Tag Archives: Behavioral Economics

Cases

How to force myself to read a book?

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I find myself reading books challenging. Most books are too long to start and I am too busy to finish reading book. Therefore, I have applied numerous insights obtained from behavioral research to force myself to read books.

So far, the most effective method is to buy a physical book. This is particularly effective when the book is not available at a local book store and it needs to be delivered to me in the mail. My intention to finish reading the book *irrationally* increases because it has a physical form and I do not want to waste, interestingly, its delivery cost.

Atasoy, O., & Morewedge, C. K. (2018). Digital Goods Are Valued Less Than Physical Goods. Journal of Consumer Research, 44(6), 1343–1357.

Digital goods are, in many cases, substantive innovations relative to their physical counterparts. Yet, in five experiments, people ascribed less value to digital than to physical versions of the same good. Research participants paid more for, were willing to pay more for, and were more likely to purchase physical goods than equivalent digital goods, including souvenir photographs, books (fiction and nonfiction), and films. Participants valued physical goods more than digital goods whether their value was elicited in an incentive compatible pay-what-you-want paradigm, with willingness to pay, or purchase intention. Greater capacity for physical than digital goods to garner an association with the self (i.e., psychological ownership), underlies the greater value ascribed to physical goods. Differences in psychological ownership for physical and digital goods mediated the difference in their value. Experimentally manipulating antecedents and consequents of psychological ownership (i.e., expected ownership, identity-relevance, perceived control) bounded this effect, and moderated the mediating role of psychological ownership. The findings show how features of objects influence their capacity to garner psychological ownership before they are acquired, and provide theoretical and practical insights for the marketing, psychology, and economics of digital and physical goods.

The second most effective method is to bookmark with sticky notes after briefly reading the table of contents. I often stick only three notes on the pages I want to read to relieve burden. When I see them, I *mistakenly* think I already started reading the book.

Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The Goal-Gradient Hypothesis Resurrected: Purchase Acceleration, Illusionary Goal Progress, and Customer Retention. Journal of Marketing Research, 43(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.

Certainly, I want to read more books without these tricks. However, I have insufficient self control resources and frequently mispredict my available time. I wish these tricks drive me to start as well as complete reading books.

Publications

How did Samsung designers overcome an unofficial heuristic?

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Hwang, S., Park, H., Oh, K., Hwang, S., & Joo, J. (2021). Rethinking a Designers’ Rule of Thumb: Influence of Information Seeking and Consumption Goals on Mobile Commerce Interface Design. Journal of Theoretical and Applied Electronic Commerce Research, 16 (5), 1631–1647.

Abstract: We investigated whether adding product information in mobile commerce improved consumers’ attitudes toward a product and whether this relationship was moderated by consumption goals. We conducted two field experiments in which we recruited parents in Korea and the USA and asked them how they evaluated two childcare hybrid products (HPs) newly developed by Samsung Electronics designers. The results revealed that participants exposed to additional information about the HPs evaluated them more favorably than those who were not exposed. However, this relationship disappeared when a consumption goal was activated. Our findings establish a dynamic relationship between information seeking and consumption goals, asking designers to rethink their rule of thumb in the mobile commerce context.

Keywords: information seeking; consumption goal; hybrid product; Samsung Electronics; mobile commerce

Cases

Less is better for flower?

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At Nicolai Bergmann, a flower shop in Seoul, I noticed two preserved flower arrangements.

One was overfilled with blooms, spilling out of its display.

The other was neatly arranged inside a square box.

The overfilled one caught my attention first, but after looking at both, I chose the boxed arrangement. Why? When comparing them side by side, I started thinking about something that was harder to judge—the actual amount of flowers. The boxed one felt more balanced, structured, and perhaps even more valuable. I imagine many other visitors would come to the same conclusion

This reminds me of a study by Chris Hsee. In his experiment, people preferred the look of an overfilled ice cream cup with 7 ounces of ice cream over an underfilled one with 8 ounces. But when asked how much they would pay, they were willing to spend more on the underfilled cup ($1.85 vs. $1.56). Why? When evaluating the ice cream separately, they focused on an easy-to-judge factor—whether it looked full or not. But when comparing them together, they paid attention to the harder-to-judge factor—the actual amount of ice cream.

When making choices, we might be drawn to what looks impressive at first glance. But when we take a moment to compare, we start to value things differently.

***

Reference

Hsee, C. K. (1998). Less is better: When low‐value options are valued more highly than high‐value options. Journal of Behavioral Decision Making, 11(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.

Cases

How to attract attention of pedestrians?

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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 visited Curitiba in Brazil, I was always attracted by fire extinguishers. 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 even when fire extinguishers are hung on the wall.

Design beats technology in Curitiba.

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Reference

Labrecque, L. I., & Milne, G. R. (2012). Exciting red and competent blue: the importance of color in marketing. Journal of the Academy of Marketing Science, 40(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.

Cases

Donate in cash or by credit card

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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?

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Reference

Soman, D. (2001). Effects of payment mechanism on spending behavior: The role of rehearsal and immediacy of payments. Journal of Consumer Research, 27(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.

Cases

A visual nudge for social distancing inside an elevator

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As Covid-19 spreads widely, people are required to keep distance from others. The Straits Times posted a photo showing that visitors at an Indonesian shopping mall stand on the boxes inside an elevator.

In Seoul, Korea, a clever visual nudge was observed in an elevator. The floor was divided into nine squares, each marked with a pair of painted footprints. This subtle design implied that only nine people should ride the elevator at once.

Not long ago, I believed that floor signage could not influence our behavior, assuming that we naturally internalize rules over time. Back then, a yellow-painted footstep in Singapore or an orange-colored line in Shenzhen seemed unlikely to alter the rules we had already learned. However, my perspective has shifted—I now recognize that floor signage can indeed guide and reshape our behavior.

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Reference

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.

Cases

Feedback leads to virtual progress

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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.

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Reference

Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: Purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research, 43(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.

Cases

Are fresh fish better than canned fish?

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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 belief is unbearably challenging.

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Reference

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.

Cases

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

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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.

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Reference 1

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.

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Reference 2

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.


Cases

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

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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.

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Reference

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.