Category Archives: Conversion Marketing

Conversion Marketing related blog

Are we better off living in California?

Final-Winter-Forecast

 

It’s a question my wife & I have been debating since we moved to Chicago in January.

Of course, the weather is the primary trigger. Talking to our friends doesn’t help either. Folks living in bay area continue to boast about the near 70 F temperatures. Each call typically starts with a mention of the cold temperatures in Chicago. And at the end of each call, we dream of living in a warmer place.

But when we start talking about happiness, there is an interesting pattern to most conversations. Whether it is the high cost of living or the lack of public transport, it seems the favorable weather conditions in California are balanced out by other factors. So in terms of overall life satisfaction, we are not very far off from our friends. In fact, we are probably as satisfied.

This raises the question: will we be more satisfied if we move?

Turns out, the question has been researched already. In this paper, Kahneman and Schkade refer to a research they conducted with students in Midwestern and Southern California universities. Students were asked to give a satisfaction rating to life overall as well as to certain aspects of life. Each student provided a satisfaction score for themselves or someone similar to themselves in both the regions. The data was analyzed for both self and other conditions.

Both groups of students rated that the Californians are likely to be more satisfied than Midwesterners. Satisfaction with climate tend to account for this high score. However, their own overall life satisfaction score was almost the same. And it gets even more interesting. Climate-related aspects were rated as more important for someone living in another region than for someone in one’s own region. In essence, a midwesterner believed that climate has a small part to play for her own life satisfaction but a larger part for someone living in California. Similarly, a Californian believed that the relatively warmer climate has a smaller significance for her life satisfaction but much higher significance (likely negative) for someone living in the midwest area.

How do we explain this discrepancy? The scientists believe that this is largely due to the effect of Focusing Illusion. When a judgement of a category (life satisfaction in Midwest vs California) is made by focusing on a subset of that category (life satisfaction due to climate conditions), we tend to overweigh the subset’s relative value to any other subset. In other words, we tend to ignore other aspects of life satisfaction such as job, travel, housing etc and end up deciding based on one single parameter. This is exactly what the students did and this is probably what my wife and I are doing.

In our case, we are conveniently ignoring the geographic location of Chicago that makes it far easier to travel within United States as compared to California. Something that can be very important for our consulting jobs.

Clearly, we should do a better job in evaluating this decision. Will this awareness of Focusing illusion help us do that? I don’t think so. I will probably rationalize my preference for California to the fact that I grew up in a tropical climate and still pursue the ambition to move. After all, this susceptibility to our evolutionary biases is what makes us human. 

 

Mind, Society and Behaviour – World Development Report 2015

 The World Bank has recently published its flagship World Development Report 2015 titled Mind, Society and Behaviour, its main message being, when it comes to understanding and changing human behavior, we can do better. The report brings together great content from the various disciplines including Neuroscience, Cognitive Science, Psychology, Behavioral Economics, Sociology, Anthropology and Design.

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Excerpt :

Research has advanced our understanding of the psychological, social, and cultural influences on decision making and human behavior and has demonstrated that they have a significant impact on development outcomes. This report showcases an impressive set of results. It shows that insights into how people make decisions can lead to new interventions that help households to save more, firms to increase productivity, communities to reduce the prevalence of diseases, parents to improve cognitive development in children, and consumers to save energy. The promise of this approach to decision making and behavior is enormous, and its scope of application is extremely wide.

You can download the report here

As part of the run-up leading to the report, the World Bank blog featured FinalMile (here), in a series discussing ‘Mind and Mindsets’.

Image Source: WorldBank

Are Poor more rational than we think?

Poor-Man-Rich-Man

The wife and I have been debating on replacing an expensive mattress that we bought 3 years back. Over the years, we have stopped liking the mattress and it seems to be doing more harm than good. So now we both want to get rid of it. We already have a replacement mattress with us so the replacement cost is zero. The point of debate is – what should be the minimum price at which we should be willing to sell this expensive but useless mattress. In economic terms, what should be the WTA (willingness to accept) price? While I think any price is a good price, my wife is looking for a good deal. When I asked my friends, their responses also varied between 20 – 25% of the original cost. 

Is this response rational? As per classic economic theory, only incremental costs should impact decision. All historic costs are irrelevant since they are sunk costs. Considering there is no replacement cost of the mattress, my WTA price should actually be zero. So, why do we value these costs?

The idea of Loss Aversion which is discussed as part of Prospect Theory in Behaviour Economics literature explains this behaviour. We all operate from a reference point and evaluation happens based on the change from that reference point. Further, a negative change feels much larger than a positive change. For example, losing Rs. 1000 is much more painful than gaining the same amount.

 

loss_aversion

 

The same is applicable when we are replacing or giving up a product. When someone wants to replace a product, they evaluate not only the value of the replacement product (gain) but also the value of the product foregone (loss). If I believe that I have not completely utilised the value of my old product, I feel a sense of loss of giving it up. To cover up that loss, I want to recover at least part of my money. In the case of the mattress which is expected to be utilised for say 10 years, replacing after 3 years means a loss of 7 years of potential use.  This paper discusses Product Replacement decisions in detail. 

The theory of loss aversion has been used to explain multiple seemingly irrational decisions. In the book Thinking, Fast and Slow, Kahneman has described numerous decisions that people have made which are not in line with decisions predicted by classic economics. But there is also an interesting aberration – in case of poor or people with limited means, loss aversion may lead to  rational decisions. 

Being poor means living below the minimum level of income needed for adequate living. It means that one is always operating below the reference point that we discussed earlier. So, the individual is evaluating in the domain of losses. In this situation, money given to replace a good will not be interpreted as a gain but as a reduced loss. It will be considered as an aid to move towards the minimum reference point. Not taking money in this case would mean losing out an opportunity. Therefore, a person with limited means operating in the domain of losses is more likely to behave in accordance with the economic theory.

Can I use this learning to convince my wife? My colleague gave me an interesting argument. Instead of arguing based on replacement cost, I should argue based on the cost of not replacing the mattress. This could mean developing back pain and possibly paying for medical costs. In other words, I could use Loss aversion to my advantage. Whether this will be a convincing enough argument remains a matter of debate.

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Can Brazil still win the World Cup?

brazil-2014-world-cup-team

Brazil lost it’s star player in the game against Colombia. Some say they may have lost the world cup as well.  But does Brazil still have a upper hand over Germany today? Can playing at home give them the much needed edge? We believe it does. 

What constitutes this home advantage? Is it just the extra adrenalin flow when you the hear the roar of thousands supporting you? Or is there something sinister about it? Do referees who are suppose to be impartial tend to contribute to this home team advantage? 

Chicago Booth Business School has analysed several studies in this area and have come to some startling revelations. Yes, the referees have a bias towards the home team. The biases were clearly evident when it comes to taking that crucial decision as to how much injury time gets added to the game. 

Referees add extra time at the end of a match to make up for the time lost due injuries, substitutions or any other interruptions that could happen in a match. For the players, the coach and more so the fans the importance of the amount of time added to the game depends on the context at the scheduled end of the game. If  either of the teams are leading by a large number of goals at the regular 90 minutes of the game, nobody is really bothered about how many extra minutes get added to the game. But  if your team is trailing by a goal you will be happier if more injury time is added to the game. But if your team is leading by a slender margin of just one goal you will want the match to end as soon as possible. So the less the injury time gets added to the game the happier you are. 

Studies by Canice Prendenergast of Chicago Booth Business School and Luis Garicano and Ignacio Palacios Huerta of London School of Economics are showing that referees add on an average 2.93 minutes of injury time. But the crucial question is whether this average is affected by any bias. The surprising truth this study show is that the referees are biased while deciding the duration of time that gets added to a game. These researchers found that referees add 35% more than average time to a match when the crowd want the match to continue longer and add 29% less than average time when the crowd want the match to end earlier. If either of the teams are leading by a large number of goals, the added injury time is close to the average time. 

What  causes the referees to make these biased decisions? Blame it on the social pressure exerted by the home fans. The size and noise generated by the home crowd is a  key determinant that influences referees decisions.  It is also interesting to note that when match has few spectators or when the visiting fans are large in number, the tendency of the referee to take these biased decisions decrease. This was confirmed by a study by Per Pettersson-Lidbom and Mikael Priks of 21 Italian League matches which were played with no spectators. The authorities had asked the teams to play in front of empty stadiums due to the previous unruly behaviours of the spectators of those clubs. The studies confirmed that when there are no fans in the stadium, referees don’t display any bias.  

Now, we cannot play the game without fans. There may be less extreme solutions too. Studies in Germany show that when the football field is surrounded by a running track, there by  creating larger physical distance between the fans and the referee, the tendency of the referee to take biased decisions decrease.     

A soccer referee is assumed to be an epitome of unbiased behaviour. But the above studies are showing that even they are susceptible to behaviour biases. So this soccer world cup is not just a showpiece of human athleticism, but also a stage that displays the frailties of human behaviour, of the fans, players, coaches  and surprisingly that of the referees too. Lets see if Brazil is able to exploit these in the next game.

 

Noun or Verb

We are not referring to the grammatical usage here.

Consider a research context where participants are placed in a situation where they are tempted to cheat for personal gain. However, subtle change in instructions impacted their likelihood of cheating. When the instruction was in verb form (Please don’t cheat), participants cheated more than when the instruction was given in a noun form (Please don’t be a cheater).

Our earlier blogpost explains this behaviour. The primary idea is that the noun form invokes group identity while the verb form only refers to the action or the effort. People may downplay the action but that becomes very difficult when it comes a self-relevant noun.

So framing a praise in noun form may have a much more sustainable behaviour impact.  A recent New York Times article  also corroborated this idea.

But can we apply this rule universally? The book Social gives an interesting counter perspective. In his research on Altruistic behaviour, Dale Miller – a social psychologist at Stanford University, consistently found that people prefer not to accept an altruistic identify of self. So, when someone asks us why we decided to help, more often we tend to ascribe it as a selfish behaviour. Miller explains this as our tendency to conform to the cultural norm that human beings are self-interested.

Thus, sometimes we prefer focusing on the action while in other cases the identity works stronger. And these contradicting studies highlight the most important perspective of human behaviour – Context is critical.

Context-is-king-1024x768

Explanation of human decision making will always be incomplete without considering the influence of the contextual elements. The context of Cheating is different to the context of Altruism and as a result our appraisal of the stimulus also varies.

Impact of behaviour change communication will always be impacted by the context – be it using noun or verb.

 

Image Source: Here