The Art of Behavioural Economics

Behavioural economics is the combination of human psychology, decision science, and economics. It’s an innovative and scientific approach to understanding how humans make decisions. Behavioural economics shows what market research and data can’t reveal – and that’s psychological biases and heuristics. They shape our decisions and motivate us to behave in certain ways.

 

You have probably seen the cover of ‘Thinking, Fast and Slow’. While behavioural economics became famous with the ‘Nudge’ book (2009), British economist Adam Smith actually discussed the impact of human behaviour on economic decisions in his first book, ‘The Theory of Moral Sentiments’. Published 1759, Adam Smith’s book is still available to purchase.

 

Existing economics models the neoclassical model, assumes that we are always rational with our decisions and will make the perfect choice with the perfect information. This approach is already internalised by marketing departments for rational decision-making. If this is the case, how did Apple manage to survive by selling products at a much higher cost than their closest competitors?

 

In the contemporary world, our brains are exposed to a lot of messages, ads, tweets, press releases. Sadly, our brains do not have a switch that allows it to focus only certain types of messaging. We process everything from the same funnel, whether it’s a tweet or a press release.

 

Because our brains are not capable of analysing every single piece of information received, it can hinder our communication efforts. For example, every press release is an instrument to change the perception of the journalist and motivate them to cover a story. However, it’s nearly impossible for people to absorb all the information contained in a press release, compare it with previous press releases, and make a sound decision. Instead they make heuristics decisions, quickly analyse the existing information, and formulate decisions. 

 

Our decision-making process works quite simply. If there is a problem, we strive to find a solution to reach a goal or satisfy an expectation. Unfortunately, not all decision-making revolves around problem solving. If companies survived solely via solving problems, we wouldn’t have innovative brands such as Apple or Starbucks. These companies, and others like them,  are selling more than a solution. They are focused on selling emotional benefits. 

 

When we expand this to the media industry, a journalist needs to cover stories to get paid. However, covering every story that comes their way is not a good way to satisfy their job description or an efficient use of their time. Determining which topics to cover usually involves a secondary goal. This is where behavioural economics plays an important role.

 

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