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Today we are at The Greater Good Conference! #bdrm2014. Eric Johnson, Todd Rogers, Dan Goldstein-some fantastic behavioural scientists here!
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Category Archives: Loss aversion
What is the future of cash? Is it fast being made obsolete by easier payment methods, like contactless cards?
Crawford argues that in a culture where debt and spending are worryingly high, cash can be a useful tool to help keep spending habits in check and goes on to explore some of the psychology around money. Click HERE to watch the 3 minute video clip .
The Marketing Society – with their brilliant new design – published our latest article this week. “BE turns debt repayment on its head” looks at how insights from behavioural economics can sometimes challenge the standard, textbook approaches to paying off our debts and actually make it easier to achieve.
“Government advice centres like directgov and money management advisers like Alvin Hall advocate paying off debts by prioritising those which carry the highest interest rate. Other advice often suggests that you consolidate debt into a single low interest account and then make regular repayments to that. But many of us don’t follow the textbook! These strategies may make sense to those who think and behave very rationally and sensibly, but many of us struggle with the huge burden of debt repayment and find the task incredibly daunting.” This is where new insights into behavioural economics can help.
Click here to read and find out more.
“You could be wasting £194 a year on the wrong phone tariff.”
Due to status quo bias (which deters people from switching mobile operator) and possibly the fact that nowadays many bills are now by default electronic and paid by direct debit – which means you need to login in to an account to see what you are spending – many people may not be aware of what they are spending and how they might be able to save money on a better plan. So the ads make use of the BE concept of loss aversion by telling people how much money they are losing. Losses have been found to be more painful than a similar gain so communicating what a consumer is losing or will lose is often more powerful and effective than communicating what a consumer might save.
Carphone Warehouse says that £5 billion is being wasted by mobile phone users each year in the UK as a result of people not being on the deal that’s best for them. On average, being on the wrong tariff costs each person £194 a year, according to independent research. Carphone Warehouse argue that they have the means of analysis to find the best tariff, phone and network for you to optimise your money.
One of the attractions of behavioural economics is how easy it is to identify with BE concepts and relate them to our day-to-day experience. BE has a simple, ‘real’ quality to it – quite the opposite of the many ‘black box’ approaches found in market research. But, BE is often at work under the radar. If we think about it, we can identify biases in our behaviour, or how we use rules of thumb to help us make decisions, but much of the time these influences aren’t apparent… or are they? BE is actually deeply ingrained in our culture and language, and BE concepts underpin many of the common idioms that we hear every day! Here are a few examples:
“A bird in the hand is worth two in the bush” describes the ‘endowment effect’ whereby people place a higher value on objects they own than objects that they do not.
“Crying over spilt milk” illustrates ‘loss aversion’ or the tendency to dislike loss more than gain.
“If it ain’t broke, don’t fix it” and “being fixed in your ways” both illustrate the ‘status quo bias’, i.e. that people prefer things to remain the same.
“In the heat of the moment” describes how we do one thing in a low stimulus (reflective) context, but in a high-stimulus (tempting) context we act differently…
“Rule of thumb” is a simple way of describing ‘heuristics’ or the short cuts used in decision making.
“You can’t take it with you” is an example of ‘the power of now’ or the tendency to focus on today rather than think about what tomorrow might bring.
“Doing the right thing” describes the ‘fairness bias’ or that most people are instinctively motivated to do the right thing…
“Out of sight, out of mind” describes the availability bias, whereby we are influenced by how easily we can bring something to mind.
“Variety is the spice of life” describes ‘diversification bias’ - the more experiences you try the more exciting life can be!
We would love to hear of other examples of BE idioms. Let us know…