Behavioural economics is a method of research which makes use of methods of experimentation used by psychologists to study the way people make decisions. Daniel Kahneman’s book ‘Thinking Fast & Slow’ has been very influential in this area. He describes 2 modes in which humans think. The first is a ‘fast mode’ that works on automatic (which he describes as System 1). We use this in situations like driving a car in nice weather or adding 2+2. System 2 is a ‘slow mode’ that requires more conscious effort e.g. parking in a difficult space or multiplying 13x36. His book reveals a number of heuristics (practical yet imperfect/sub-optimal ways of making decisions) and cognitive biases (tendencies to think about things in certain ways which lead to behaviours which often don’t represent good judgement).
What are the aims of Behavioural Economics?
It is an increasingly popular tool in market research because it involves delving beneath consumers’ stated reasons for behaving as they do and revealing the sometimes complex, often irrational/subconscious factors that really influences decisions. Behavioural economics has challenged the way Economics model consumer behavior – which typically assumed humans would make ‘perfect’ decisions based on having all facts available.
What are the implications for retail research?
The implications for retail research are very significant as it’s in ‘fast mode’ where over 80% of decisions are made. An example of this is the way we know, in less than a second, if we like something. This is automatic and requires NO conscious effort. It also explains why we can complete a supermarket shop, faced with tens of thousands of options, in a matter of minutes.
How is Behavioural Economics undertaken?
Heuristics and biases have been established via observation studies or laboratory-style experimentation. In a market research context, the application of BE is mostly more about keeping respondents in ‘system 1’ as you undertake the research. This is often about applying time pressure to stop respondents and by gamifying research to stop respondents being overly rational. Beyond this, researchers might study how brands could use BE understanding to nudge behaviours in their favour.
What is Behavioural Economics?