For the past couple years, behavioural economics has increasingly become a buzz word in both the marketing and market research world. As the field is becoming better known, a lot of people are also questioning what exactly is new about it. Quite rightly, many market researchers are asking how any of it is different to what marketers have known for years and what good researchers should be doing anyway.
We keep using the same examples over and over again, in order to cater to those audiences who have not yet become familiar with the basic principles underlying behavioural economics. Anchoring, framing and nudging have now more or less entered our professional vocabularies but, as the critics are pointing out, that’s all well and good, but what do we do with this new information?
One of the issues lies with us as practitioners.
Too many presentations on behavioural economics in conferences include the same examples, repeated again and again. I could personally go without ever seeing the bat and the ball example again, especially as it was originally devised as a scale for measuring an individual’s cognitive ability. Using it as an example for System 1 and System 2 thinking helps no-one: it confuses audiences who end up seeing behavioural economics as even less amenable to practice and therefore makes us as practitioners look detached from reality.
The reason we, as the BE practitioner community, are failing to convince a large part of our audiences that there is something worthwhile here is because… Well, we haven’t really shown them anything worthwhile yet.
Yes, we’re all irrational. Yes, we are influenced by context and social pressure. Yes, we’re not very good at figuring out what things should be worth. Then what?
Being aware of two systems of thinking or a range of cognitive biases like hyperbolic discounting (a preference for a smaller reward now rather than a larger reward later) and loss aversion is good, but what we really need is more detailed advice on exactly how to use these in our work (for example, just how much more are customers willing to pay if they pay by instalment). We’re still at the stage where we have still barely moved beyond entertainment value – worse yet, we’re in danger of becoming a joke.
The answer? We need to go beyond Predictably Irrational, Nudge and other popular literature aimed at mass audiences because decision making research is a vast field with much more to offer than just a few authors’ work. In fact, ‘behavioural economics’ is only the part of a larger scientific discipline of the psychology of judgment and decision-making that focuses on individuals’ economic decisions. Using popular science books as the basis of our knowledge is like trying to do crochet with a baseball bat when we really need to start using more elaborate tools to promote our trade. At the moment, as practitioners, we’re playing with the theoretical equivalents of the brightly coloured Lego Duplo blocks for toddlers while the academic world is building models more like Lego Technic.
It’s not enough to read a couple of books that have been designed for a general reader instead of thinking about specific industry applications, with examples of research that is, at best, several years old at time of publication and weaved into an entertaining narrative. What that means is that at the moment many practitioners are shoehorning client problems to match the answers that are available in those books. That’s simply not good enough.
However, there are a couple of problems.
The first one is that we still largely lack a baseline understanding of the basics of behavioural economics amongst clients and even non-BE practitioners in the marketing and market research industries. Despite the frequently repeated examples, or perhaps because of them, we’re still unable to move to a more advanced level of debate because of the background knowledge needed. Biases and fallacies are easy to grasp, but these are far from the height of sophistication of the discipline – they’re just the starting point for branches of research such as examining the exact contexts in which, for example, the endowment effect occurs. Not fully understanding the specific conditions may cause policies and marketing plans to backfire, so it’s important to get to grips with the details of the literature.
This is the second issue that we currently face. Merely familiarising yourself with a couple of books means seeing the BE world in black and white, not in the technicolour version of the full discipline. We need to engage with the literature more deeply and make a bigger effort to communicate these more advanced examples to a broad audience. The work of prominent behavioural economics academics such as George Loewenstein is currently being ignored in the mainstream simply because they have not (yet) written a popular psychology book summarising their work. Yet, there is much there for us to benefit from. One way to stay tuned with the field is to attend academic conferences to immerse yourself in the current debates. The recent behavioural economics conference in Tilburg showcased some the most up-to-date research that will not be available in published format for another year at least. Conferences also offer access for practitioners to speak to leading academics in informal settings. However, even at this conference the absence of practitioners (excluding the Dutch financial markets authority) was notable.
The responsibility of communicating the benefits of behavioural economics and decision science lies with us – the practitioners. How do we raise the level of the debate? And when are we really going to start engaging with decision making as a science?