Behavioral economics studies the behavior of the individual in an economic context. The subject emerges towards the end of the XXth century, in particular at the initiative of Daniel Kahneman and Vernon L. Smith, and of Richard H. Thaler, respectively Nobel Prize winner in economics in 2002 and 2017. These theorists of behavioral finance highlight evidence of “anomalies” in the actual behavior of the economic agent. Behavioral economics then draws a new model of behavior, which nuances the traditional model ofhomo economicus. L’homo economicus indeed makes rational decisions, for an optimal result, whereas behavioral economics finds that in reality, the individual makes non-rational decisions, with less attention paid to the consequences. Many factors, other than the reason, come into play.
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The current of behavioral economics is at the origin of the nudge marketing, or incentive marketing: a “nudge” can guide the consumer’s decision on the basis of irrational decision factors.
What is behavioral economics?
Behavioral economics mobilizes the sciences of economics and psychology. This material makes it possible to observe, thanks to experiments in the laboratory and in the field, that the decision-making of the individual is not always based on reason. Indirectly, cognitive biases, emotions, the social norm or even environmental interactions guide the decision.
Behavioral economics intervenes in many areas: in financial markets, in politics, in savings or in consumer habits. In marketing, behavioral economics enriches the information available to the company, in order to guide consumers’ decision-making.
Examples of behavioral economics
From irrational factors guide the individual’s choices daily. Among these factors: conformism, fear of risk, emotions or even moral bias. Therefore, it is not the reasoning that alone comes into play in making decisions. Illustrations:
- L’homo economicus, rational, saving for retirement. In this way, he offers himself financial security over time. Yet behavioral economics shows that people tend to spend the money they have now, without planning for the long term. It does not matter whether the result is sub-optimal: the individual does not take into account the risk of being destitute upon retirement. Likewise, it has been found that the individual prefers to receive € 100 today than to earn maybe € 1000 tomorrow.
- Behavioral economics has shown that paying for blood donation decreases the number of donors. The decision-making process appears irrational: the individual is less inclined to donate blood because the financial compensation distorts his satisfaction.
- The results of a vaccination campaign are often exponential. Few people decide to be vaccinated when the campaign is launched; then more and more individuals resolve to conform to general behavior. The decision here is not dictated by individual reasoning.
- The consent to the collection of personal data, during a certain period, was checked by default. The rational individual would have unchecked the box, but behavioral economics has shown that inertia predominantly encourages leaving the box checked.
What is the goal of behavioral economics?
The goal of behavioral economics is to observe and understand the non-rational behavior of the individual in a decision-making situation.
Two decision-making systems coexist: the first system is based on intuition and emotions, while the second is based on reasoning and thinking. Behavioral economics finds that the individual tends to use the first system more often.
Irrational decisions, by definition, are difficult to understand. However, it is possible to model recurring inconsistencies, to take advantage of them in order to influence the decisions of the individual. This is the object of nudge marketing, a technique born from behavioral economics.
Examples of application of behavioral economics in marketing
Behavioral economics makes it possible to influence consumer decision-making, based on frequently observed biases. Illustrations:
- Adding artificial colors to the smoked salmon makes the product more appealing. The consumer is aware of the composition. Yet he decides to buy the smoked salmon: not because the product is healthy and sold at the right price, but because it looks appetizing.
- The company promotes an offer by disseminating the following message: “Already 100,000 users won!” “. The company is satisfied with this message, without bothering to describe the characteristics of the product. The marketing impact is strong: the consumer decides to buy the product to conform to general behavior, regardless of whether the product satisfies a real need.
- As part of a marketing campaign, the company sets up an offer reserved for a reduced number of customers or limited in time. The consumer is all the more attracted by the offer as the risk of its imminent unavailability is high. And his interest is aroused, even if he neither needs nor particularly wants the product.
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