Too Many Rabbits from Hats?

Behavioural economics is an important area of decision science, but I can’t help thinking sometimes that advocates rely a little too much on cheap psychological conjuring tricks for their own good and this masks the really crucial aspects that are of most use to marketers and, indeed, to society as a whole. It’s very easy to demonstrate that supposedly irrational consumers will be fooled by an offer such as “30p each, or 3 for £1”, for instance, or that supposedly smart people can’t work out the price of a train ticket if you tell them it was “£10 more than a cup of coffee” and say £11 was the total amount spent.

These examples are amusing, but the underlying message is lost as behavioural economists – and indeed behavioural scientists generally – rely on these tricks a little too much when trying to get the audience or readers’ attention. The literature on heuristics and biases, of which these are particularly good examples, appears especially prone to this “look at me, i’m smart and funny” effect. Heuristics are cognitive rules of thumb, followed by all of us unconsciously in order to save the brain’s limited information-processing capacity for more important conscious things.

The “3 for £1” effect is a good example, falling into that particular group of heuristics that help us deal with situations where there is too much information and so we just extract one or two fragments without thinking and base our judgment on those. I actually did this trick myself for real many years ago when, long before I was an academic and I had a proper job running convenience store. I sold chart singles, for those old enough to remember music being bought that way. The margins were good, about 29p to me and retailing for 99p, but they had a limited shelf-life and became almost worthless when the track in question fell out of the Top Twenty. To recoup my costs and minimise losses, I’d then reduce them to 30p to get rid of the damn things. Usually worked, but one weekend they just weren’t selling and, more as a joke than anything else, I let a bright schoolgirl called Dawn who worked in my shop on Saturdays amend the display sign to add the quirky “or 3 for £1” tagline and we were both astonished to see sales shoot up and our Kensington customers buying rubbish 80s tracks in multiples of three! Yes, as you can tell, my hero at the time was Arkwright from the BBC’s hit Open All Hours, but this was in many ways the start of my own interest in decision-making.

“Dawn’s Deal” as I now like to call it worked because we don’t process all of the information here. We are so used to the fact that “3-for-whatever” always works out cheaper that we don’t actually read the entire sentence. We process the first bit, assume it’s a special offer, and buy three singles instead of just one or two if chart music is our thing. In reality of cause, most customers weren’t fooled by this at all – many just stopped and had a good laugh – but enough were to help us clear the surplus stock.

The key point here is the fact that most customers were not fooled at all. We sometimes find these tricks amusing by focusing only on the exceptions, rather than on the rules themselves. Heuristics are generally very effective in everyday life. As Herb Simon rightly pointed out, they help us to make judgments that most of time “satisfice” (or make do) and they work mostof the time because, to labour my own example, it’s usually the case that “3 for £N” does work out cheaper and we save money. Most of the time is not allof the time, however, and so we can make the occasional error from time to time that (at least when it comes to buying a record) is no big deal. It just gives an otherwise dull behavioural economist something to joke about!

Now, I really love Dan Ariely and have a tremendous respect for his work, but this tendency to focus on the amusing exceptions, rather than on the vast majority of cases where relying on heuristics is beneficial, was undoubtedly amplified by the success of his book Predictably Irrational. It’s an important work, it certainly introduced behavioural economics to a whole new audience, but it has had the unfortunate effect of making many associate work on heuristics with the dumb choices we make, when we should be focusing on the smart ones more. Whole research agendas have subsequently been fashioned around this whole notion of irrationality (which as an evolutionary psychologist, i’d dispute anyway at times) and so important research on successful/optimal applications of heuristics is harder to find and, when it is undertaken, it’s often overlooked as having nothing important (for which read “funny”) to say.

Let’s close with one really good example of what I mean, published in the latest issue of Cognitive Research by Min Zheng and her colleagues over in New York. This particular paper focuses on the important issue of healthy eating and the potential effects, both good and bad, of social pressure on our ability to do that. In a very well-designed series of experiments, the authors tested the extent to which the amount of information we have available effect the degree to which we understand causal relationships between diet and potential health consequences. Around 1800 people participated in these experiments, divided into groups who received varying amounts of information about Type Two Diabetes and the various factors (e.g. diet, exercise, etc.) that may contribute to its onset or exacerbate it. Whether presented in text-based or visual form, it turns out that the ability to accurately judge whether someone was at risk of developing the condition actually declined as the provision of information increased. In fact, a much better predictor of whether an individual participant could accurately predict risk was whether they themselves personally knew someone with diabetes.

Several heuristics were at wrk here, I guess, but the most important was probably the Availability Heuristic: the extent to which we unconsciously make judgments on the basis of recent experiences of something similar that are less-effortful to recall. Now, when discussing the Availability Heuristic, it’s very easy to joke about how look-a-like brands in Aldi often fool us because of their close resemblance to ones we are very familiar with, which are the exceptions, or even the potentially more serious issue of medical misdiagnoses which are more likely when a doctor has seen a number of patients with symptoms similar to our own. The example of the Zhang et al experiments, however, is a good reminder that most of the time the good old Availability Heuristic actually gets things right!

So where does this leave us? Well, at the time of writing, we are in the midst of a global pandemic and the rest of the world is trying to figure out if the seemingly quirky strategy of the UK Government to base its response on behavioural economics is a good or bad thing. My answer to that is to think about what sort of behavioural economics is informing this strategy – a one that focuses on the science behind when heuristics get things right, or a behavioural economics that’s more informed by psychological conjuring tricks such as my “3 for £1” tactics.

Time will tell, I guess, but there is clearly a need for decision scientists to focus on the more serious business of heuristics – the instances in which they are reliable aids to judgment – than on the relatively rarer exceptions to the rule that simply have greater comedy value.

My message: whether you are trying to stop the spread of a deadly virus or just wanting to sell more cheese, remember the beneficial effects of heuristics that usually serve us well and research those properly, rather than on the seemingly irrational effects of my own Arkwright moment. Put another way, let’s stop pulling rabbits out of hats and just make do with the Easter Bunny!