Predictably Irrational

In the economic/social sciences in general, or in product management in particular, we tend to see human beings as rational-decision-takers. For instance, if we run a market research campaign, we often take the collected responses as given, and do not waste much time in thinking about hidden messages.


Very often we find out lateron that customers tend to tell us other things than they actually mean. However, according to my experiences this is not because customers want to cheat at us. This has more often to do with our interpretation of such market research, and our own understanding of how we think, human brains work.

I think the science of behavioral econonomics provides us with meaningful insights into the way the human brain works in reality. For those, who do not know the definition. Here it is:

„Behavioral Economics and Behavioral Finance are closely related fields making up a separate branch of economic and financial analysis using social, cognitive and emotional factors to understand the economic decisionsof consumers, borrowers and investors, and their effects on market prices, returns and the allocation of resources.“ see → Wikipedia.

Are insights from the behavioral economics useful?

An important question is, if insights from the behavioral economics can help us design, or market better products. I think so. Take for example the Framing, and in particular → Anchoring, which is studied in the context of behavioral economics. This leads us to the following insight:

„During normal decision making, individuals anchor, or overly rely, on specific information or a specific value and then adjust to that value to account for other elements of the circumstance. Usually once the anchor is set, there is a bias toward that value…. The focusing effect (or focusing illusion) is a cognitive bias that occurs when people place too much importance on one aspect of an event, causing an error in accurately predicting the utility of a future outcome…. People focus on notable differences, excluding those that are less conspicuous, when making predictions about happiness or convenience….“ see Wikipedia → Anchoring

What can we learn from it?

Take the abovementioned example, to see that we can use these ideas to create meaningful product ideas. For example:

  • As humans anchor, and relate later decisions on this anchor, it is useful to take care that our products offer anchors, and our marketing makes them important for customers. So, not the complete product is relevant for customer decision taking, but certain elements and their characteristics.
  • As humans concentrate on notable differences, and use this information to make predictions about convenience, we need to take care that our competitive positioning allows customers to detect those differences in our products, which offer them the highest values for their convenience estimate.

More Examples

Take for example the German brand Braun Radio. As the → company history (German) shows, this company was founded in the 1920ies. During the development of the brand it more and more started to concentrate on the design of their products. Today you find many of their products in the → Museum of Modern Arts (New York). The company further had a large influence on current companies, which very much focus on product design, such as → Apple, or → Bang and Olufsen.

These companies use the design of their products as anchor, and take care that other factors of their product do not overrule their design image. If you take for example a closer look to their marketing, you will see that the customer experience is focussed on design, but less on the technical features of their products.

Want to learn more?

Dan Ariely is one of the leading minds in behavioral economics (see → Dan Ariely – Predictably Irrational). On iTunes can you find a very comprehensible and entertaining video collection about different aspects of his research: iTunes-U (free of charge) on Dan Ariely.

Weiterführende Informationen

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