What Behavioral Economics Can Teach Marketing Research

2008

Abstract Decision-making researchers have largely focused on showing errors and biases in consumers' decision-making processes without paying much attention to the social welfare and policy implications of these systematic behaviors. In this paper, we explore how findings and methods in behavioral decision research can be used to help consumers improve their decision making and enhance their well-being.

the dominant theoretical framework in the social sciences. The theory is enormously in¯uential. Yet despite its popularity, the theory is based on untenable assumptions about human nature. Decision makers, or omniscient agents with stable and well-de®ned tastes, satisfy internal consistency and coherence by making choices that maximize their expected utilities. Behavioral decision researchers have taken a descriptive approach to human decision making by exploring the actual judgments and decisions that people make as individuals, groups, and organizations. Researchers have identi®ed numerous ways in which people violate the assumptions of rationality. The ®eld has provided psychological insights about utilities and beliefs and has offered descriptive accounts of judgment and choice. This article discusses some of the empirical violations of rational choice theory, as well as alternative descriptive accounts of actual choices. Finally, it concludes with some comments about future directions.

American Journal of Public Health, 2012

Community Investments, 2009

As you know, Alain Samson asked us to write a foreword for his Behavioral Economics (BE) Guide, hoping to gain the perspective of two people applying the science (if I can be so presumptuous) of BE in the academic/public and private sectors. I'm sure that Alain would appreciate some colorful fireworks to illuminate his guide, so, as the representative of academia, let me begin with a challenge: I've researched many topics in my long academic career, and my latest research topic has been Rory Sutherland. Watching your many TED talks and reading your pieces in The Spectator has not only been incredibly stimulating but, I must say, a lot more entertaining than my usual academic research. Your TED talks should be required viewing for any graduate student in search of novel, important research topics. In working my way through your talks I was searching, as social scientists are prone to do, for a central, unifying theme, and it turned out to be a fairly easy task. A-the?-central theme of much of your work, and one that you allude to in every one of your presentations, is the idea that our perception of, and reaction to, reality is subjective. How you feel about products, or even about your life, is at least as important, and probably much more important, than the product or your life's objective characteristics. This is an idea I can embrace, because it's been a central theme in my own work. In research on 'coherent arbitrariness' [see also 'anchoring'] with Dan Ariely and Drazen Prelec we find that people often have little idea about how much they like, or how to value, goods and experiences. We even identify experiences which are sufficiently ambiguous that people can easily be persuaded that the same experience is either good (in which case subjects are willing to pay to experience them, and more so if they are longer) or bad (in which case subjects demand to be paid to put up with them, and more so if they are longer). In another line of research, on hedonic adaptation (much of it with Peter Ubel and reviewed in a paper with Shane Frederick), we find that people are able to adapt to a very wide range of experiences. Adaptation, again, drives a wedge between the objective characteristics of an experience and people's hedonic reactions to it. In research on 'source dependence', with Sam Issacharoff, and 'history of ownership effects', with Michel Strahilevitz, we find that how you obtain an object and how long you own it are both important determinants of value, over and above the object's objective characteristics. In diverse research on the impact of relative comparisons, my colleagues and I find support for the idea, highlighted in many of your talks, that almost all judgments are relative. And, in a series of thought pieces, I have written about the importance of meaning in people's lives and the malleability of what matters-what people value. Many of the sections of Samson's guide to behavioral economics also reflect this theme, beginning with the first, on Prospect Theory (which posits that judgments of value are relative) and its VII Behavioral Economics Guide -2014 extension to framing effects. The sections on Availability and Salience highlight the observation that how one thinks about a decision, and the judgments one makes in support of the decision (e.g. of the probabilities of different consequences), is often highly malleable. Research on the status quo bias and inertia also highlights the arbitrariness of many decisions by demonstrating their dependence on defaults, due to the tremendous attractiveness of doing nothing, i.e. deciding by not deciding (to paraphrase a famous word poster from the 1970s). It would be easy to extend this list with other subsections of Samson's compilation of concepts on anchoring effects, the affect heuristic, diversification bias, hot-cold empathy gaps, and partitioning effects. So far so good. Where we begin to part ways, Rory, is in the implications we draw from this central insight regarding the subjectivity of valuation and experience. The conclusions you draw are far more optimistic than those that I draw, and (not surprisingly) far more positive about the role of advertising and marketing. Is the fact that perceptions matter more than reality a good thing or a bad thing? In some situations, I believe, it is arguably a very bad thing. To make my point, let me just focus on one of the factors that drives a wedge between the objective and the subjective: Adaptation. Adaptation is almost certainly, in the net, a good thing. Pain, hunger, sexual deprivation, and other forms of misery are signals that evolved to motivate behaviors that promote survival and reproduction. If the signal, such as hunger, has been in force for an extended period, but we have failed to take actions to eliminate it, it almost surely indicates that we are unable to do so or have consciously decided that it's not worth it. In that case the signal serves no further function, and nature has mercifully evolved a mechanism-hedonic adaptation-to eliminate it. An organism that doesn't adapt hedonically will not survive for long; yet, adaptation has diverse downsides. The most obvious 'cost' of hedonic adaptation is that it occurs for goods as well as bads, creating the 'hedonic treadmill' that prevents us from enjoying whatever successes we may achieve in life. Adaptation to pleasurable experiences may also be responsible for destructive addictions, which are due in part to the decreasing pleasure taken from a given level of a good or activity and in part to the displeasure (craving)-which increases in intensity the longer and more we have been indulging-experienced when consumption of the good or activity ceases. Also, as a result of adaptation, we can become inured to, and complacent in accepting, circumstances that in the long run are not good for us. Well before we became collectively aware of the horrendous threat of climate change, Dubos (1965:278-279) wrote prophetically that "this very adaptability enables [us] to become adjusted to conditions and habits which will eventually destroy the values most characteristic of human life." Adaptation may work against moral values as well. In his book 'Nazi Doctors', R.J. Lifton (1990) describes a process whereby German doctors (who had taken the Hippocratic Oath to do no harm) were gradually transformed into active killers, and Christopher Browning documented, in his book 'Ordinary Men', a similar process among German 'Police Orders' in Poland. In the famous Milgram experiment, subjects were not asked to instantly administer a potentially lethal shock but were given a series of requests to increase the voltage slightly. Having just administered a 100 volt shock to someone, administering a shock of 105 volts doesn't seem all that much worse. * Ratings retrieved from goodreads.com in April 2014 ** Google Scholar citations, April 2014 (Note: does not reflect citations of individual chapters in edited books; excludes multiple Google Scholar items/versions [item with highest count only]) Behavioral Economics Guide -2014 Marketing/Management Journals Management Science 2012 Impact Factor: 1.86 Management Science publishes scientific research on the practice of management. Within its scope are all aspects of management related to strategy, entrepreneurship, innovation, information technology, and organizations as well as all functional areas of business, such as accounting, finance, marketing, and operations. The journal includes studies on organizational, managerial, and individual decision making, from both normative and descriptive perspectives. 2012 Impact Factor: 2.20 Marketing Science is an Institute for Operations Research and the Management Sciences (INFORMS) publication that focuses on empirical and theoretical quantitative research in marketing. Marketing Science covers a range of topics, including advertising, marketing research, pricing and promotions, and targetability. Other subjects include consumer perception models and those relating to the subject of purchasing behavior.