(James Scott) Behavioral Economics, Behavioral Psychology, Rational Behavior and What Makes Consumers Squirm

by James Scott | Sept 04, 2012

Chia-Li Chien, Rising CostsWhat makes consumers squirm, beg for mercy or buy? Principles of behavioral psychology have influenced advertising longer than they influenced psychology -- and they dominated psychology for most of the 20th Century. That's because John B. Watson, the founder of behaviorism, responded to early academic rejection of his ideas by taking them to the business world. In a very real way behavioral science was applied to commerce before it was accepted by academia.

That relationship also survived Behaviorism's fall from psychological dominance. Behavioral Economics remains an important part of marketing. "Behavioral Economics," writes Joel Rubinson, of the Advertising Research Foundation, "lives at the crossroads of economics, cognitive psychology, and anthropology. It helps us understand how and why decision making is filled with shortcuts of which people are only partially self aware."

So what if advertisers use psychology to get consumers to spend their money when they are anxious about the economy? Don't people expect advertising to dothat? Were such an application all that matters in behavioral economics, awareness of it might not matter. Consider instead something more serious that behavioral economics can help explain. This topic also applies to some other ideas later in this article.

Beginning in the late 1980s and early 1990s America began establishing sex offender registration (SOR) on a state by state basis. Now federal laws so expensive that most states will not even implement them completely cover SOR. Ask most Americans and they will tell you this is a good thing. They feel safer for themselves and their families having these laws.

Most are not aware that in 2008 Jeffrey C. Sandler and two colleagues at the University at Albany found that SOR is completely ineffective. They studied all sex offense convictions for 10 years before and 10 years after New York established its SOR. They found that before and after SOR " over 95% of all sexual offense arrests were committed by first-time sex offenders, casting doubt on the ability of laws that target repeat offenders to meaningfully reduce sexual offending." A nearly identical study by the U.S. Department of Justice in New Jersey found nearly identical results.

If these facts fly in the face of common understanding, cultivation theory may explain it. George Gerbner, formulating the theory in 1987, writes, "Television blurs political differences, blends otherwise divergent social orientations into its own broad mainstream, and bends the current in the direction of its own institutional interests." It is no coincidence that the emphasis on these laws began with the advance of John Walsh's popular program America's Most Wanted.

Media created the anxiety, and people felt relieved when the government seemed to do something about it. This program, and a continuing emphasis on stranger abductions, in both news coverage and fictional TV series, exaggerate that problem. They also downplay that the vast majority of sexual offenses come from within the victims' circles of trust. The result has been a false sense of security because of laws that really achieve nothing -- a dangerous and expensive self-deception.

Some studies suggest that even smart consumers sometimes choose to accept self deception. In the Journal of Business Ethics Andy Wible considers intentionally deceptive practices in marketing. "Getting something for free is something that we all like," he writes, "but behavioral economists show us that free stuff actually makes us irrational."

He uses common techniques of furniture stores having continual sales as one example, writing, "These practices do not fool just small select groups, but are fooling those usually assumed to be rational." Smart consumers know that whatever sale a store has each week, there is still some sale every week offering the same 65% off. Yet, purchasing from that retailer they still brag about getting a good deal.

In his 2008 book Predictably Irrational Dan Ariely asserts, "Even the most brilliant and rational person, in the heat of passion, seems to be absolutely and completely divorced from the person he thought he was." There are many rasons for this, not least of which are heuristics. These are rules of thumb that are naturally carved into our neurology rather than learned. For example, the escalation of commitment heuristic means that once we have invested time and effort in some objective, our commitment to it will increase even if it becomes clear we are, for example, throwing good money after bad.

"We think with a blend of our emotions and logic," Rubinson writes in the article previously mentioned. "We are subject to giving different answers to the same questions asked or framed a little differently." Even people who consider rational decisions superior to emotional decisions cannot avoid emotions influencing their rationality.

That tendency enables consumer anxiety to actually serve as a marketing tool. Nicola Baumann and Julius Kuhl of the University of Osnabruck note that a positive mood improves rational consideration of difficult issues, while a negative mood diminishes it. They find that rather than intelligence, the ability to set the mood aside has more to do with making smart decisions in volatile exchanges. Without that ability, even smart people will not listen to reason when a bad mood is prevalent

Consider that in regard to negative political campaigns. With that reasoning, in most cases, negative political ads have more to do with retaining existing support than in gaining new voters. As soon as the ad creates the negative mood almost everyone stops paying attention to the arguments. Instead they reinforce their own biases and escalate their commitment.

Now consider, as the reader, how you reacted to the paragraph about SOR. That is an exceptionally volatile topic, and creates a bad mood just to mention it. Even normally rational readers, if already supportive of SOR. likely read the facts dismissively. Similarly, marketers manipulate consumer minds with mood -- positive and negative -- all the time.

One would think, though, that this has limits. Wouldn't a person facing a more complex or important -- a more risky personal or purchasing decision -- do more research and depend more on the findings? Not according to William B. Locander and Peter W. Hermann, who find, "With respect to information sources, as the total risk of the purchase situation increases, a person's observation and experience becomes the favored information source."

When a decision gets particularly dicey, people trust authorities on issues less and what they actually know themselves from experience more. That may seem reasonable, but in the end believing one's experience matters more than credentialed experts is about as emotional as a decision criterion can get.

Putting all of these elements together demonstrates consumer anxiety as a marketing tool. When consumers are anxious about job prospects, or rising prices, marketers know they are already less likely to think rationally. The more things marketers can do to isolate consumers further from rationality, the more they can count on predictable reactions. In tough times when consumers and voters see advertisements that attempt to worry them even more, they should ask themselves why someone wants them to think less clearly, and more emotionally, instead of relying on reason to make their decisions.

About James Scott

James Scott is the CEO of Princeton Corporate Solutions, a corporate globalization and political strategies firm, PCS offers a unique blend of think tank, corporate and governmental communication strategies to expedite the facilitation of long lasting relationship building in these necessary sectors. http://princetoncorporatesolutions.com


About Chia-Li Chien

Chia-Li Chien

Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY!” Succession Strategies for Women Entrepreneurs. She is Chief Strategist of Value Growth Institute dedicated to helping private business owners increase the value of their firms. She is the award-winning author of Show Me The Money and faculty member of American Management Association. Her blog and newsletter was named a top small business resource by the New York Times “You’re the Boss” blog.


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