2. The Foundation!
Anchoring
First impressions count!
2!
Principles of behaviour economics!
First impressions act as important anchors or imprints in our
minds, significantly influencing our future decision making !
A group of students were asked to write down the last 2 digits
of their social security number in dollars (i.e. $1-$99) before
taking part in an auction. The students who had higher
‘anchor’ numbers then bid consistently higher for the items
(chocolate, win, computers) than those with lower numbers !
Theory!
Example!
3. The Foundation!
Availability
Front of mind!
3!
Principles of behaviour economics!
We are disproportionately influenced by objects and events
that are front of mind; that is, most ‘available’ to us. This
might be because we’re frequently exposed to them, or
because our exposure to them was particularly recent.
Thoughts connected to highly memorable events often
influence our probability judgements about them !
In the aftermath of an earthquake, demand for large scale
disaster insurance policies rises sharply – but purchases
decline from that point on as the vivid memory recedes !
Theory!
Example!
4. The Foundation!
Chunking
We find it easier to take on
small, defined tasks!
4!
Principles of behaviour economics!
Bite-sized chunks are much more manageable than giant
pieces of information. The way in which tasks are presented
affects how motivated we are to undertake and complete
them. !
The prospect of completing a large scale task can be
overwhelming, hence deterring people from doing it at all. By
‘chunking’ a larger process into more convenient parts, our
ability to work on individual elements, and subsequently
complete the whole project, increases significantly !
Computer games today, with easy save and load screens
before missions, are much easier to complete than older titles
which gave three lives to complete the whole thing!
Theory!
Example!
5. The Foundation!
Commitment
The power of a public pledge !
5!
Principles of behaviour economics!
The more public our stance, the more reluctant we are to
change it. !
Three groups of students were asked to guess the length of
lines drawn on a piece of paper. Group 1 wrote down their
estimates and signed their name; group 2 wrote them on a
magic writing pad so their estimates were erasable; group 3
were asked to simply remember their estimates. When new
information was presented contradicting the estimates, group
1 remained the most committed to their choices, and group 3
were the least committed !
Theory!
Example!
6. The Foundation!
Framing
A different perspective on the
same thing!
6!
Principles of behaviour economics!
Our brain doesn’t naturally check to see if rephrasing a
question would produce a different answer. ‘Framing’ a
question or proposition in a different way often generates a
different response. !
Imagine you’re faced with an upcoming operation to fix a
dangerous heart condition, which is more reassuring?!
!
“Of 100 patients who undergo this operation, 90 are alive for
5 years”!
!
“Of a 100 patients who undergo this operation, 10 are dead in
5 years”!
Theory!
Example!
7. The Foundation!
Goal dilution
We can only focus on one thing
at a time !
7!
Principles of behaviour economics!
When multiple goals are pursued they are less effectively
achieved than goals pursued individually.!
!
People prefer activities, tasks and products that serve single,
not several goals !
Consider the rise of the mobile apps – people inherently
prefer to use a single-function tool to complete a single task!
Theory!
Example!
8. The Foundation!
Loss aversion
We value more what we have
already!
8!
Principles of behaviour economics!
We tend to put more effort into avoiding the loss of something
we already have than trying to gain something new. People
find it up to twice as painful to lose something they own
compared to how enjoyable it was to acquire in the first
place. !
In surveys the statement ‘you will lose £x a year if you don’t
insulate your loft has been found to have a significantly
greater impact than ‘you will save £x each year if you do
insulate your loft”!
Theory!
Example!
9. The Foundation!
Overweighting small
probabilities
It could be you!!
9!
Principles of behaviour economics!
We often overestimate the possibility of rare events
happening, both because of the apparent ‘availability’ of each
rare event and because of the ‘possibility effect’, i.e. People
consistently have too much faith in their ability to beat the
odds !
Despite the probability of winning the lottery being almost 1 in
14 million (and there are statistically greater odds of being
struck by lightening) people continually take part in the hope
that they might get lucky!
Theory!
Example!
10. The Foundation!
The power of now
Hyperbolic discounting !
10!
Principles of behaviour economics!
We engage less with future events. This often results in us
procrastinating about choices that do not offer instant
gratification or feedback !
Asked to choose between being given an electric shock now
and the same shock tomorrow, most people choose to delay.
The earlier shock feels more horrifying than the delayed
shock, even though we know it will feel equally bad tomorrow!
Theory!
Example!
11. The Foundation!
Reciprocation
Give and you shall receive!
11!
Principles of behaviour economics!
Most people innately expect some sort of reciprocation from
those with whom we interact!
Bundling a £5 gift cheque in with an insurance survey was
twice as effective in driving compliance as the promise of a
£50 cheque, which would be mailed after participants had
sent back the survey in the post!
Theory!
Example!
12. The Foundation!
Status quo bias
The power of defaults !
12!
Principles of behaviour economics!
People have a tendency to stick with the way things currently
are. The more we repeat behaviour traits, the more automatic
they become and as time passes these defaults become the
key factors driving our behaviour. !
Nearly 90% of people agree that organ donation is a good
thing. !
!
Donor registration figures are 12% in Germany, 99% in
Australia. !
!
The difference is that Germans must choose to ‘opt out’
whereas Australians must ‘opt in’!
Theory!
Example!
13. The Foundation!
Social proofing
Follow the herd!
13!
Principles of behaviour economics!
We instinctively follow the herd, making decisions on the
basis of what those around us as are doing. We do this to
justify the choices we’ve made, believing that they are
validated by the fact that others have made the same
decision !
Opower identified that in getting customers to be more
environmentally friendly, it was more effective to tell them
how much energy their neighbours were using, rather than
how much money they would save!
Theory!
Example!
