Behavioural economics

Think Small - It Might Win You A Nobel Prize

[This post originally appeared at Science for PR]

On October 9th, Professor Richard Thaler from the University of Chicago Booth School of Business was announced as 2017’s Nobel Laureate for Economics. Followers of applied behavioural economics (including myself) generally jumped for joy at this news, and rightly so. Few people have done more to advance the cause of how a better understanding of human behaviour can help us influence others (through communications or otherwise). And, unlike the somewhat stuffy approach of economists and psychologists of yore, he has done so by looking at the minutiae of real world decision-making – the kind of things we humans really fill our days with - like cashew nuts, gameshows and bathrooms.

Professor Thaler

Professor Thaler


In his December Nobel address, Thaler categorised these hidden factors that influence decision-making - the cognitive biases that lie (largely) in our subconscious, that are at the heart of his work - as ‘SIFs’, or ‘Supposedly Irrelevant Factors’. They are things that have previously been largely ignored by the traditional, neoclassical economics-driven view of the world beloved of traditional marketing textbooks.

Naturally, one would think that recognition from the Nobel Institute would mean that this thinking is now the norm. ‘SIFs’ should become ‘HRFs’ (‘Highly Relevant Factors’), and communicators, brands and advertisers should be preoccupying themselves with the heuristics and biases identified by the behavioural sciences. And yet…

I guess I shouldn’t be so surprised. The first behavioural economist to be recognised by the Nobel prize-givers, ‘godfather of BE’ Professor Daniel Kahneman actually won his prize way back in 2002 (although honourable mention should also go to Herbert Simon who won in 1978 for his work on bounded rationality). Kahneman, similarly to Thaler, describes these heuristics and biases as ‘noise’. They are extraneous factors that we would not wish to be influenced by, but have a significant, and undervalued, effect on how we behave. As such, humans are inclined to attribute them insufficient importance.

But the real importance of BE, and it’s role in helping communicators be more scientific in our approach, is that it is these ‘SIFs’ and ‘noise’ that sit at the core of what we do with communications. If we are encouraging consumers to buy a product, for example, the product and price (for example) is usually outside our domain – but communications can influence the perception of how popular the product is (social norms), or the mental associations we have with the product (mental availability). Both are ‘noise’ that are often ignored, but have a disproportionate effect on behaviour.

One classic example that Thaler will forever be associated with is the male urinals at Schipol Airport in Amsterdam. Before Thaler (or anyone else) sues me for defamation, this is one of the most famous case studies referenced in Thaler and Cass Sunstein’s hugely influential book ‘Nudge’. There they cite an example where an 80% reduction in cleaning costs in the male bathrooms at Schipol was achieved through a low cost intervention, or a change to the ‘choice architecture’. A small fly was painted onto the enamel of each urinal, subconsciously encouraging men to aim more accurately, and reducing spillage.

The famous fly

The famous fly

A traditional approach would have focussed on motivating the male patrons to cause less mess, perhaps through signs saying how much it cost to keep the bathroom clean, or by changing the design of the urinals. But in this case, addressing motivation was insufficient and redesigning urinals too costly. The fly was both more effective and more efficient, despite neither making men more motivated, nor literally making it easier to pee accurately.

What it does do is make it more ‘cognitively easy’ i.e. things that require less mental effort are easier for us to do, and are what we are naturally predisposed to do. It’s often referred to as ‘going with the grain’ of our behaviour. In this case, men are pre-disposed to ‘aim’ whilst peeing, and so having the fly there makes it psychologically easier for men to pee accurately.

Thaler summarises his work as being about making it easy. Removing barriers may seem obvious, but cognitive ease is a much more difficult concept to apply, involving as it does understanding of the irrationalities of human behaviour - that are often subconscious.

As an example, social norms are powerful because they make it easier for us to post-rationalise our actions. “If other people do this and aren’t suffering any obvious negative effects,” our subconscious tells us, “then it must be OK.” At CSG we have been able to prove this as demonstrably true – telling a customer that a product or service is used by many or most other customers like them will instantly make it more desirable.

The essential problem is that communicators tend to think of behaviour in rational terms, and solely from their own perspective. An example: when I call my bank, my focus is on transacting. Security is a secondary consideration – a mere table stake to allow me to complete the purpose of my call (the transaction). But security is a primary consideration for a bank because the consequences of poor security are so severe, so the processes are largely constructed on that basis.

In a recent project we found that the security process and call scripts used by a financial services company were so cognitively difficult that a sizeable proportion of customers were failing to complete their transactions by phone, simply because they frequently failed the security process. We have been able to help people resolve their queries more quickly and successfully through some simple nudges in the process and scripts that recognise the importance of cognitive ease. Call times have been reduced by over 10%, and customer satisfaction increased - the brand receives several thousand calls a day so the overall efficiency savings are huge. Here nudging was the most cost-effective and efficient solution to the problem.

But aside from these manifest commercial advantages, most of all Thaler’s richly deserved win brings hope to those of us who dare to dream that seemingly trivial changes to the architecture of our everyday lives (from urinals, to call centre scripts, to website design) can deliver big changes in behaviour. The scientific evidence is there - businesses, governments and individuals just need the will to do it.

Thaler’s groundbreaking work proves that the more we can think small - the better.