evolved thinking

Exploring decision making in 2018

Kelly Handley

Kelly Handley

Kelly is Head of Client Services at Evolve. Kelly loves innovation and finding creative solutions to communications challenges.

The Process of Choice

In market research, we are constantly exploring the factors that influence decision making. Some might say that this is our bread and butter – seeking to understand what drives consumer choice and preference. Some of the questions that regularly come up in discussion with clients are:

  • What influences the choices people make, and how do they make those choices?
  • What kinds of external factors influence a person’s decision making process?
  • How can existing research help us to understand how consumers make decisions – and how can we use this to their, and our, advantage?

A great resource exists that explores just this question (accessible here) – researchers in the field of decision making convened a panel to explore decision making in the context of ‘how can we help people make decisions that will benefit them in their lives? This article will recap some of the highlights of the panel, which presents a fascinating insight into something that occurs hundreds of times in each of our days – the process of making a decision.

A good place to begin this journey is with Prospect Theory (Kahnemann and Tversky, 1979) – often described as the best descriptive model of decision-making. Before this research, it was assumed that people are risk averse, and that we will always choose the least risky option. However, Prospect Theory proposes that the way in which the options are presented, and perceived, determines whether we are risk seeking or risk adverse. Anyone who has tricked a young child into eating vegetables will tell you that they knew this already – but thanks anyway, Kahnemann and Tversky!

The researchers found that, in general, people will pay a large premium to avoid the small chance of receiving nothing (eg. insurance). Additionally, It is possible to manipulate the way information is valued or perceived – for example, describing fat content in positive terms (eg. 90% fat free) vs negative terms (eg. 10% fat) changes consumer perceptions of food. We are incredibly sensitive to this kind of manipulation as our brains are primed to attend to the potential losses or danger – an evolutionary bias that lurks deep within our otherwise civilised and domesticated exteriors.

Fat Free versions

A particularly interesting aspect of this theory is that differences in how the information is processed means the decision will vary across individuals – two people may be presented with the same information, but might actually be solving different mental problems.

Consider this – a new mother presented with a car advertisement is processing information about safety and value in a different way to a middle-aged man shopping for convertibles – both receive the same stimulus, but the process of filtering and processing information is hugely different given individual value and context.

The selling points – value, prestige, safety, horsepower – might as well be in another language for these two shoppers, as their experience of processing information is coming from such different contexts, values and priorities. Some car advertisements attempt to tap into both markets, implying that a car can service both the need for safety and adventure – however this is not always entirely believable.

Rav 4 Ad

credit: adsoftheworld.com

Car Ad

credit: DigitalSynopsis.com

So how is this relevant to market research? What we do know is that, while framing is a subconscious activity, it can be manipulated either by the individual making the decision, or by external factors. Researchers have found that the way that outcomes are described (in terms of loss vs gain) can result in completely different decisions being made.

We could think about this concept as ‘loss aversion’ – that generally consumers will be motivated by avoiding further losses and maximising potential gains – that old evolutionary bias that both protects us from danger, while making us lambs to the slaughter when it comes to buying cars or vacuum cleaners.

Some other loss aversion techniques include the sunk cost effect (Arkes & Blumer, 1985) – the greater price we pay for a product, the more likely we are to consume or use it, even in the face of risk or adversity (think of that expensive dishwasher that keeps breaking down and needing repair). We persist in using the dishwasher because we don’t want to lose the money we’ve invested in it – even as it becomes a considerable burden in terms of convenience and time. Our fear of losing all that money overrides the desire for consistently clean dishes. This effect is seen in many areas, from relationships and education, and can be nicely summed up as ‘cutting off your nose to spite your face’.

Another interesting aspect of loss aversion is the reluctance to choose (Carmon, Wertenbroch and Zeelenberg, 2003) – the conundrum that, while we are still in the process of making a choice, we have not yet experienced a loss – but when we have chosen, we have then ‘lost’ one possible outcome – and might then start to view the rejected option as more valuable. Perhaps this is better conceptualised as the ‘grass is always greener’ effect – sometimes simply by making a choice we can realise that what we wanted was, in fact, something completely different.

Viewing our decision making process through this lens – of an individual being motivated largely by avoiding loss and maximising gain – is helpful when we consider the hundreds of choices that our customers make each day. Being able to frame options or possibilities in a way that leverages this innate human motivation can have huge benefits – whether in a business setting, or more broadly in our own lives.

What kinds of decisions do you make that feed into the sunk cost effect? Do you regularly experience the ‘grass is always greener’ effect, and does it in fact help to clarify your actual preference? Perhaps we can use framing and loss aversion to make our lives a bit easier, and make it more possible for us to make choices that are good for us, rather than those that are motivated by a fear of loss.

How has your business dealt with the question of how customers make decisions? Please feel free to comment below.

References

Kahnemann, D. and Tversky, A. (1979) Prospect theory: an analysis of decision under risk. Econometrica, 47, 263-291.

Arkes, H. and Blumer, C. (1985) The psychology of sunk cost. Organisational Behaviour and Human Decision Processes, 35, 1, 124-140.

Carmon, Z., Wertenbroch, K. and Zeelenberg, M. (2003) Option attachment: when deliberating makes choosing feel like losing. Journal of Consumer Research, 30, 3,15-29.

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