As online optimization programs mature and test ideation takes it up a notch, experts rely on behavioral economics – the science of studying the effects of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions; the consequences for market prices, returns, and resource allocation; and the impact of different kinds of behavior in different environments of varying experimental values – for data-driven inspiration.
Today, there are decades of experiments at our fingertips to help inform strategy development. Not to mention, the principles of behavioral economics are at play in our optimization experiments, whether or not we realize it.
What is behavioral economics?
Traditional economics assumes people are rational decision-makers, who are able to make the right decisions for themselves time and time again. Behavioral economics is different. It studies the way people actually behave based on research, which demonstrates decisions aren’t always what you might expect.
Dan Ariely’s “Predictably Irrational” illustrates this difference, referencing an example from a study conducted by two brilliant researchers, Amos Tversky and Daniel Kahneman.
“Suppose you have two errands to run today. The first is to buy a new pen, and the second is to buy a suit for work.
At an office supply store, you find a nice pen for $25. You are ready to buy it, when you remember the same pen is on sale for $18 at another store 15 minutes away. What would you do? Do you decide to take the 15-minute trip to save $7? Most people faced with this dilemma say yes, they would travel to save $7.
Now you are on your second task shopping for a suit. You find a luxurious gray pinstripe suit for $455 and decide to buy it, but then another customer whispers in your ear that the exact same suit is on sale for $448 at another store, just 15 minutes away. Do you make another trip? In this case, most people say no, they would not.
So what is going on? Is 15 minutes of your time worth $7, or isn’t it? In reality, of course, $7 is $7 – no matter how you count it. The question is whether the trip across town, and the extra time, is worth the $7 savings.
As this example illustrates, the $7 difference was apparent in both scenarios. Rational decision-making would assume people would place the same value on $7 in both cases. However, that is not what happened. Behavioral economics studies the other factors causing the variation in decision-making. Ariely continues to discuss and expand on the behavioral principle of “relativity,” which impacts decisions.
Does this example pique your interest, and leave you wanting more?
If your answer is yes and you are beginning to learn about behavioral economics, “Influence” by Robert Cialdini, will provide an excellent start. He discusses six principles of persuasion, including reciprocity, social proof, consistency, liking, authority, and scarcity. He is concise and includes examples of each. Even after reading this book multiple times, I always walk away with new test ideas.
As an Ariely fan, I also recommend diving into Dan Ariely’s books, specifically “Predictably Irrational” and “The Upside of Irrationality.” These books are filled with fascinating research to engage readers. The examples, although based on academia, remain relevant today.
Next, consider diving into “Thinking Fast & Slow” by Kahneman, “Switch” by Heath, and “Scarcity” by Shafir and Mullainathan. These are on my current reading list, and were recommended by optimization leaders from across the country that attended Brooks Bell’s 8th Annual Click Summit.
Brooks Bell integrates behavioral economics in our testing processes, and are enjoying compelling conversations with other optimization teams about harnessing the power of behavioral economics to fuel experiment ideation.
Suzi Tripp, Sr Director, Experimentation Strategy
A Senior Director of Experimentation Strategy, Suzi sets the course of action for impact-driving programs while working to ensure the team is utilizing and advancing our test ideation methodology to incorporate quantitative data, qualitative data, and behavioral economics principles. She has over 14 years of experience in the industry and areas of expertise include strategy, digital, communications, and client service. Suzi has a BS in Business Management with a concentration in marketing from North Carolina State.