Globally irrational or locally rational?

This post appeared originally on RWConnect on 28th November 2013

Why we need to understand cultural context when applying behavioural economics

The increase in research in markets such as Asia and Latin America makes understanding the impact of cultural context on consumer decision making more important than ever before. While quantitative researchers have long accepted that survey research is affected by culture through phenomena such as acquiescence bias or extreme response styles, cultural differences have far more diverse and wide-ranging implications for marketing and market research.

Behavioural economics is being enthusiastically adopted across the market research industry all over the world. Researchers everywhere are applying insights from decision making science and embracing the concept that we’re all a little bit irrational. But are we irrational in the same way?

We’re so WEIRD
Much of the research on decision making that is in the public realm has been conducted almost exclusively in Western countries and especially in the US. This means that we are implicitly assuming that these cognitive biases are universal and function largely in similar ways in different cultures. However, 96% of samples in psychological studies come from countries with only 12% of the world’s population, which means that a randomly selected American is 300 times more likely to be a research participant than is a randomly selected person from outside of the West. These countries are commonly referred to as WEIRD (Western, Industrialised, Educated, Rich and Democratic), which makes them vastly unrepresentative as a sample in psychological research.

Even though cross-cultural research into decision making is still in its infancy, a growing body of evidence suggests that behavioural economics as a field will hugely benefit from it as differences between cultures help unpack the deeper foundations of behaviour. Given the emphasis of many cognitive decision making theories on the impact of immediate context such as framing or priming, it’s surprising how little culture is taken into account. While social psychology has a wealth of knowledge on how cultural context affects us, theories in cognitive psychology rarely consider culture as a factor due to implicit assumptions about the universality of cognitive processes: according to these researchers, what we think about may vary, but how we think is always the same.

The Muller-Lyer illusion

However, research has shown even fundamental cognitive functions such as how we perceive colour can significantly differ based on the cultural context you’ve grown up in. Similarly, perception of seemingly simple optical illusions such as Müller-Lyer arrows have been shown to vary across cultures and even age groups.

Through the looking glass of culture
When talking about culture, we often refer to aspects such as values, attitudes, social norms, beliefs and traditions. However, despite long-standing debates within academia, no commonly accepted definition of culture actually exists. Instead, researchers tend to focus on certain aspects of culture depending on their area of interest and the phenomena they are investigating.

On a general level there is a wealth of evidence that economic, social and linguistic environments strongly shape people’s behaviour, motivations and preferences: for example, a study investigating time discounting (i.e. whether we value immediate rewards more than those in the future) in 45 countries found that differences at country level related to wealth and education as well as cultural factors such as individualism, the importance of tradition and whether time was conceptualised as linear or cyclical. However, without a unifying framework of conceptualising culture research such remains too scattered and almost makes it harder to grasp the bigger themes underlying cultural differences. A more effective way of understanding culture’s impact on how BE biases work differently in different countries is to look at some measurable differences between cultures which doaffect how a person’s cognition works while they make decisions. While other frameworks exist, one of the most powerful ones is a person’s self-concept.

“Me, myself and I” vs. “All together now”
The most widely analysed dimensions of culture are individualism and collectivism. Often discussed in the context of Geert Hofstede’s Taxonomy of Cultural Differences, these dimensions have received a lot of attention both among academics and practitioners. In a nutshell, individualism is characterised by detachment from relationships and community with the individual seeing himself as relatively independent from others, whereas collectivism is characterised by the importance placed on relationships, roles and status within the social system, with the individual seeing himself inseparable from his network of social relations.

However, at the level of the individual, these cultural mindsets affect how we see the world through organising the information we have about ourselves, directing our attention to information that is perceived to be relevant, shaping motivations and influencing how people appraise situations that influence their emotional experiences. These self-concepts can be placed on a continuum between two poles: independent and interdependent selves. Independent self-concepts are typically more prevalent in individualistic countries, whereas interdependent ones tend to be more common in collectivistic ones, although variation exists within countries.

Those termed independent define themselves through internal attributes such traits, abilities, personal values and preferences, and see behaviour as being under the control of the individual, arising from internal attributes such as preferences (e.g. what you buy reflects your identity). Conversely, those termed interdependent define themselves through relationships with others and don’t necessarily see behaviour as a reflection of internal traits but situated in a specific context – your preferences might radically change depending on what social circumstances you are in.

This has profound consequences for some of the fundamental concepts in consumer psychology such as cognitive dissonance: if you see your behaviour reflecting your true self, which is ideally consistent across time and circumstances, holding two or more conflicting ideas will make you feel uncomfortable. However, if you instead assume that your preferences merely reflect the current social circumstances and can therefore change from one moment to the next, conflicting ideas will not pose a threat to your identity, which means the concept of cognitive dissonance exerts much less power on consumers in e.g. East Asian cultures. As cognitive dissonance, often seen as irrational, is commonly used in advertising, understanding the extent to which it is prevalent in the cultural context is crucial to efficient marketing communications.

I am what I buy… or am I?
Whether or not we see ourselves as separate individuals or intertwined with others is also important in understanding consumer choice. Is choice an individual endeavour, reflecting our internal attributes or one that takes other people into account and says little about the chooser? In Western cultures, choice is seen as an act of self-expression: uniqueness is desirable and choices are a way to paint a portrait of yourself for the outside world, so we vary our choices in an attempt to gain a sense of “specialness”. In behavioural economics, this is termed as diversification bias where we seek variety in both what and how we choose which may sometimes lead to seemingly irrational behaviour. However, the majority of the research on this effect has been conducted in Western countries and specifically in the US where personal choice is almost one of the key cultural values.

When choice is an act of self-expression, it becomes hugely important for the individual, and the psychological impact of either lack of choice or failed choice is larger, which leads to strategies such as variety-seeking. However, in in collectivistic cultures choice is often an interpersonal task which means the success or failure of making a choice that portrays oneself in the most positive light is not as big a concern. Subsequently, recent research has shown that the diversification bias is weaker in these cultural contexts.

Self-concepts also affect the strength of another well-known behavioural economics concept: theendowment effect, where simply owning an object enhances its perceived worth, and owners value objects substantially (and irrationally) more than potential buyers do. Because owning an object activates an association between it and the self, the Western focus on self-enhancement means this association automatically boosts the object’s value. Therefore, the strength of the endowment effect is influenced by the degree to which self-enhancement is culturally valued, with recent research suggesting that the effect is indeed stronger in a Western context. In practice this means that sales tactics such as free trial or “bait and switch” may be less effective in these non-Western contexts with weaker endowment effect combined with weaker cognitive dissonance.

Fifty shades of irrationality
Understanding the potential cultural influences on thought is crucial for everyone attempting to accurately describe and predict consumers’ decision making.  Insights from behavioural economics might well be applicable in different cultures, but we need to have highly nuanced sense of the specific characteristics of each cultural context and its impact on consumer decision making to ensure effective applications. As behavioural economics professor Dan Ariely notes, the biggest challenge for the field in the next 10 years is understanding the generality of the findings so far and to what extent the effects discovered carry over in different contexts. As market research gradually abandons the error of rationality and adopts more principles from behavioural economics, let’s make sure we don’t entrench a new mistake: universality.

Elina Halonen is a founding partner of the Irrational Agency and editor at InDecision blog.


What’s life like on the other side of the behavioural fence?

Last week we co-hosted (along with Hunting Dynasty) an event to celebrate the second anniversary of the London Behavioural Economics Network. To mark the special occasion, we invited two illustrious speakers to discuss life on both sides of the behavioural fence: commercial and academic. Representing the academic side, we had George Loewenstein from Carnegie Mellon University and for the commercial side, there was only one option – Rory Sutherland.

2014-04-23 20.17.23

Thanks to Brian Tarran from the Market Research Society, we can share with you a transcript of the event (link to our video at the end of this post). Brian also wrote an excellent review of the event which you can read on Research Live.


George Loewenstein: Why is it that British electrical outlets have a switch on them? If you don’t have anything plugged in, why bother to turn it off, and if you do have something plugged in, why bother to turn it off?
Rory Sutherland: I’ve always seen it as a failing of other countries that you don’t have a switch. But there may have been also, bizarrely… if you go back to the early days of electricity, there was a considerable fear that if you left the switch on with nothing plugged in the electricity would leak into the room. So it might have been a device by the electricity boards to prevent people from being paranoid.
GL: I’ve read in various places that you studied classics at Cambridge and taught classics. Now, I don’t want to rake the coals on any deep regrets that you feel about leaving teaching, but I’m wondering if you’ve gained any insights from your career in advertising that would apply to education?
RS: A classical education is one of those things that works obliquely. It’s also worth asking: is a large component of education signalling, rather than value? Your level of educational attainment correlates very well with your career outcome if you get a paid job. It doesn’t correlate at all with people who are self-employed. This raises the question: is there a large amount of education that is effectively a spiralling, competitive credentialism? We don’t have any evidence that people with OxBridge firsts are better employees than people with firsts from Leeds. There’s no real empirical evidence that your degree class predicts your level of value to your company. There’s an aspect, which I know is a very cynical one, who argue that this is in a sense a peacock’s tail thing; basically it’s a three-year long IQ test combined with proof of commitment.
GL: Take something like drop-outs, or students not studying as hard as you’d like them to. Are there any lessons from behavioural economics or the marketing world that would discourage and encourage those people?
RS: There are some interesting questions about education. Does it disproportionately privilege certain personality types, those that are particularly well-suited to the system they find themselves in. One of the interesting things about an ad agency is that, as a place to work, it is a complimentary mix of skills. You need the beard-stroking Oxbridge intellectuals dotted around the place, but what you find in the most successful ad agencies is that the people who make up the management of that organisation tend to come from an extraordinary mix of educational and social background. That’s not just a politically correct, nice thing to have, it is a source of competitive advantage.
GL: That’s a nice segue into a question I was going to ask, about the new master’s programmes that are beginning in the UK, focusing on behavioural economics. Is this the kind of training that you would value at Ogilvy, or are you looking for the pot-smoking… what was it?
RS: They are not mutually exclusive, of course. You can have an MSc in behavioural science and a severe pot habit.
RS: One of the strange things is, you would think that advertising agencies and clients are full of behavioural scientists and psychologists, devising the next evil way in which to mislead people into buying stuff. I must admit, I was rather hoping to find that kind of thing when I went into the business myself. I always assumed I’d be able to turn some strange corner and find a room full of people attaching electrodes to rats. That room does not exist. But the reason private enterprise looks like it’s good at behavioural science is that it stumbles on things by accident. It happens to produce things that work. Capitalism is sort of semi-Darwinist: if you stumble on something that is disproportionately successful, it makes money, so you tend to expand that particular area. Now, some time after the early Mad Men era, the links between academic psychology and advertising and marketing were actually quite strong. This was in the late-50s, early-60s, when there were various people dotted around ad agencies with possibly fake, possibly genuine Viennese accents, who claimed to have met Sigmund Freud. These people came up with ideas, like how ‘plink, plink, fizz’ would create a social norm around using two Alka-Seltzer rather than one. They came up with lines like, ‘How else can a month’s salary last a lifetime’ for DeBeers, which was an extraordinarily good piece of framing in terms of anchoring what a man should spend on a commitment device for his future wife. They stumbled on these things by accident, but they made no effort whatsoever to codify it. What the business world is very good at is stumbling on successes by accident, but it’s terrible at making sense of them. We had all the information to create a science of behavioural economics back in the 50s and 60s, but we squandered it because nobody tried to make sense of it.
GL: How do you use behavioural economics in your practice? Can you give an example of a campaign that wouldn’t have happened without behavioural economics.
RS: The most important thing about behavioural economics is the widespread awareness among clients and agency people that these things are important. Before, in modelling and attempting to predict consumer behaviour, we tended to rely on the two pairs of broken binoculars: neo-classical economic assumptions, which are quite seriously wrong in some areas, and market research. Enormous business and government decisions are based on these two flawed lenses. Neo-classical economics tends to assume that psychology isn’t matter – which, as a result, creates an imaginary fantasy world of perfect information, perfect trust and perfect efficiency where marketing and advertising needn’t exist. But there are loads of things for which there is no rational reason. Stripy toothpaste, say – let’s get really trivial. There is no rational reason for stripy toothpaste because once you put it into your mouth it all gets mixed up. Nobody in market research would ever say that toothpaste should be stripy. No neo-classical economist would argue that there was any benefit to it. But someone stumbled on this idea that it’s much easier for people to believe a toothpaste does three things if there are three different visible components. That kind of thing, just understanding something that would never have emerged from research or neo-classical economics – those kind of things can make the difference between triumph and disaster. If all I do is get people to understand that, and get people to accept that it is worth testing things that don’t appear to make any sense to test, that’s all you have to do.
GL: The stereotype of advertisers and marketers is that they are playing on motives like power, sex, fear and so on. Is that true, and to what extent is behavioural economics capturing the motives that really drive people to purchase products?
RS: I’m very uncomfortable with the use of the word irrational, because an awful lot of behaviour that is currently seen as irrational is meta-rational or evolutionary rational. It’s the product of evolved psychological instincts that may or may not be useful in the modern world. For example, people’s willingness to pay a premium for a famous brand is rational if you understand a bit of reputational game theory, which is that someone with a valuable reputation has more to lose from selling a bad product than someone you’ve never heard of. There are lots of mechanisms that we employ instinctively, actually make very good sense. I also think loss aversion, in evolutionary terms, needs to be better understood. Rationality is always about maximising something, but I would argue that any sensible evolved system is not going to care about whether something is good or really good, but it would desperately care about the chances of something being fatally terrible. If you look at it from the absence of bad, rather than presence of good, an awful lot of human decision making makes an awful lot of sense. The idea that rationality means getting the best of something… I mean, you can go to a Michelin-starred restaurant and spend the afternoon on the bog, but say what you like about Maccy D’s but you don’t get ill there. Satisficing is what most people do all the time to the extent where, when people don’t satisfice there’s probably something going wrong. When people maximise, it tends to be in competitive situations where people are thinking as game theorists.
GL: But sometimes what appears to be maximising, isn’t maximising at all. I had a colleague who always tried to maximise the gain from any kind of negotiation and it was a disastrous strategy…
RS:… Because no-one would negotiate with him?
GL: That’s right. Another case is, if you always want to get the parking spot closest to the theatre, you’re going to waste a lot of time looking for a parking place. I’m actually a big believer in satisficing, but really a believer that satisficing can be a form of maximising. On the idea of loss aversion being connected with having evolved, it would have to be a very crude kind of evolution that produced that effect, because we’re loss averse over very small amounts: like gain $10/lose $10, or gain $15/lose $10 – most people are going to turn that down. But $10 has no prospect of killing you, so you would have to say it’s something we learned through evolution and then generalised inappropriately.
RS: Do you accept the claim that some psychologists make that the term behavioural economics steals for economics credit that is owed to psychology?
GL: There are a lot of psychologists who are annoyed at economics, and are annoyed at behavioural economics specifically. A lot of the work on changing health behaviours, for instance, was first done by psychologists, didn’t get a huge amount of attention, and then behavioural economists started doing it, and have gotten a tremendous amount of attention since then. Psychologists are, rightfully in my opinion, bothered about that. In fact, a lot of psychologists have started rebranding themselves as behavioural economists and getting more attention. I think they are right to have a grudge, but I guess you could tell us that it’s all a matter or marketing, and behavioural economists are much better at the marketing game.
RS: I got into this weird Twitter row, and Nicholas Christakis, I think, had the last word on the question when he said, “Look, there is a branding problem with psychology, which is very simple: the president of the United States cannot have a council of psychological advisors – but he can have a council of economic advisors”. On the other hand, for reasons I don’t fully understand, economics has completely disproportionate influence in business, and especially in policy making, out of all the other social sciences. Part of my theory is that economics is the one academic discipline where it is ok to be greedy. My brother is an astrophysicist, and if he went off to work in a high-frequency trading firm for two years and make a fortune and then try to get back into astrophysics, his career would be dead because he’d sold out. Economics, because it preaches self interest as a virtue, getting two-year gig at Citibank for £300,000 a year is positively career enhancing. Is that a valid theory?
GL: I think there is a good reason why economists are so tied into policy, because a lot of economics is oriented towards policy. But I actually want to pick up on a little piece of what you talked about, which is greed. When economists talk about greed they misuse the term. For an economist, greed is self interest. But when lay people use the term, they are using it in a very different sense. For a lay person, greed is self interest taken too far; to the point where it is destructive. So, it’s fine in my opinion to be self interested, but the danger is where you take it too far.
RS: We do have a social epistemology, and our idea of the good life is probably massively informed by what we think other people’s idea of the good life is. So, I think the extent to which we decide individually is a really interesting question. Although we’re consciously determined to see ourselves as individuals, I think our vision of what’s good is massively driven by our assumptions of what other people think.
GL: Exactly, and I recently co-authored a paper on mattering maps. When you’re in a particular situation, let’s say a social group, there’s typically something that matters more than anything else. Among academics it might be publications. If you are a musician it might be how well you play a piece. But one of the interesting features of mattering maps is they can change so abruptly as a result of whatever social milieu you’re in. So, I couldn’t agree more with you, that whatever we’re seeking at any given time is completely socially determined. The think we have some kind of free will about is how we’re going to seek it out. But we don’t really have a lot of control over what we’re seeking.
RS: We won’t get into free will and determinism here, because that’s probably a bit heavy. But a final thing: there is this attack on behavioural economics that it is just a collection of findings, or anomalies – that it is stamp collecting for psychologists. Critics say, ‘Where is the unifying theory?’ But if you’re dealing with psychology, human behaviour, human health – any of these complex emergent phenomena – is there ever going to be a unifying theory?
GL: Let me just say that something I’ve noticed about Brits is that you find pretension toxic. And what you don’t realise is that Rory is actually making fun of me with this question…
RS: No, I’m not!
GL: …because I was having breakfast with him and I told him that I was working with Nick Chater on a theory of everything. I actually meant it a little bit tongue in cheek, but not totally. So Rory’s making fun of me. But, ok, the first thing is that it’s kind of surprising as a behavioural economist to be questioned about the desire for a unified theory, because we’re always being attacked by traditional economists who say, ‘We have a unified theory and you’re just a bunch of disparate findings’. My view is that traditional economics is not nearly as unified as it claims to be because whatever phenomenon the economist is looking at, the utility function metamorphoses to deal with the phenomena that’s important to them. But I do think that a unifying theory, even a unifying mathematical theory, can be a beautiful thing. And, that’s what social science is all about: trying to take disparate social phenomena and come up with a unified account. That’s when I get a chill up my spine, when disparate things come together. So my aspiration is for behavioural economics to be grounded on a unified theory, or maybe a few unified theories.


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On the identity and methods of behavioural economics

The FT has a very good article from Tim Harford today, surveying behavioural economics and asking some important questions about it. People within a field can be so immersed in their unconscious assumptions and practices that it takes an outsider to point out some of the questions they are not asking.

Tim says:

The past decade has been a triumph for behavioural economics…[which] is one of the hottest ideas in public policy….Yet, as with any success story, the backlash has begun. Critics argue that the field is overhyped, trivial, unreliable, a smokescreen for bad policy, an intellectual dead-end – or possibly all of the above. Is behavioural economics doomed to reflect the limitations of its intellectual parents, psychology and economics? Or can it build on their strengths and offer a powerful set of tools for policy makers and academics alike?

Quite. That, of course, is a journalistic question – not one intended to be answered within the article, but designed to provoke the prospect of a good ding-song. But the substantive points come soon. Note that Tim, writing for a generalist FT-reading audience, chooses to address his article to public policy so it doesn’t look like an abstruse argument between academics. But actually it’s about the effectiveness of BE, and economics in general, as a tool at all. Public policy, private decisions, how businesses operate – all can be informed by whatever economic theory we believe in.

…there is something unnerving about a discipline in which our discoveries about the past do not easily generalise to the future…This patchwork of sometimes-fragile psychological results hardly invalidates the whole field but complicates the business of making practical policy.

Indeed – and it divides the field, into those who believe a (more) unified theory is available, and those who believe rational choice is still the main theory available and that behavioural results are only meaningful in relation to that.

The line between behavioural economics and psychology can get a little blurred. Behavioural economics is based on the traditional “neoclassical” model of human behaviour used by economists. This essentially mathematical model says human decisions can usefully be modelled as though our choices were the outcome of solving differential equations. Add psychology into the mix – for example, Kahneman’s insight (with the late Amos Tversky) that we treat the possibility of a loss differently from the way we treat the possibility of a gain – and the task of the behavioural economist is to incorporate such ideas without losing the mathematically-solvable nature of the model.

Consider the example of, say, improving energy efficiency. A psychologist might point out that consumers are impatient, poorly-informed and easily swayed by what their neighbours are doing. It’s the job of the behavioural economist to work out how energy markets might work under such conditions, and what effects we might expect if we introduced policies such as a tax on domestic heating or a subsidy for insulation.

And the problem today is that, without a clear theory, behavioural economists can’t work that out. All they can do is suggest various effects that might happen, and design an experiment to test them. Nothing wrong with that, but it’s a bit ad hoc.

The most well-known critique of behavioural economics comes from a psychologist, Gerd Gigerenzer of the Max Planck Institute for Human Development. Gigerenzer argues that it is pointless to keep adding frills to a mathematical account of human behaviour that, in the end, has nothing to do with real cognitive processes.

David Laibson, a behavioural economist at Harvard…concedes that Gigerenzer has a point but adds: “Gerd’s models of heuristic decision-making are great in the specific domains for which they are designed but they are not general models of behaviour.” In other words, you’re not going to be able to use them to figure out how people should, or do, budget for Christmas or nurse their credit card limit through a spell of joblessness.

We come back again to the need for a general theory, and one of behavioural economics’ regular combatants agrees:

For some economists, though, behavioural economics has already conceded too much to the patchwork of psychology. David K Levine, an economist at Washington University in St Louis, and author of Is Behavioral Economics Doomed? (2012), says: “There is a tendency to propose some new theory to explain each new fact. The world doesn’t need a thousand different theories to explain a thousand different facts. At some point there needs to be a discipline of trying to explain many facts with one theory.”

The challenge for behavioural economics is to elaborate on the neoclassical model to deliver psychological realism without collapsing into a mess of special cases…The question is, how many special cases can behavioural economics sustain before it becomes arbitrary and unwieldy? Not more than one or two at a time, says Kahneman.

Thaler says: “…if you want one unifying theory of economic behaviour, you won’t do better than the neoclassical model, which is not particularly good”

It seems that Kahneman and Thaler actually agree with Levine in a way; all three doubt that behavioural economics can crystallise into a single theory, though only Levine thinks this is a serious problem.

George Loewenstein and Peter Ubel wrote in The New York Times that “behavioural economics is being used as a political expedient, allowing policy makers to avoid painful but more effective solutions rooted in traditional economics.”

This point is different but important: if policymakers expect behavioural economics to be a substitute for regular economics they’ll be disappointed. The two are complementary, and the most important policy contribution of BE may be to tell us which economic incentives will have the biggest impact, and which will have unwanted side-effects, rather than to obviate the need for traditional incentives altogether.

Should we be trying for something more ambitious than behavioural economics? “I don’t know if we know enough yet to be more ambitious,” says Kahneman.

That’s a provocative point. Yet it acknowledges that whatever field eventually manages to incorporate both traditional and behavioural economics may have to be called something different.

Laibson says behavioural economics has only just begun to extend its influence over public policy. “The glass is only five per cent full but there’s no reason to believe the glass isn’t going to completely fill up.

I and many readers of this blog will probably be with Laibson on this point. But perhaps without a new approach, behavioural policy is going to run more and more often into the wall of adhockery – the lack of general theories making us redo things from the ground up in each new situation.

Tim isn’t the only person to write about this recently. For a contrary word, try Chris Dillow’s comment, which makes some good challenges from his usual half-libertarian, half-Marxist point of view.

Then, here are some links and thoughts from Diane Coyle, including “Is behavioural economics the past or the future” by Chris House. Diane hones down one of Tim’s questions into Kao and Velupillai’s distinction between classical and modern behavioural economics: modern assumes people are (biased) optimisers, while classical assumes they are satisficers. This is the same distinction drawn by Gerd Gigerenzer, though his research looks at a broader range of decision-making heuristics, of which satisficing is just one. Diane asks, effectively: is the best mathematical approach to tweak the models of maximisation, or to try to build a new behavioural economics based on heuristics?

Chris House’s post says:

…in 2007-2008 we were again told that behavioral economics would finally come into full bloom. It didn’t happen though. The wave of behavioralists never came.

While this isn’t true in psychology or behavioural policy and marketing – all thriving and fast-growing fields – it is true of economics. My experience is that many new economics undergraduates or entrants to economics PhD programs are intrigued by behavioural ideas, they are often guided by supervisors into more traditional areas where it is easier to define a research question that is going to produce safe, publishable papers. Barkley Rosser, commenting on House’s post, mentions the new journal Review Of Behavioural Economics, which along with other emerging initiatives may help to change this.

Otherwise, Chris raises that same point:

Behavioral economics won’t get very far if it ends up being just a pile of “quirks.” Are these anomalies merely imperfections in a system which is largely characterized by rational self-interest or is there something deeper at play? …if behavioral is to somehow fulfill its earlier promise then there has to be some transcendent principle or insight which comes from behavioral economics that we can use to understand the world.

Then there is the David Levine paper that Tim mentions, “Is Behavioural Economics Doomed?“. In this, Levine says (among many other interesting things!):

For most decisions of interest to economists these external helpers [computers, paper and pencil etc] play a critical role – and no doubt lead to a higher level of rationality in decision making than if we had to make all decisions on the fly in our heads.

What a brave claim! Do we really rule out from the realm of economically interesting decisions all consumer purchases, the consumer’s intuitive feelings about how safe they feel with a certain amount of savings in the bank, and all the decisions about cars, houses and jobs that – although someone might sit and think about them for a while – still involve a big chunk of emotion?

Actually, there is no need to throw out these kinds of decisions in order to meet Levine’s key challenge of “trying to explain many facts with one theory.” He asserts that mainstream economics is already successful at explaining many facts. But perhaps, when he discards all those “uninteresting” decisions it isn’t so hard to explain what’s left. Indeed, it’s those “uninteresting” decisions which classical economics does struggle with, and only behavioural economics can illuminate. Contrary to Levine, I am convinced that these decisions actually make up the majority of important economic events. But I do recognise his critique – echoed by Tim and implicitly by Velupillai and Gigerenzer: that behavioural economics does not offer a full theory to replace that of mainstream economics. However, it has given us good empirical evidence which we could build a theory on.

As well as defining away a large portion of the economy as “not interesting”, Levine also co-opts some of the parts that he does consider interesting, saying they are already handled by mainstream economics: notably the subject of learning. Non-behavioural economists have considered consumers’ imperfect ability to learn the preferences of other consumers, or the rules of the “game” they are playing, as a factor in non-optimal decisions. But psychologists know much more about exactly how people learn than economists do – so a successful model of learning as part of economics can only be built with an openness to psychological research. Where Levine may be right is that behavioural economics will not replace mainstream economics, but instead the two fields will merge – with the behaviour of consumers predicted by a combination of objective economic, and subjective psychological, factors.

Anyway, arguments over the boundaries of disciplines are rarely productive: I don’t really mind if Levine considers a model to be behavioural or not, as long as the model advances the cause of making successful predictions.

The real questions are: does standard economics fail to address some important problems? How good is behavioural economics at addressing them instead? And does behavioural economics need a unified approach in order to address them?

Most of the people mentioned above have different answers to those questions:

  • Levine wants a unified theory – but think we have to exclude many types of “uninteresting” decision in order to get one.
  • Kahneman and Thaler want different theories for several different areas – but those incompatible theories will not be able to deal with the many boundaries where different aspects of economics interact with each other.
  • The classical economists already have a unified theory – but there are many things it can’t explain.
  • Gigerenzer has a philosophy – but no overall theory. And I’m not sure if he expects or really wants a unifying theory any more than Kahneman does (this may be one of the few things they agree on).

[Update: much of this debate was anticipated in this Werner Guth paper of 2007]

My view, which I think concurs with Laibson’s: a single broader theory is possible. I think we’ve hit a theoretical dead end with the traditional maximising agent, so it will have to be based on more psychologically realistic foundations, such as those of Velupillai, Gigerenzer or Bettman, Payne & Johnson. To achieve this, we need to carefully choose the right elements to build into our model of decision-making in a way, so that it can make useful predictions of how those elements might operate. I have a paper coming out later this year which suggests one direction towards this.

Consumers are irrational – a myth

[Transcript of my talk from NewMR: Explode A Myth. The accompanying slide is here and you can listen to the recording of the talk and Q&A here]


If you’re the type of person who tunes into NewMR events, you can hardly have missed the library of behavioural economics books that have poured out of the typewriters of various academics in the last few years. Nudge, Thinking Fast and Slow, and Predictably Irrational have hammered into us the idea that we’re all irrational. We don’t make choices in our best interests and we’re always making mistakes. We don’t even know what we want. How can we be trusted to make our own decisions in life! We’re idiots!

Even the name of my own agency, the Irrational Agency, plays up this idea.

Today I’m going to tell you all this is nonsense. Consumers aren’t irrational at all. Not that they’re rational either…and thank goodness for that.

The fact is: if we really did behave the way economists say we should, we’d all be dead. The only people who make decisions in the way economists tell them to are people with specific types of brain damage. These people cannot use their intuition or feelings to make choices – they have to calculate all the costs and benefits of every decision they make. As a result, they can’t make any practical decisions in life: not even whether to get out of bed in the morning. They end up unable to live outside of an institution.

We’ve all probably experienced this on a small scale – they call it “analysis paralysis”. Any time you’ve found it really hard to make a decision between two options, and you’ve put it off and thought it over and worked it out and still been no closer to deciding – you’ve been in this mode. And eventually you probably picked one path or the other, and chances are it worked out OK.

Imagine you weren’t in a comfortable office (or living room) in a modern economy, but instead in a threatening environment, with only just enough food to survive on, and a wide variety of creatures waiting to kill you. In other words, imagine you were your great-great-great-great-grandmother 300 generations back. Now imagine you stopped to calculate and weigh up the potential costs, benefits and associated probabilities of every decision before making a choice. It wouldn’t be long before you ended up as lion food.

Any “rational” person – rational in the sense that economists would like us to be – would quickly be eaten out of the gene pool. Only those who are willing to make decisions quickly, find shortcuts and do what’s “good enough” would have survived. And those people are your ancestors, and mine, and the ancestors of the people who buy our products.

This isn’t just a matter of whether our brains are big enough, or if we just happen to be a bit too stupid and slow to calculate the right answers. It’s mathematically impossible for any imaginable creature to calculate all the pros and cons and predict the future consequences of their actions and weigh them up and make decisions, every minute or every second of the day. If you dedicated all the computers in the world, programmed by the smartest programmers, helped by all the people in the world and gave them a hundred years to calculate in exact terms the best sandwich for you to order today: they wouldn’t even be able to do that. There is so much information in the world; it’s such a complex place, and everything influences everything else; that nothing and nobody could process it all, even if given aeons to do it in. And certainly not in time to dodge that lion. It’s simply not an option.

So instead of calculating everything, we use heuristics. Heuristics, contrary to the impression given in some books, are not flawed or error-prone ways of thinking. They are brilliantly designed techniques to let you make a good-enough decision in less than a second, 99.9% of the time, without even being aware you’re doing it. The only reason we can navigate the world in a practical way is because we have these heuristics to make our decisions for us.

The heuristics are what let us choose products we know we’ll like. They’re what help us to drive to work safely, or talk to people without having to calculate and plan out every individual sound that every word will be made up of. It’s heuristics that tell us what brands we can trust and let us know we’re not being ripped off by a high price.

And that one time in a thousand that the heuristics don’t give us the right answer? Well that’s a better hit rate than any computer algorithm you can think of. Sure, algorithmic step-by-step calculations can give us the right answer to a small number of carefully defined mathematical problems: and there’s no harm in learning those situations so you know when not to use a heuristic. I wouldn’t recommend using a heuristic to calculate your tax bill. But don’t start believing the heuristics are wrong, or bad, or useless. And above all, don’t let them tell you consumers are irrational. Not even someone who runs an agency named after irrationality. (Sometimes I wish we’d just picked a nice acronym like GFK or TNS. But there you go.)

Don’t let your fantasy of that unattainable, perfect calculating machine be the enemy of recognising what a brilliant object your brain is, to have found its way past those lions on the savannah, through all the dangers of history, and past the supermarket till without buying the National Enquirer.

Consumers aren’t irrational, but you might be irrational if you think they are.

IA partner interviewed on leading psychology blog

This week our partner Leigh Caldwell was interviewed by InDecision – a blog aimed mainly at academic researchers in the field of psychology of decision making. Every so often they feature  a practitioner applying the science in the commercial world and previous interviewees have included e.g. Rory Sutherland from Ogilvy Change, Matthew Willcox from advertising agency Draftfcb and behavioural finance expert Daniel Egan from Betterment. (Original interview here.)

Chicago headshot 1

This week in our practitioner series we’re featuring Leigh Caldwell who is a behavioural economist and founding partner of pricing research consultancy Irrational Agency. He’s been applying decision making research commercially since the mid-2000s, making him quite an early adopter of this discipline, and is also active in academic economic research, working in the emerging field of cognitive economics. He has founded and run several businesses in technology and professional services, and recently condensed his experience in pricing and marketing these businesses into a new book The Psychology of Price. He is also the sub-editor for our upcoming interview series on applications of decision-making psychology in economics and public policy.

Tell me about your work: how does decision making psychology fit in it? I see my work as scaling up. I start from decision-making research that applies to individuals, and expand it into an understanding of how groups of people, companies or markets or whole economies, operate.

As a consultant, I do this for companies who want to know how to design a pricing or marketing strategy while taking into account consumer psychology. As a researcher, I do it with economic theory, building models of how markets work and how economies experience growth or recessions.

To do either of these jobs calls for mathematical models – models of how people behave which strike the balance between being psychologically realistic, but simple enough to work with. Old style economics went too far down the simplification route; but modern empirical psychology doesn’t produce simple models. So my work involves figuring out just how much simplification is enough, then doing the mathematics to expand it to an economic scale.

This field as a whole is called cognitive economics. Its goal is to build models of the economy that are based on a realistic foundation of how people really make decisions, and to bring an understanding of positive psychology into economic modelling – how people get utility or happiness from non-material goods, by modifying their cognitive state. It tackles questions like: what determines whether a company invents a new product or competes in an existing category? Why do companies make profits when economics says all profit should be competed away? Why are people unemployed? Why do people invest and save and borrow in the way they do? When people can get psychological benefit from intangible things, why do they still rely so much on material possessions? These are all really important questions which traditional economics can’t answer. Cognitive economics uses the discoveries of decision-making psychology to figure out why these things happen.

How did you first become interested in decision making psychology? I was running a business, a software company, and had been trying to work out for years how much money I should charge for our products. I could tell that my customers weren’t making decisions through rational cost-benefit analysis, so I wanted to know what else was going on. The same pattern showed up when we built software – whenever people started using it, they insisted on ignoring the “correct” processes and used it in whatever way they felt like. The Sheldon Cooper in me was frustrated by all this irrationality. I had to figure out what was going on!

I had read lots of marketing books with some foundations in folk psychology – anything from Dale Carnegie to Ries & Trout – but none of them seemed very scientific. As a mathematician and programmer with an economics background, my natural approach was to try to build a predictive model of people’s behaviour and figure out what was going on. When I started looking into the psychology research, I found out that there were plenty of researchers examining the same kinds of problems…but no coherent structure for how to apply the discoveries either to economics or business. That was where I discovered my niche. I decided to start applying this science, first in my software business and eventually set up a new business selling pricing advice. Having got involved along the way in academic research in order to find these answers, it seemed natural to keep working both on new research and on business applications.

What type of research do you find most interesting, useful or exciting? Like everyone, I’m entertained by the range of provocative topics people study in this discipline: the psychology of online dating, whether people called Michel are more likely to buy Michelin stock, or how easily people can be manipulated into saying the opposite of what they apparently believe – there’s always something fun.

But I’m always more interested in foundational work. This field is full of ad hoc papers, with lots of experiments focusing on individual standalone phenomena. Those are all fine in their own right, but they are hard to apply to real world problems. You need to do a new experiment every time you want to investigate anything. Theoretical work that unifies a spectrum of different results into a smaller set of principles makes it easier to solve new problems. That kind of work is what really fascinates me.

Do you see any challenges to the wider adoption of decision making psychology in your field? There’s resistance from the economics side of the discipline – many economists insist that people are fundamentally rational, even if they make occasional mistakes in their decisions. Their idea is that all the mistakes basically cancel out, or disappear once consumers learn to overcome them. That is part of why I want to turn all the disparate effects in this field into a unified theory: to find out whether our general cognitive limitations have an impact on the efficiency of markets or on whether societies end up rich or poor.

From the business side, the issue isn’t any direct resistance, just a lack of rigour and knowledge. Businesses are often run on superstition more than on evidence. The barrier here is inertia: a concerted effort will be needed to persuade companies and governments to take up these ideas. Fortunately, capitalism provides an incentive to make that effort – there are big rewards awaiting the agencies or consultancies who can win that role as a bridge from science to business.

How do you see the relationship between academic researchers and practitioners? Tenuous.

Two other interviewees in this series responded to this question with the word “symbiotic”. That’s true, but it’s also idealised. In reality, the culture – or to be technical, the habitus – of these two worlds are so different that it’s hard for them to work together. So far.

Academics mostly agree that it’s a good thing to make their work relevant for business or public policy applications, but many of them don’t have a clear idea of how to do that. (Business schools are a major exception – I’ve been impressed by the decision-making research conducted in the top business schools.) However, academics who are hired as consultants often struggle to make their work have an impact. Consultancy needs to be followed up by strong and simplified implementation steps in order to work, and academics rarely enjoy distilling their work in that way. Then again, that’s true of most commercial consultancy too.

Businesspeople are more skeptical of the potential for collaboration. No pharmaceutical company would deny the importance of rigorous biochemical science in creating their products, but it wouldn’t occur to most of them that decision-making science is relevant to their marketing and pricing too. I don’t think this means they’re anti-academic or anti-science, just that they don’t understand it and so it is easier for them to rely on gut feeling and intuitive judgment in this area. Quite a lot of my commercial work ends up being about translating scientific concepts into business language, and then demonstrating why business should be more open to using scientific methods and knowledge.

Mostly, the interface between the two worlds is limited to popular science books, a few intrepid people from marketing agencies who visit academic conferences, and the occasional consulting contract for a professor somewhere. I would love to be part of changing this. Right now we have two separate worlds and a few people who occasionally cross the border between them.

Imagine we could create a continuous spectrum instead: at one end theoretical academic research on mathematics or abstract models, then empirical research testing hypotheses, then an “engineering” discipline who knows the science and also how to implement it in business, through to marketing departments who use what the engineers have developed, all the way to operations or finance departments who could become aware of how to incorporate consumer psychology in the service they deliver and the way they bill for it. That would transform the practice of both business and academia.

How do we get there? Maybe we all need to apply some decision making psychology to understanding our own barriers and how to change our own behaviour.

What advice would you give to young researchers who might be interested in a career in your field? The areas I work in get their richness and value from the interplay of three disciplines: marketing, empirical psychology and economics. Researchers who are interested in pricing and other business applications will want to understand how people work in business as well as the scientific process of psychology and the modelling and mathematics that comes into economics.

For example, if you’re an economist and haven’t done empirical psychology work before, try getting involved in some pricing experiments at a business school so you can see how that works. If you’re a psychology researcher who hasn’t worked in a company, try working with a small business to try to redesign the pricing of their products or services. To get a feel for practical applications in pricing, you might also want to take a look at Priceless by William Poundstone (or my book). And if you’re a practitioner who wants to bring more science into your work, go along to some academic conferences or seminars just to get a feel for how people work.

Sometimes people are worried that they won’t understand the science (or the economics) or the maths will be too difficult. Try it anyway and just understand as much as you can. People in other fields aren’t any cleverer, they just speak a different language – the people who work in that field learned it, and you could learn it too if you wanted to.

Practical applications aside, if you’re interested in cognitive economics research, you will have to have an independent spirit. There are not many people working in the field yet, so you probably won’t find a supervisor who specialises in it. You can get in touch with me and I can help you identify a list of papers to start with, and then see what kind of research question you’re interested in. I think cognitive economics will be an increasingly important field and this is a good time to get into it; but it is always more challenging to work in an emerging field because the directions of research and the conventions aren’t clear yet.



Behavioural sillynomics vs. smart-onomics at the MRS Annual Conference

20130320_151456Recently our co-founder Leigh Caldwell chaired the behavioural economics panel session at the Market Research Society conference. Our goal with this was to go beyond the anecdotal party tricks approach which has dominated much of the BE conversation in market research so far. Our title, “behavioural sillynomics”, was meant as a playful challenge to this conversation.

Of course party tricks are a fun way to introduce the ideas of BE for the first time, and they help to catch the attention of a new audience. The market research industry has already got to that stage, however, and is hungry to know how to apply these discoveries in practice.

We structured the session as a conversation between a client, behavioural scientists and – bridging the gap – market research agencies. The client wants to use BE to create more value for his consumers; the scientist has a whole library full of useful (but sometimes complicated) discoveries that she and her colleagues have made; and the agencies can sit in between, picking out the most important and practical pieces from the scientific literature and putting them into practice for businesses.

20130320_151928Our client, Erkan Balkan of PepsiCo Snacks, opened with a call for agencies to start finding out how consumers make decisions in an unconscious way. Existing research methods mostly rely on the conscious beliefs and memories of respondents, and rarely access the deeper drivers of behaviour. Some agencies have started to adopt BE methods in the early stages of research – qualitative methods which are usually used for ideation and invention. Even there, even the most advanced agencies only use behavioural methods for 20% of their insights. But to really change market research, we have to start applying BE at scale. The real money in research is in validation and testing, for ads, products, concepts or packaging – mostly quantitative disciplines. According to Erkan, nobody has really figured out how to scale up behavioural economics research. (Read more on Erkan’s views on

20130320_153535Barbara Fasolo of London Business School represented scientists and economists – the people discovering the underlying science. One possible reason BE has not immediately been seen as a useful discipline for market research is that it sometimes uses a straw man approach. BE sets up an image of people as “rational” in order to prove they’re “irrational” – and presents this as a revolutionary discovery. But no practising market researcher has ever been under the illusion that consumers are rational! Only economists believe that.

Instead, BE and the science of decision-making should forget the argument about “irrationality” and instead focus on providing a scientifically valid description of how people make decisions. Market researchers know a lot about decision-making, and behavioural economists know a lot too – by combining their expertise we can understand the consumer much better than before. The key insight that behavioural economists and psychologists can bring is an understanding of heuristics, and the smart methods that consumers use to find their way through a complex world. Barbara called this “Behavioural smart-onomics” which made a good contrast to our title.

So, a client wants to know how BE can help him, and a scientist has presented a new way to look at the discoveries the field has made. Could our two agencies act as a translation service, putting the science into terms that clients can use?

20130320_154404Lisa Edgar took us through an example of how her agency Big Window has done that. Working with client Jo Kenrick at Homebase, she measured the cognitive response of Homebase consumers to specific advertising messages. The psychology literature predicts that older consumers will rely more on “System 1” and emotional responses, rather than logical, considered “System 2” responses. This might suggest that emotional advertising works better on this audience (an important segment for Homebase). Lisa set out to test this, but it turned out that the picture wasn’t as simple as this. Older people turned out to respond better to logical, feature-oriented advertising than to emotional ads. But they took longer to do so, suggesting that they are alert to the risk of being fooled by heuristics and take care to think things through and avoid it.

20130320_160406Tom Vannozzi from Jigsaw then showed three case studies they’ve carried out. In one, they showed consumers messages about the social norms in their area – for example, that 60% of consumers eat the recommended five servings of fruit and vegetables each day. In a survey afterwards, they found that this message changed consumers’ claimed attitudes to healthy eating – although didn’t necessarily make them buy any more vegetables! In another study, subconscious “goal priming” of consumers changed their behaviour at a petrol station – if they were thinking of environmental goals, they’d make different choices than if they were thinking of goals around speed and excitement, or self-actualisation. Consumers weren’t conscious of how these messages or primes were changing their behaviour, but the effects were statistically robust.

20130320_161311The whole panel reinforced the message that there’s no real meaning in saying consumers are “rational” or “irrational”. Instead, we would be better off thinking about what a consumer’s goal is, knowing the heuristics they are likely to use to achieve it, how those vary by consumer type, and how to influence them. Heuristics follow certain rules – based on the capabilities and limits of our minds – and by knowing these rules, we can predict and understand consumer behaviour very well.

be101 cover

We also gave attendees at the session a copy of the handbook of behavioural economics written by our founders Leigh and Elina. If you’d like a copy, email us at


A night at the Awards

Is there a better way to start the week than a glitzy industry party? Turns out there is – coming back from one with a shiny award!

On Monday evening we got all dressed up and headed to the MRS Awards at the Westminster Bridge Park Plaza as our partner, Elina Halonen, had been shortlisted for the Young Research Writer Award (sponsored by the International Journal of Market Research) for her research on brand personality measurement.

And to our great surprise… she won!

Smiley faces accepting the award from IJMR editor Peter Mouncey

Even smilier faces – it’s all team work even if there’s just one name on the prize!

So shiny and pretty.

The paper itself will be published in the January issue of International Journal of Market Research, and all three finalists will be presenting their work at Young Research Writer Showcase presented by R-Net and IJMR  on 28th January.

Can George Loewenstein’s curiosity theory finally make behavioural economics work in MR?

Behavioural economics keeps coming up in market research conversations. Surprisingly, I’ve never heard in that context one of the most important names in the discipline: George Loewenstein. Loewenstein’s work provides deep psychological insight into how consumers choose and value the products they buy. And one of his long-term research projects might have unlocked a key secret of why people want what they want: the theory of curiosity.

He is not one of the best known researchers among the general public: unlike Dan Ariely, Richard Thaler or Daniel Kahneman, he hasn’t written a book for popular consumption. But the scope of his writing and his research is as broad and rich as any of theirs. Ariely is well-known for clever experiments; Thaler for policy applications and experiments in behavioural finance; and Kahneman (apart from that Nobel prize) for coming up with some key simplifying models of thinking.

Loewenstein’s research has its own core message: people’s preferences are not straightforward. Despite the claims of standard economics, people seek out information or risk or meaning in a fundamentally different way to how they seek out apples or BMWs. This insight is probably more important for marketing than any of the better known behavioural economics discoveries. Since market research is traditionally focused on discovering people’s preferences (or as we call it in MR, liking), Loewenstein’s work is highly relevant.

Simplistic marketing, like simplistic economics, assumes that we can explain all consumer purchases in a simple way:

  • people have fixed desires
  • they know what those desires are and how strong they are
  • once they become aware of products that can satisfy their desires, they buy those products

In this model, marketing is just a matter of making people aware of your products in a memorable way; and market research is just a matter of finding out what their desires are.

Loewenstein’s research is all about the complex ways in which the things we want do not work like this simple model. He questions the relationship between our underlying long-term preferences and the product choices we make. He shows that it is not enough simply to understand what people like. To gain useful brand insight, we must also understand the process of how their subconscious minds construct choices from those likes, from their knowledge and from emotions, in order to finally pick a product.

He looks at how we trade off pleasure today against pain tomorrow, how our mood influences the choices we make, and how much we know about our own future behaviour. He looks at how our preferences and behaviour are controlled by ideas of fairness, how much we actually know about the attributes of the products we buy, and how much we enjoy the anticipation of consuming something, not just the actual experience of it.

His writing about all of this is engaging and readable, with plenty of fun examples. One of his experiments asks how much you would pay for a kiss from your favourite movie star – now, or in ten years time. Another paper examines why people risk their lives to climb Mount Everest while hating every minute of the physical experience of it. If you want the rigorous mathematical theory behind his ideas, that is there too – but you can skip it and just enjoy the writing.

For me, two particular subjects in his work are relevant to MR:

One of these should be required reading for all market researchers. His paper “A Bias in the Prediction of Tastes” tackles what is perhaps the most important question in MR: do consumers know what they want? Loewenstein demonstrates that they do not; and also that their mistakes are consistent (they underestimate how much they will value a product when they first possess it, but they don’t realise how much they will adapt to pleasure or pain over time). The paper poses a series of important questions that market researchers should ask about the accuracy of consumer responses, such as: Can regular buyers of a product understand the attitudes of people who don’t buy it? Do people realise how much their tastes will change in future? Two followup papers are particularly relevant to researchers in the food industry and other fmcg categories.

The other subject is one Loewenstein has been developing throughout his career. He has built a model of curiosity from a behavioural economics perspective. Why are people curious; why do we so desperately want to know things that will often make us unhappy when we know them; why do we so easily lose interest in something we were once intensely curious about, even without finding out the answer; and why do we care about information before knowing it (who killed JR? What does that person in front of me on the pavement look like?) that we barely give a toss about after we find out?

Curiosity in itself is an important subject. It improves the effectiveness of advertising, explains a lot about consumer behaviour, and has been explored by philosophers as one of the basic aspects of being human.

More fundamentally, Loewenstein’s answer to the curiosity question – that whenever we are conscious of an information gap, we instinctively want to fill it – provides the basis for a powerful general model of consumer behaviour.

Instead of seeing curiosity as a passion or a personality trait, he suggests that it’s merely one example of how we instinctively want to close perceived gaps in our environment. If this same drive applies to other gaps in perception, it could explain our desire for any product and the strategies we follow to satisfy that appetite.

This also implies a difference between wanting and liking something – with curiosity we may want to close that information gap even if we know we won’t like the outcome. What if the same applies to other products?

Richard Thaler may be best at understanding finance, and Dan Ariely at designing experiments, but I’d rate George Loewenstein as the top behavioural economist for illuminating the psychology of consumer behaviour in general. If you’d like to understand, and perhaps influence, consumer behaviour, it’s his papers you should be reading. Most of the papers I’ve referred to, and many more, are collected in his highly recommended book Exotic Preferences: Behavioural Economics and Human Motivation.