17 January 2013

Are the Economic Troubles Good or Bad News for Applying Behavioral and Decision Sciences?

Exchanging some ideas with various people I’ve heard that due to the economic troubles in EU and USA it will be hard to find firms willing to apply insights from Behavioral and Decision Sciences. This thought made me wonder if the not so happy economic situation is a plus or a minus for applying behavioral and decision sciences.

On one hand, I would agree that many firms would be less open to “new stuff” and have a more prudent approach in the sense of going with what they know works. Similarly it is not unreasonable to focus on perfecting what “we know it works”.

On the other hand, companies and other organizations can take a more courageous approach and start experimenting with behavioral insights. The main argument in favor of trying out behavioral insights is that the “Tools” of behavioral and decision sciences are not very expensive and the results are (could be) quite strong.

When I say that using tools from behavioral and decision sciences is not very expensive, I mean that compared with other tools the behavioral ones are often easier to implement and the cost  of implementation is not skyrocketing. In no way are these tools “free” or even very cheap, but usually they cost a lot less than more traditional tools.

Yesterday I have attended a webinar from BrainJuicer and one of the examples given was placing scent dispensers in a shop. Now, let’s think for a second how much that would cost. Probably the costs were a couple of hundred euros for each shop. The results of using scent dispensers were surprisingly positive. The quality of the merchandise in the shop was rated considerably higher as compared with ratings from when the dispensers were not working. For the more financially oriented among you, the sales increased also.

Probably similar results could have been obtained through other means such as more advertising, changing some of the merchandise in the shop etc. But realistically speaking, do you believe that these “more traditional tools” would cost only a couple of hundred euros for each shop?

Earlier I said that companies and other organizations should “start experimenting with behavioral insights”. The key word is “experimenting” and here is why I believe that this should be done.

First, science has a lot of information and data on behavioral effects, but significantly less is known for practice. Don’t get me wrong, I’m not saying that what we know from science is useless, rather I support trying to apply the scientific insights in practice in a smart manner.

For example we know that the compromise effect occurs when there is ambiguity. The question is: how to optimally use the compromise effect in an on-line store? We can apply it to all products in the store and for all shoppers and then compare “before and after”. However, this is in no way optimal. Maybe “old” users of the web-shop don’t feel any ambiguity while “new” users feel it. Maybe in some product categories the compromise effect occurs, while in others it doesn’t; maybe it occurs in some product categories for new shoppers and not for old shoppers, while in other product categories it does not occur for either “new” or “old” users.

What is best? The answer is to experiment with these tools and simply see which works best for you and how does it work best.

Some more critical people would say that it is the fault of science that it has not answered these questions and until scientist come up with an answer practitioners shouldn’t bother. My answer to this is: scientists have the job of discovering such effects. It is your job to see if they work or not for your business.

Second, running some experiments is not very difficult. Of course there are some areas of business where it is more difficult than in others, but overall it is in no way Rocket Science. Businesses that have a strong component in the on-line environment have a big advantage because they can have more flexibility and ease in designing the stimuli and collecting the data. However, even less flexible businesses can experiment to some degree.

Research and statistics can be very scary for many people. In the case of experimental research things are significantly less scary than in other methodologies and if I (who am almost mathematically illiterate) could learn it, I am sure others can do it also. Of course, you can always hire a firm to do it for you.

Third, you can simply continue doing what you are doing already. I gave examples related to marketing, but this is not the only area where behavioral insights can help. For example if you want to cut some costs with office supplies, you can continue to send memos saying that people should not take home office supplies; you can continue to put sings around the office saying that people should be responsible and print both sides and so on.

If for example a government wants to improve on tax collection it can hire more people at the “financial authority” and start a wide campaign of punishing the wrong-doers. However this will not last for long and apart from increasing the level of stress in society it will not achieve long term changes.

At the same time firms and organizations can smart up and do some very simple and quite effective things such as setting the printer to print both sides by default.      

Starting to use behavioral insights is not a crazy adventure with a very small chance of success. At the same time it is not without any risks. In my view, the balance between costs + risks and potential rewards is in favor of the later.

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