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Behavioral_Economics_Whats_That
| Behavioral Economics? Whats That?
A new science sheds light on some of our most important
decisions.
Behavioral economics is the study of how and why people make
money-related decisions. As a science it is relatively new,
although some of its findings have been known intuitively by
good salesmen and marketers for many years. Much of what has
been learned from recent studies, however, has not yet been
applied systematically in the real world of business. Here are
some of the things the studies have shown thus far:
Confirmation Bias
We tend to act economically in a way that confirms current
belief. When buying the same model of Mecedes, for example,
current owners, who presumably already believe in the value of a
Mercedes, pay $7,000 more, on average, than new Mercedes
customers. I'm sure you can imagine the value of this knowledge
to companies that sell high-priced items.
Decision Paralysis
Studies show that, given four samples of jam, for example,
people actually spent more than when they had twenty to choose
from. You may not want to tell the customer about all 84 colors
he can choose from. Limiting options may be a useful sales
technique, according to this research finding.
Sunk-Cost Fallacy
This phenomena of behavioral economics persists, even after
we're confronted with it's illogical nature. We are more likely
to attend an event if we paid for the ticket than if we got it
free, even when we have the same information and interest in the
event. Since the money is already spent, it has no relevance to
the decision, but even seeing this, aren't most of us going to
feel a greater loss throwing away a ticket we paid for than one
we got for free?
The applications of this fallacy are obvious, if you look. For
example, perhaps rather than giving away tickets to those "get
rich" seminars, the organisers would get better attendance by
putting their "$100" tickets on sale for $3. Just having paid
something makes people more likely to attend, with the added
bonus of getting some money up front.
Extremeness Aversion
People avoid extremes. Given a choice of televisions costing
$300, $500, and $700, for example, not many choose the $700 one.
But if you add a $1200 television to their choices, more will
then choose the $700 one, because it is no longer the most
expensive one.
The last example suggests some obvious applications of this new
science of behavioral economics. In fact, if you look closely at
the information coming from these studies, you can find a lot to
help your sales and marketing efforts. You'll find more results
of these studies in Behavioral Economics: Part Two.
About the author:
Steve Gillman has been studying every aspect of money for thirty
years. You can find more interesting and useful information on
his website; http://www.Everything
AboutMoney.info
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