We’ve known for a long time that as consumers, we make a lot of irrational decisions. In the past year, we have seen how vulnerable we are to fake news. In fact, voters seem to like to suspend their disbelief, if what they’re hearing suits their preferred version of reality. So it is good to know that we can actually start to understand the conscious and unconscious biases that help explain apparently irrational and even self-damaging decision-making. Look no further than Nobel Prizewinner for Economics, Daniel Kahneman, listed as the seventh most influential economist in the world by The Economist in 2015. Funny thing, Kahneman isn’t an economist. His work, with fellow psychologist, the late and great Amos Tversky, shattered the notion that people make rational judgements, even when objective information is available. Their research output goes a long way towards explaining the extraordinary decisions we make not only as consumers, but as voters, investors, policy makers and marketers.
For starters, he exposes the weakness of market research in informing marketing strategy. Consumers don’t think what they feel, don’t say what they think and don’t do what they say. They simply cannot give a reliable account of why they choose one product over another because they don’t understand their own hidden biases. Even our market researchers are unreliable witnesses. Their ‘confirmation bias’ may cause them to search for answers that confirm their views. Worryingly, the same bias can affect forensic scientists, doctors and surgeons.
For those reading about Kahneman and Tversky for the first time, a good place to start is with the beautifully written book, ‘The Undoing Project’, by Michael Lewis (of ‘Boomerang’, ‘The Big Short’ and ‘Moneyball’ fame).
Kahneman’s own bestselling book, ‘Thinking, Fast and Slow’ introduces the reader to such intriguing concepts as our fast (intuitive) and slow (deliberate) ways of thinking. The truth is we don’t like to think. We much prefer to rely on our unreliable intuition and subconscious biases to navigate our busy lives. We ‘rationalise’ our biases, for example, towards the purchase of an obscenely expensive brand of handbag by describing the purchase as an ‘investment.
Kahneman offers Key Insights for Marketers:
- On fake news and alternative facts: “A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact,” says Kahneman. That might explain the success of the £350 million claim made by Brexit’s Leave Campaign!
- On risk aversion: We hate to lose more than we love to win. According to Kahneman’s research: “An investment said to have an 80% chance of success sounds far more attractive than one with a 20% chance of failure. The mind can’t easily recognize that they are the same.” And the lesson for marketers: a message framed as a loss if the buyer doesn’t buy is more persuasive.
- On emotions trumping reason: According to Kahneman, “The confidence people have in their beliefs is not a measurement of the quality of evidence but the coherence of the story the mind has managed to construct.” The narrative matters more than the fact as our decisions are driven by our emotional rather than rational brain.
- On thinking: Don’t make your customers think! As buyers we are cognitive misers and will not thank you for complicated value propositions. Think Ryanair’s cut-through ‘No Frills Airline’ slogan. Simple.
- On too much choice: Give me choice but not too much choice! If too much choice makes us think (using Kahneman’s slow thinking ‘System 2’ brain), this is not good for marketers. We become overwhelmed as consumers. However, companies such as Amazon have figured out how to give us boundless choice that helps us decide between a small number of options. By using their recommendation algorithm to suggest offerings based on past purchases, we don’t have to think. We just press ‘Buy Now’.
Kahneman has explored so many different topics, from happiness to memory and experiences. He is a founder of Prospect Theory and Behavioural Economics. His work is both profound and fascinating to anyone interested in understanding why we as individuals, groups, companies and countries make so many illogical decisions. We need him now more than ever!
For further information: ‘The Undoing Project – A Friendship that Changed the World’, by Michael Lewis on the collaboration between Kahneman and Tversky. Daniel Kahneman’s ‘Thinking, Fast and Slow’, or, if you’re pressed for time, check Mr Kahneman out on one of the many Ted Talks, including The Riddle of Experience Vs Memory.
Cariona Neary works with executive and senior leader teams to improve performance in customer experience and sales. She is co-author of ‘Coaching Champions – How to get the Absolute Best from your Sales Team’. Her flagship programme is ‘Leading Service that Sells’.