Irrational economics -- the ways we really buy
The Boston Globe science section today ran a very interesting article on a study being done at the Boston Federal Reserve Bank on the rise of behavioral economics. While some of the examples were rehashes of very old experiments (the example of excessive consumer choice was cited in Cialdini's 1992 book, "Influence: The Psychology of Persuasion"), the content was still thought-provoking, touching on such topics as why consumers pay $4 for a cup of coffee at Starbucks when they could buy one at the local coffee shop for $1.25.
One example I thought was particularly telling was the one about monkeys who optimized not for maximum gain, but to avoid losses:
I believe that the combination of overwhelming choice and the desire to avoid losses that dooms subscription music services, such as the URGE service Microsoft and MTV are launching next year. Few consumers want to spend all their time sifting through two million different song tracks, and those that do make the effort won't want to lose access to that work if they let their subscription lapse. It's a great example of a service offering being designed by marketers while ignoring basic consumer behavior.
One example I thought was particularly telling was the one about monkeys who optimized not for maximum gain, but to avoid losses:
Another economic principle holds that people always seek to maximize returns. But behavioral economics suggests avoiding loss is a more powerful motivator, and could, via evolution, be deeply ingrained in human nature.
At Yale University, Keith Chen, an economist, and Laurie Santos, a psychologist, taught Capuchin monkeys to buy food with metal chips. The monkeys were given a choice: They could buy one grape, with a 50-50 chance of winning a second grape, or get two grapes at the same price, but with a 50-50 chance of losing one.
In other words, the chances of ending up with just one grape were the same. Researchers expected the monkeys to simply buy the most food presented to them. But three out of four times, the monkeys chose to buy a single grape. The explanation: The monkeys didn't want to risk a loss.
I believe that the combination of overwhelming choice and the desire to avoid losses that dooms subscription music services, such as the URGE service Microsoft and MTV are launching next year. Few consumers want to spend all their time sifting through two million different song tracks, and those that do make the effort won't want to lose access to that work if they let their subscription lapse. It's a great example of a service offering being designed by marketers while ignoring basic consumer behavior.
Technorati Tags: Microsoft, MTV, URGE, Consumers, Psychology, Music, Cialdini, Behavioral Economics, Merchandising, Marketing
posted by Carl Howe at
9:33 AM
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