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Decision making and the brain

Secrets of the Moneylab

Book Review: Secrets of the Moneylab: How Behavioral Economics Can Impact Your Business by Kay Yut Chen with Marina Krakovsky

Economics can be dry stuff – remember “macro,” “micro,” and supply/demand curves? Fortunately, Secrets of the Moneylab is a […]

By |January 25th, 2011|

Scary Thought: A Treatment for Impulse Buying

Here’s a thought that would terrify many marketers… what if consumers prone to impulsive behavior decided to take a pill to quiet those impulses? While clearly lack of impulse control is a serious issue for some individuals and can lead to extreme behavior, marketers of everything from checkout lane mints to Porsches depend to some degree on consumers acting impulsively. Wall Street Journal editor Jason Zweig is interviewed by Morningstar’s Christine Benz below: […]

By |October 7th, 2010|

Pricing Lessons from Restaurants

My last Neuromarketing post, Neuro-Menus and Restaurant Psychology, talked about various things restaurant menu engineers do to maximize sales and profits. I think it’s worth calling special attention to one aspect touched on in that post: how price presentation affects sales. Not, the price itself, which of course is very important, but the way the price is displayed to the diner. […]

By |January 7th, 2010|

Ants and Humans

If the late Nobel Laureate Herb Simon were still around, I’m sure he’d be fascinated by neuromarketing. He did a lot to explode myths of human behavior, notably that people always behave in a rational, utility-maximizing, manner. I never met Simon during my student years at Carnegie-Mellon (though I did serve on a committee with his frequent collaborator, Allen Newell). Nevertheless, Simon’s diverse interests – artificial intelligence, computer science, cognitive psychology, management theory, sociology, and economics – make him a sort of patron saint of neuromarketing and neuroeconomics, at least for me. […]

By |December 3rd, 2009|

Brain Fight: Who’s the Decider?

One of my favorite chapters in How We Decide by Jonah Lehrer is The Brain is an Argument. In this chapter, Lehrer highlights how complex our decision-making process really is, and how competing options battle for supremacy. […]

By |October 13th, 2009|

Banking Mess: Blame Our Brains

As the current financial chaos moves toward some kind of resolution, there will no doubt be plenty of Monday morning quarterbacking to explain what went wrong. One group that one wouldn’t expect to have explanations are neuroscientists. As it turns out, neuroscience researchers actually can shed some light on why things went so wrong.

One of the first questions that everyone asks is how so many seemingly intelligent people could make so many errors in judgment. One simple answer, of course, is greed – at least some individuals saw a way to profit personally by making poor business decisions (loaning money to people unlikely to be able to pay it back, insuring such loans, rating securities based on these shaky loans, and so on). While there’s little doubt in my mind that personal interest was the biggest underlying factor, systemic factors and even biology likely played a role. By systemic factors I mean the way many of these markets were structured. Writing a shaky loan sounds like a bad business decision, but if there are buyers for loans of this type perhaps it really isn’t a bad decision for the originator. But, on to the brain science… […]

By |September 26th, 2008|

Danger in Discounts

I’m a sucker for discounts. Show me something that costs $50, tell me I can have it for $25, and my hand will be reaching for my wallet while my brain is still trying to figure out whether I need the item at any price. Most of us respond that way – our brains are wired for it. Part of this effect is that the regular price is an anchor (see Anchor Pricing Strategies), and the discount price is a little voice in our head screaming, “bargain!”

Some dusty research at Ohio State shows that discount pricing isn’t always an unadulterated blessing. Beyond the obvious fact that it reduces profit margins, and that it might create a new, lower price anchor in the minds of customers, discounting can reduce customers’ enjoyment of the product! […]

By |August 8th, 2008|

Anchor Pricing Strategies

Here’s a scenario… You decide to venture into a cell phone store despite your reluctance to deal with a bewildering number of phones, options, plans, along with a confusing price structure. As usual, you find you’ll have to wait a bit for a salesperson. The greeter hands you a card with a big “97” printed on it, and says, “It should only be a few minutes. We’ll call your number, 97, when a salesperson can help you.” You notice that a large digital display on the wall is showing “94.” You see it click to 95, then 96, and finally 97. The receptionist says, “Number 97, please,” and a salesperson appears to assist you. You thought nothing of the numeric ordering of customers, but it’s possible that the store had an ulterior motive: they could have been attempting to manipulate the price you would pay. Sound bizarre? Read on…

When a consumer is presented with an offer, a key element in the decision to accept or reject it is whether it appears to be a “fair deal” or not. We know that buying pain – the activation of our brain’s pain center when paying for a purchase – increases when the price seems too high. But how does that value equation work? The answer is anchoring – typically, we store an anchor price for different products that we then use to judge relative value. That sounds simple enough… but it’s actually not. Some anchor prices are stickier than others, and at times totally unrelated factors can affect these anchor points. The better marketers can understand how anchoring works, the more creative and effective pricing strategies they will be able to develop. […]

By |July 18th, 2008|

The Power of FREE!

A few days ago, I wrote about the power of the word “New” to get our attention – if there’s a more potent attractor out there, it’s almost certainly “FREE!” For years, advertising gurus have listed “free” on every compilation of powerful headline words. Now, research conducted by Dan Ariely (a Duke behavioral economist, previously at MIT) shows us that “free” is far more effective than “almost free.” Indeed, a preference for “free” seems to be another feature hardwired into our brains. […]

By |July 10th, 2008|

Bikinis, Babes, and Buying

Scantily clad women have been used to sell products to men for decades, and likely for millennia in one form or another. There’s little doubt that the typical male brain is wired to respond to attractive females in revealing attire. But is this a cheap attention-getting trick that has no real impact on sales, or does it actually work? Researchers shed new light on this topic by exposing subjects to either videos of women in bikinis or more neutral videos, and evaluating their decision making ability. […]

By |June 24th, 2008|