Understanding the important concepts in psychology can help marketers better understand how their customers think and how this affects their decisions. In his books Predictably Irrational and The Upside of Irrationality, Dan Ariely focuses on our tendency to make decisions that seem irrational. Many economists believe that individuals decisions are based on the rational choice, which involves weighing costs and benefits and seeking outcomes that maximize their utility. However, time and time again, we see scenarios where we tend to make the decision that is not what rational economists would expect. Here are a few interesting examples from the book:
We are very good at adapting to change
We tend to underestimate how quickly we will adapt to a change in our environment. In one experiment they measured lottery winners and paraplegics one year after their life changing event and found that both groups were equally happy with lives. One possible explanation for the unexpectedly low impact of lottery winnings on happiness is that the hedonic boost that you receive from goods often fades as we adapt to the new environment, which is also known as the hedonic treadmill effect.
Marketing takeaway: While the impact of goods on an individual’s sense of well being are often temporary, experiences can have a longer effect because we can derive pleasure from memories, like our childhood trip to Disneyland or our wedding day.
See also: Buying Experiences, Not Possessions, Leads to Greater Happiness Science Daily
The appeal of an individual can be stronger than a thousand
Why is it that when we see an individual drowning we will sacrifice our $100 suit to jump in and save him but we will not donate $100 if we know it will save a person Africa from dying from Malaria. A person that you can see is much more tangible than an individual that is half a world away. Similarly, Michael J Fox is successful at raising money for Parkinson’s because people can relate to him as the person from Back to the Future, whereas it may be difficult for a donor to relate to a charitable organization. Unfortunately we also see this bias when a baby falling down a well gets more media attention than thousands being killed in the genocide of Rwanda.
Marketing takeaway: When trying to appeal to people’s emotions, it can be more effective to use a well known spokesperson that people can relate to like Michael J Fox.
The tendency to seek revenge despite the costs
An experiment described in the book involved participants who were told they were taking part in a game where a stranger decided how much of a cash prize to share with them. The participant can take whatever the stranger decided to share with them, or they can reject the offer which would result in the stranger getting nothing. Although rational economists would expect the participant to take any amount that they are offered, most people will reject the offer if it is very disproportionate, in order to exact revenge on the stranger. Ariely suggests that we are biologically hardwired to seek revenge as brain studies have revealed that the pleasure centers of the brain are activated during the act of revenge.
Marketing takeaway: Although it may be costly in terms of time and money, angry customers can go to great lengths in order to achieve revenge against a brand.
There are several more interesting ideas that can have applications in marketing such as the “IKEA effect” which involves the inflated value individuals place on things that they create.
There are also many great psychology lectures available online for free such as Professor Paul Bloom’s Introduction to Psychology lectures which you can see at Academic Earth.
You can also read my post about Predictably Irrational: Predictably Irrational: Marketing Applications of Irrational Decisions