Dan YoungHead of Quantum Lab

Understanding Behavioural EconomicsBack to basics

2 Behavioural Economics | Back to basics

Behavioural EconomicsBack to basics

It feels like everyone’s talking about Behavioural Economics these days. System 1, System 2, implicit, framing, priming, anchoring…. phew!

There’s a lot going on, and much of it can feel like it’s shrouded in a cloud of neuroscience jargon and academic references.

So we thought it would be a good idea to take a step back, and offer up a little refresher of some of the basics.

OK, let’s start here...

3Behavioural Economics | Back to basics

What is Behavioural Economics?

First off, it’s worth knowing that Behavioural Economics isn’t really a thing. It’s more a collection of things. More precisely, it’s a collection of theories, principles, learnings and psychological shortcuts, that give us a way of understanding human behaviour. But they’re all based on a simple understanding, which is this:

There’s a big difference in our everyday lives, between what we actually do, and what we like to think we do. How come? It’s because our brains are divided up into conscious processes and subconscious processes.

Our conscious brains like to think they call the shots, make the decisions. When you think of yourself, who you are as a person, it’s your conscious brain that does this thinking. Your conscious brain works slowly, methodically, and rationally to make logical decisions. In Behavioural Economics this is called System 2. (Hint, there’s a reason why it comes 2nd).

Then there’s your subconscious brain. This is System 1. Fast, automatic, emotionally-driven, and often seemingly illogical; System 1 uses shortcuts and past experiences to make quick decisions, without our conscious brains even being aware of it. For the most part it’s a surprisingly effective system for making sound decisions, it’s just not always the most logical, and certainly not easy to explain.

System 1 and System 2 don’t really like to talk to each other that much.

Many of us don’t like to think of ourselves as making emotional, irrational, snap decisions. So how much of our decision making is actually made with this subconscious, System 1 part of our brains? Some estimates put it as high as 95%.

Wow!! How can it be so high? In our busy lives, we’re constantly bombarded with so much stimulus that we can’t possibly process it all. Well, at least we couldn’t if our System 2 conscious brains had to process it all. But we can deal with all this stimulus far more efficiently with our subconscious, System 1 brains working on overdrive, using a huge array of shortcuts, biases, omissions and approximations along the way. So we go through our days with the subconscious part of our brains doing much of the work, without ever having to bother the conscious part with anything other than the most difficult or important decisions.

Behavioural Economics therefore is the school of thought that attempts to explain and predict the short-cuts our sub-conscious brain uses to navigate a busy world.

Behavioural Economics | Back to basics4

Can anyone spot the problem for us market researchers?When we talk to respondents in a survey, the chances are that these respondents will be thinking carefully about their answers. In other words, they’ll be using their conscious, System 2 brains to make their responses. That’s all well and good. But if the survey is asking questions about why they chose a particular brand of washing liquid on their last supermarket shopping trip, the chances are that the purchase decision was made using their subconscious, System 1 thinking. So when they give a response, it’s highly likely that it’ll be a post-rationalised, overly thought through version of the truth. Or in other words, a guess.

To make things even more complicated, we’re in danger of missing the fact that these answers may be little more than guesswork, because these responses will look and feel logical and believable to us. That’s because us market researchers will also be using our System 2 brains to analyse the results.

And when we do sometimes stumble across the truth, our System 2 brains struggle to compute. “What do you mean you bought the washing liquid because it was in a green bottle that made you feel clean? That’s silly! What about the price promotion??!!”

So the market research industry has spent the past few years looking for increasingly sophisticated ways of getting past these post-rationalised, System 2 responses, to get to the ‘truth’ of shopper & consumer behaviour.

And that’s where the jargon comes in. Implicit, time-bound, framed, primed, subliminal. All of these refer to different methodologies that we use to by-pass respondents’ conscious brains.

LET’S MAKE IT A LITTLE SIMPLER. We can categorise all of these elements into some broad areas, like this:

MEASURING RESPONSES

EEG Eye tracking Implicit Association Tests

Skin perspiration (Galvanic skin resistance)

Ethnography

Respiration patterns Semiotics

On line communities

fMRI Facial decoding Priming tests

Heartbeat Projection techniques

Blood pressureApplication

of theoretical models

Accompanied shops, intercepts

EXPLAINING RESPONSE

NeuroMetric(Brain or neutral response)

BioMetric(Biological/physiological response)

PsycoMetric(psychological or implicit response)

5Behavioural Economics | Back to basics

So for all the complexity in the field of Behavioural Economics, each of the different methodologies can be categorised according to the type of reaction they generate within the respondent. And there are three broad groups:

NEUROMETRIC (focusing on brain response)

This is where respondents are wired up with electrodes, or placed in fMRI machines, and their brain waves are monitored to understand what response their brains are having to a given piece of stimulus. Advantage? Respondents can’t fake their neurological patterns so it gives a fascinating insight into what’s really going on in someone’s head. Disadvantage? Well, it’s eye wateringly expensive, but just as importantly, it’s hardly representative of real life. We don’t make our decisions about washing powder when we’re lying down in an fMRI machine, we make them in a busy supermarket, straight after work, maybe with the kids in tow.

BIOMETRIC (focusing on physiological response)

You’re probably familiar with eye tracking. This is the most widely used form of biometric

response. Again, we can’t consciously control where our eyes look, (not for long anyway), so it’s a really useful tool for understanding true consumer behaviour. But there are lots of other methods that aren’t quite so well known. You can measure heart rate, facial expression, blood pressure, even sweat, to understand how someone is truly reacting to a given piece of stimulus. At Future Thinking we ensure that we never use these methodologies in isolation, rather we use them as an overlay onto respondents’ reported survey data. That way, with both physiological and claimed responses, we can ‘triangulate’ the data points to get to the ‘true’ consumer response.

PSYCHOMETRIC (focusing on psychological response)

Whilst the neurometric and biometric methods described above are ways to bypass what a respondent tells us, and look at their tell-tale physical reactions instead, there’s also another technique that is used very effectively, namely psychometric responses. This is where questions are asked of the respondent, but sneakily, so their conscious brains don’t realise what’s actually being asked of them, we capture the subconscious reaction instead. There are a number of techniques for this, as outlined in the graphic (see page 4), and we’re constantly innovating within this space.

6

So what’s new?

The research industry as a whole has been developing its understanding of Behavioural Economics for a number of years now, and the momentum continues to gather, with new methodologies evolving all the time. Here at Future Thinking, we have an in-house innovation centre called The Quantum Lab, which is constantly evaluating and developing new techniques. Here are three that are currently in our pipeline:

1. Utilising a psychological model called the Trans-theoretical Behaviour Change model to develop a technique to quantify, predict and explain a consumer’s likelihood to change their current behaviour; (whether that’s changing brands, eating healthily, quitting smoking, or pretty much any other measurable behaviour). This is a validated psychological technique that can be simply added to any quantitative questionnaire, and allows you to segment your target audience by which stage they’re at in the process of changing their behaviour.

2. Measuring Galvanic Skin Response, (electrical responses in the skin) in focus groups to understand whether what people say in qualitative research is consistent with how they really feel, whether they know it or not.

3. Using an implicit priming technique in our online surveys, by flashing brand imagery so quickly that it’s not detectable by the conscious brain, to understand the true impact that brands have on consumer behaviour

If you’d like to talk about Behavioural Economics, or would like to find out a bit more about any of these upcoming techniques, then please contact

Dan Young Head of Quantum Lab

dan.young@futurethinking.com

+44 (0) 207 843 9777

Future Thinking takes a consultative approach to market research with commercial focus driving everything we do. That’s why we focus our attention on the three key areas that drive competitive advantage: Launch, Communicate, Experience.

We’re a global company of researchers, marketeers, statisticians, strategists, innovators, creatives and industry experts, integrating qual, quant and analytics through the latest technologies, to deliver research that engages audiences and drives action.

Our mission is to deliver consumer and business insights that tells stories, inspires action and travels within an organisation, long after the debrief.

For more information please contact John Whittaker +44(0)1865 336 6463 john.whittaker@futurethinking.com visit: www.futurethinking.com or follow us on Twitter: @FutureThinkHQ

The Author

DAN YOUNG

Dan is a Research Director at Future Thinking, and is Head of Quantum Lab, our in-house centre for research innovation. Dan’s focus is on delivering innovative research solutions for our clients, combining the latest thinking in behavioural and neuro science, and grounding it with a commercial focus. Prior to joining Future Thinking, Dan held a number of senior insights, category and brand communications roles at Thorntons, Virgin Media and Boots.

dan.young@futurethinking.com