Tag Archives: Behavioral Economics

Less is better for flower?

Less is often better. Chris Hsee demonstrated in his experiment that an overfilled ice cream serving with 7 oz of ice cream was valued more than an underfilled serving with 8 oz of ice cream. However, participants indicated greater willingness to pay for an underfilled ice cream than an overfilled one ($1.85 vs. $1.56). This is because, according to him, when participants determined the value of each option alone (i.e., separate evaluation), they focused on an easy-to-evaluate attribute (whether an ice cream is overfilled or underfilled) and failed to consider a hard-to-evaluate attribute (the amount of ice cream). However when indicating their willingness to pay together (i.e., joint evaluation), they considered the hard-to-evaluate attribute important. Note that a hard-to-evaluate attribute is an attribute that “people do not know whether a given value on that attribute is good or bad.”

I had a similar experience at the Nicolai Bergmann, a flower shop located in Seoul, Korea. A preserved, overfilled flower attracted my attention when I entered the store. However, I found another flower next to it and it was in a square box. Although the overfilled flower attracted me first, I chose the boxed one for several reasons. The primary reason was that when comparing these two flowers side-by-side, I considered their hard-to-evaluate attribute (the amount of flower) seriously. I expect many other visitors may reach the same conclusion.

Hsee, C. K. (1998). Less is better: When low‐value options are valued more highly than high‐value options. Journal of Behavioral Decision Making11(2), 107-121.

This research demonstrates a less-is-better effect in three contexts: (1) a person giving a $45 scarf as a gift was perceived to be more generous than one giving a $55 coat; (2) an overfilled ice cream serving with 7 oz of ice cream was valued more than an underfilled serving with 8 oz of ice cream; (3) a dinnerware set with 24 intact pieces was judged more favourably than one with 31 intact pieces (including the same 24) plus a few broken ones. This less-is-better effect occurred only when the options were evaluated separately, and reversed itself when the options were juxtaposed. These results are explained in terms of the evaluability hypothesis, which states that separate evaluations of objects are often infuenced by attributes which are easy to evaluate rather than by those which are important.

How to attract attention of pedestrians?

How could we make passing pedestrians stop and look at something? One solution is to apply technology. For instance, tactile pavings or tactile ground surface indicators tell them when to cross roads.

Another solution is to apply design. While I stayed in Curitiba, Brazil, fire extinguishers always attract my attention successfully. This is because they are located inside red-yellow squares painted on the ground.

Interestingly, the same rule applies when fire extinguishers are above the ground. Red-yellow squares are painted on the ground when fire extinguishers are hung on the wall.

Design beats technology in Curitiba. 🙂

Labrecque, L. I., & Milne, G. R. (2012). Exciting red and competent blue: the importance of color in marketing. Journal of the Academy of Marketing Science40(5), 711-727.

From beverages to consumer electronics, marketers are using color in innovative ways. Despite this, little academic research has investigated the role that color plays in marketing. This paper examines how color affects consumer perceptions through a series of four studies. The authors provide a framework and empirical evidence that draws on research in aesthetics, color psychology, and associative learning to map hues onto brand personality dimensions (Study 1), as well as examine the roles of saturation and value for amplifying brand personality traits (Study 2). The authors also demonstrate how marketers can strategically use color to alter brand personality and purchase intent (Study 3), and how color influences the likability and familiarity of a brand (Study 4). The results underscore the importance of recognizing the impact of color in forming consumer brand perceptions.

Donate in cash or by credit card

We often pay in cash or by credit card. Differently from cash, credit card often leads us to over-consumption. This is because credit card does not require us to write down the amount paid (rehearsal) and our wealth is not depleted immediately rather than with a delay (immediacy) (Soman 2001).

We could also donate in cash or by credit card. For example, visitors at the Tate Liverpool in UK could donate 4 pounds by inserting bills into a silver box or tapping their credit cards on a white device. Which donation mechanism benefits the museum better?

Soman, D. (2001). Effects of payment mechanism on spending behavior: The role of rehearsal and immediacy of payments. Journal of Consumer Research27(4), 460-474.

Past expenses have been shown to influence future spending behavior by depleting available budgets. However, a prerequisite for this relationship is the accurate recall of past payments and the experiencing of the full aversive impact associated with them. This article shows that the use of different payment mechanisms influences both these factors and hence moderates the effects of past payments on future spending. Specifically, past payments strongly reduce purchase intention when the payment mechanism requires the consumer to write down the amount paid (rehearsal) and when the consumer’s wealth is depleted immediately rather than with a delay (immediacy). Two experiments show support for the proposed theoretical framework.

A visual nudge for social distancing inside an elevator

As Coronavirus spreads widely, people are asked to keep distance from others. The Straits Times posted a photo showing that visitors at an Indonesian shopping mall stand on boxes inside an elevator.

Another simple visual nudge was found in Seoul, Korea. The elevator floor was divided into nine squares. A single pair of foot prints was painted inside each square, suggesting only nine people in total were asked to ride an elevator.

It was not long before that I had thought floor signage could not change our behavior because we learned rules naturally. At that time, a yellow-painted footstep in Singapore and an orange-colored line in Shenzhen failed to correct our learned rules. However, Corona virus is now changing my thought: floor signage changes our behavior.

Benartzi, S., Beshears, J., Milkman, K. L., Sunstein, C. R., Thaler, R. H., Shankar, M., … Galing, S. (2017). Should Governments Invest More in Nudging? Psychological Science, 28(8), 1–15.

Governments are increasingly adopting behavioral science techniques for changing individual behavior in pursuit of policy objectives. The types of “nudge” interventions that governments are now adopting alter people’s decisions without coercion or significant changes to economic incentives. We calculated ratios of impact to cost for nudge interventions and for traditional policy tools, such as tax incentives and other financial inducements, and we found that nudge interventions often compare favorably with traditional interventions. We conclude that nudging is a valuable approach that should be used more often in conjunction with traditional policies, but more calculations are needed to determine the relative effectiveness of nudging.

Feedback leads to virtual progress

People seek for feedback about progress. When travelers arrive at the Chek Lap Kok International Airport, they catch a train to Kowloon and Hong Kong. In the train, there is a blue-light indicator which shows where the train is right now. This feedback gives correct information to travelers.

However, feedback is not always objectively given but can be subjectively manipulated. Virtual and illusory progress can be made by manipulating feedback. One of my favorite examples is the “purchase acceleration” suggested by marketing researchers. They reported that customers who received a 12-stamp coffee card with 2 preexisting “bonus” stamps (B) complete the 10 required purchases faster than customers who received a “regular” 10-stamp card (A). If the preexisting bonus stamps are presented in a more visually appealing way (like this), virtual progress could be further enhanced.

Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: Purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research43(1), 39-58.

The goal-gradient hypothesis denotes the classic finding from behaviorism that animals expend more effort as they approach a reward. Building on this hypothesis, the authors generate new propositions for the human psychology of rewards. They test these propositions using field experiments, secondary customer data, paper-and-pencil problems, and Tobit and logit models. The key findings indicate that (1) participants in a real café reward program purchase coffee more frequently the closer they are to earning a free coffee; (2) Internet users who rate songs in return for reward certificates visit the rating Web site more often, rate more songs per visit, and persist longer in the rating effort as they approach the reward goal; (3) the illusion of progress toward the goal induces purchase acceleration (e.g., customers who receive a 12-stamp coffee card with 2 preexisting “bonus” stamps complete the 10 required purchases faster than customers who receive a “regular” 10-stamp card); and (4) a stronger tendency to accelerate toward the goal predicts greater retention and faster reengagement in the program. The conceptualization and empirical findings are captured by a parsimonious goal-distance model, in which effort investment is a function of the proportion of original distance remaining to the goal. In addition, using statistical and experimental controls, the authors rule out alternative explanations for the observed goal gradients. They discuss the theoretical significance of their findings and the managerial implications for incentive systems, promotions, and customer retention.

Are fresh fish better than canned fish?

I love canned sardines. Whenever I visit different cities, I buy a dozen of canned fish on the way back home. I was excited to find Annam Gourmet at Ho Chi Minh city, Vietnam because it has a wide variety of canned fish, along with fresh fish.

Canned fish are fish which have been processed, sealed in an airtight container such as a sealed tin can, and subjected to heat. Canning is a method of preserving food, and provides a typical shelf life ranging from one to five years.

Some say I am obsessed with canned fish. Others suggest me to avoid them. I have long wondered whether canned fish are bad for my health and whether over-consuming canned fish harm my health. Recently, I met an article released from Consumer Reports that canned fish are as healthy for us as fresh fish, particularly for sardines and salmon. For canned tuna, however, we should be cautious about mercury.

Thankfully, my love for canned sardines survives. However, it is difficult to correct a belief that canned fish are dangerous. Updating our belief system is truly challenging.

Amir, O., & Ariely, D. (2007). Decisions by Rules: The Case of Unwillingness to Pay for Beneficial Delays. Journal of Marketing Research, 44(1), 142–152.

Since the emergence of neoclassical economics, individual decision making has been viewed largely from an outcome-maximizing perspective. Building on previous work, the authors suggest that when people make payment decisions, they consider not only their preferences for different alternatives but also guiding principles and behavioral rules. The authors describe and test two characteristics pertaining to one specific rule that dictates that consumers should not pay for delays, even if they are beneficial: rule invocation and rule override. The results show that money can function as the invoking cue for this rule, that the reliance on this rule can undermine utility maximization, and that this rule may be used as a first response to the decision problem but can be overridden. The article concludes with a discussion of more general applications of such rules, which may explain some of the seemingly systematic inconsistencies in the ways consumers behave.

If people avoid meeting with others, do marketers sell products online only?

Nowadays people avoid meeting others. We could buy products through mobile phones and order food at screens inside restaurants. A recent virus outbreak even encourages us to stop shaking hands with strangers.

Ironically, the more we avoid meeting others, I believe, the easier others sell their products to us. When I visited Prezzemolo & Vitale, a local grocery store in Notting Hill in London, an employee brought a lump of meat on a board, cut it into thin slices, and passed them over to passers by. Interestingly, most of those who tried samples bought several pieces of different types of meat. I was not exception.

When he looked at me with a slice of meat, I inferred, he made an effort to approach me. This inference is rarely made when I stand in front of machines such as mobile phones or kiosks. I conclude that when we meet people and machines, we may have different inference: people make effort to come close to us whereas machines do not. This inferred effort may play a critical role in determining our next behavior such as buying a product.

Morales, A. C. (2005). Giving Firms an “E” for Effort: Consumer Responses to High‐Effort Firms. Journal of Consumer Research, 31(4), 806–812.

This research shows that consumers reward firms for extra effort. More specifically, a series of three laboratory experiments shows that when firms exert extra effort in making or displaying their products, consumers reward them by increasing their willingness to pay, store choice, and overall evaluations, even if the actual quality of the products is not improved. This rewarding process is defined broadly as general reciprocity. Consistent with attribution theory, the rewarding of generally directed effort is mediated by feelings of gratitude. When consumers infer that effort is motivated by persuasion, however, they no longer feel gratitude and do not reward high-effort firms.

Effort not only dictates our behavior. It helps us enjoy what we do.

Norton, M. I., Mochon, D., & Ariely, D. (2012). The “IKEA Effect”: When Labor Leads to Love. Journal of Consumer Psychology, 22(3), 453–460.

In four studies in which consumers assembled IKEA boxes, folded origami, and built sets of Legos, we demonstrate and investigate boundary conditions for the IKEA effect-the increase in valuation of self-made products. Participants saw their amateurish creations as similar in value to experts’ creations, and expected others to share their opinions. We show that labor leads to love only when labor results in successful completion of tasks; when participants built and then destroyed their creations, or failed to complete them, the IKEA effect dissipated. Finally, we show that labor increases valuation for both “do-it-yourselfers” and novices.

Why do people choose beers on the left side of the menu?

One of the most famous pubs in Prague, Czech Republic, is Strahov Monastery Brewery.

Perched atop the city part of the Strahov Monastery compound and the lush surrounding Petrin Hill, the Strahov Brewery is a delightful find in the bustling city of Prague. Just steps from the massive Prague Castle complex, the microbrewery serves about ten variations of St. Norbert beer (3 all year round and 7 seasonally) and the brews are all delicious and fresh with crisp hints of unique flavors.

This brewery has an eye -pleasing beer menu. It introduced five different beers with color, ABV (Alcohol By Volume), IBU (International Bittering Units) scale, description, hops, availability, price, and food pairing. Much like the positioning map beer menu at the Fairmont Chateau Lake Louise, the Strahov Brewery menu eased the burden of my decision-making.

Interestingly, I found that everyone ordered Amber Larger, Dark Larger, or IPA. These three beers were placed on the left side of the menu and each one was supported by its own comment: representing 70% of the production, award winning, or brew master recommended. I noticed that a vertical line in the middle of the menu plays a role of the “visual barrier” and therefore the two beers on the right side did not attract attention. The menu designer used mere categorization effect smartly.

Mogilner, C., Rudnick, T., & Iyengar, S. S. (2008). The Mere Categorization Effect: How the Presence of Categories Increases Choosers’ Perceptions of Assortment Variety and Outcome Satisfaction. Journal of Consumer Research, 35(2), 202–215.

What is the effect of option categorization on choosers’ satisfaction? A combination of field and laboratory experiments reveals that the mere presence of categories, irrespective of their content, positively influences the satisfaction of choosers who are unfamiliar with the choice domain. This “mere categorization effect” is driven by a greater number of categories signaling greater variety among the available options, which allows for a sense of self‐determination from choosing. This effect, however, is attenuated for choosers who are familiar with the choice domain, who do not rely on the presence of categories to perceive the variety available.

How could we stop cigarette butt litter?

Cigarette butts are the tail ends of the cigarette left over after someone has smoked it. They are under-acknowledged, but widespread, pollutants. At the Quora, someone said the following.

In fact, thanks to the fact that for decades smokers just didn’t care where they threw them, there are very likely cigarette butts in the Amazon rain forest, at the North Pole, and on the fast-disappearing Ross Ice Shelf in Antarctica. Practically the only place they are difficult to find is where they belong – in the trash bin.

To tackle this issue, various efforts have been suggested. According to Tara Rohan, for instance, posters and videos have been provided to educate people about the environmental impacts of cigarette-butt litter. Alternatively, cans have been installed in select neighborhoods. Most of these efforts aim to nudge smokers to throw cigarette butts in trash bins. Recently, I have noticed an interesting approach in London, UK.

At the Portobello Road market in London, bins are installed for those who want to throw gums and cigarette butts. For an unidentified reason, these bins have baby faces. As research suggests that large, round eyes, high eyebrows, and a small chin yielded the perception of a babyish facial appearance.

Since baby face or Kindchenschema (baby schema) is “related to the vulnerable nature of a living entity, it elicits responses from adults that increase the infant’s chance of survival. These include increased attention to and protection of the helpless infant (Brosch, Sandder, and Scherer 2007; Lorenz 1943) and increased carefulness and caretaking behavior (Sherman, Haidt, and Coan 2009). (Nenkov et al. 2014, pg. 326)”

Nenkov, G. Y., & Scott, M. L. (2014). “So Cute I Could Eat It Up”: Priming Effects of Cute Products on Indulgent Consumption. Journal of Consumer Research, 41(2), 326–341.

Although adding a human face to the tip jar backfires, having a baby face even contributes to the success of high-ranking Black executives. Designing cigarette bins like cute babies must be effective to collect cigarette butts. I wish similar bins are installed in other markets and cities as well to stop cigarette butt litter.

Livingston, R. W., & Pearce, N. A. (2009). The teddy-bear effect: Does having a baby face benefit black chief executive officers?. Psychological science20(10), 1229-1236.

Prior research suggests that having a baby face is negatively correlated with success among White males in high positions of leadership. However, we explored the positive role of such “babyfaceness” in the success of high-ranking Black executives. Two studies revealed that Black chief executive officers (CEOs) were significantly more baby-faced than White CEOs. Black CEOs were also judged as being warmer than White CEOs, even though ordinary Blacks were rated categorically as being less warm than ordinary Whites. In addition, baby-faced Black CEOs tended to lead more prestigious corporations and earned higher salaries than mature-faced Black CEOs; these patterns did not emerge for White CEOs. Taken together, these findings suggest that babyfaceness is a disarming mechanism that facilitates the success of Black leaders by attenuating stereotypical perceptions that Blacks are threatening. Theoretical and practical implications for research on race, gender, and leadership are discussed.

How many items should be displayed in a store?

When we are curious about value of an unknown object, we often consider how many people surround it. If it is alone, we believe it is expensive. If it is surrounded by many others, we believe it is cheap. This is because, according to O’Guinn’s et al. (2015), as the social density of a given space increases, “inference of the subjective social class and income of people in that space” fall. Although we like different degrees of crowdedness (D&Department in Tokyo) and even view the same degree of crowdedness differently (Kronen Vanlose in Copenhagen), crowdedness decreases the value of a product.

O’Guinn, T. C., Tanner, R. J., & Maeng, A. (2015). Turning to space: Social density, social class, and the value of things in stores. Journal of Consumer Research, 42(2), 196-213.

This article is about social space and material objects for sale within that space. We draw primarily on Goffman’s (1971) concepts of use space and possession territories to predict that as the social density of a given space increases, inferences of the subjective social class and income of people in that space fall. Eight studies confirm that this is indeed the case, with the result holding even for stick figures, thus controlling for typical visual indicators of social class such as clothing or jewelry. Furthermore, these social class inferences mediate a relationship between social density and product valuation, with individuals assessing both higher prices and a greater willingness to pay for products presented in less crowded contexts. This effect of inferred class on product valuation is explained by status-motivated individuals’ desire to associate with higher-status people. To the best of our knowledge, this research is the first to reveal the link between social density, status inferences, and object valuations. As such, it makes a novel contribution to what has come to be known in sociology as the topological turn: a renewed focus on social space.

Then, could we apply the same logic to stores where products are surrounded by other products? In other words, does “product crowdedness” decrease product value as well? This is an important question as stores display items in different ways.

Some stores display various items with a lot of stocks. For instance, at Annam Gourmet, Ho Chi Minh, only a few cans of sea food are on the shelf space with multiple stocks.

Other stores display only few items with few stocks. For instance, Decium, a Canadian cosmetic company introduces a few items without showing their stocks.  

Two contrasting examples show that stocks determine the perceived value of products. Designers and marketers should decrease the number of products displayed in the store to increase their perceived value. There is a 8-minute video about an inside look at Decium to see how the company has managed to find success in the highly competitive, the multi-billion-dollar world of skin care.