually choosing from among the options, less options lead to higher proportions of actual action. Why would that happen? Perhaps because more choice seems more attractive but it confuses people to the point that they decide to go with the default option of taking no action at all!
People love status quo. They will avoid taking an action toward change even if they are minor and another path is clearly better! The probability of taking an action decreases as the alternatives involve more effort (mental/physical).
So, how to apply these in real life? Suppose you come up with a scheme in which you really want people to not participate. You can design the sign-up form for the scheme in this way:
Make opt-out as the default option (people must check some box or sign somewhere to avail the scheme)
Give a lot of ways in which the user can opt-in(remember, a lot of choices = more attraction, less action)
Involve a lot of effort in submitting the form ( e.g people must go to a particularly far address to submit it)
Do we know what we want?
No - the choice set presented to us influence our decision. Try to recall for a second, when you go to a store, how often do you exactly know what are you going to buy? Most of the times, you don't! What we buy depends on the choice we are presented with at the store.Relativity principle: When we add an undesirable option, it makes the other neutral option more attractive; even in comparison to unrelated options. That means if you are in my store to buy a new refrigerator, I must keep some refrigerators with undesirable features to just make the good refrigerators seem even better!
Once we take a decision, it becomes a reference point and it becomes an anchor for our future decisions - first decisions are important! So, as a marketer, suppose I introduce an expensive bottled drinking water. Now that's absurd because people don't buy water in that area. There reference point is "zero price for water". But if I somehow induce customers to buy water at least once(e.g through adverts), that decision will become a reference point for such customers for further decisions. When they see the packaged water next time, the reference point for them is that they have already bought it so they might buy it again as well!
Other similar posts:
Why do we spend irrationaly?
Who is in control of your decisions?
Follow Dan Ariely at: http://danariely.com
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