Are we Experts on Money?

Since we all deal with money daily, we could say that each of us is an expert on money.

But is it really so? Do we excel at dealing with what economists call the blood of an economy?

Despite our tremendous familiarity with money, we tend to not be fully rational and accurate when we deal with it. Here is one of the most often encountered effects on the psychology of money.

We make different judgments when it comes to gaining and respectively losing money. For example, Claude is a small scale entrepreneur who has a bit of bad luck because one of his clients paid with a bad check and disappeared after receiving the goods. The sum owed and not paid isn’t huge, say about 220 Euros, but Claude is really annoyed and rightfully so. 

What do you think Claude will do? In essence he has two major options: one is to fight to the end and recover the amount owed while the other is to simply acknowledge a loss, go on with his business and to work hard to get some more clients so that he will be able to cover his loss.

What do you think he will do?

Claude is human and very likely he will devote many hours of work and some money to recover his debt.

But is this the smartest thing to do?

Not necessarily! The time and effort invested in the attempt to recover the lost 220 Euros could be used to achieve more gains (in the form of sales) and they could amount to more than 220 Euros, maybe even 300 Euros…

In essence, Claude is willing to put in a lot of effort in avoiding a loss of 220 Euros, but not so willing to put in the same effort to achieve a gain of 300 Euros…

For more about the Psychology of Money and how it influences decisions and behaviors related to money,

Join me in Thinking Money -Training on the Psychology of Money.

Understand Human Nature through the Pikant & Naumof Training Programs

The training progams from Pikant & Naumof are a convenient way of acquiering knowledge on what influences human behavior and how people actually make judgments, choices and decisions. This knowledge on human nature can be transformed into very powerful means of understanding, predicting and influencing human behavior, may it be the clients', co-workers', employees' potential donnors' etc.

Spice up your business with the Pikant & Naumof Training Programs

Designing Decisions - Choice Architecture | Psychology of Choice

The design of a choice set significantly influences the choices people make. Choice Architecture is the intentional design of a choice environment aimed at guiding choice towards one particular option. 

Using choice architecture can influence both business aspects (e.g. increasing sales and profits) and individual well-being (e.g. increasing savings rates, stimulating pro-social behavior). 
 
During the Designing Decisions training You Will Learn How to Optimize Offers, Sales and Marketing Materials. Curious?

Thinking Money - Psychology of Money

Since everyone deals with money daily, we could say that we are all experts with money. Despite our tremendous familiarity with it, we tend to think about money in particular ways that aren't necessarily optimal or rational.

The way in which we think about money strongly influences our behavior in situations that involve monetary transactions. E.g. We tend to spend more when using credit cards than when we pay in cahs. 

During the Thinking Money training program You Will Learn How your clients, colleagues etc. think about and make decisions concerning money. Curious?

Like it?  Spice Up  Your Business

www.naumof.com 

Why You Want What You Want

We like to think that our choices are entirely the result of our preferences and sometimes restrictions such as budgetary. What we do not realize is the immensely powerful influence that the choice environment has on our decisions.

Let me explain briefly when the choice environment influences our choices and why we fail to recognize / admit that it does.

Let’s see when the choice environment plays a role.

Imagine a middle aged Italian lady named Cesarina. Her entire life she drank only Illy coffee. For her any other kind of coffee is an insult to her true Italian heritage. When Cesarina goes to buy coffee from the supermarket she buys only Illy coffee. Moreover, her very strong preexisting preference makes Cesarina to be immune to all the influences of the choice environment. It doesn’t matter how the coffee aisle and the shelves are arranged, Cesarina will always buy Illy Coffee.

I gave an example when the choice environment has no influence and I am sure that you have some very strong preexisting preferences of your own. But I bet that these are not many and quite often you were in a situation of having to choose in the absence of strong and preexisting preferences.

Did you ever buy a washing machine, microwave oven, TV set, on-line services (e.g. linked in account), mobile phone, laptops, tablets, olive oil etc.?

I am sure that at least one of these things you have bought. The main question is if you knew before starting looking / shopping for the product what you wanted? Did you?

Let’s take the example of a TV-set. Which of the two scenarios is more plausible: 

A. You knowing beforehand that you wanted a 81cm diagonal TV with a resolution of 1920 x 1080 and LED technology, you ordered it and you are very happy with it. 

B.      You had a vague idea of how big it should be, you went to the store (may it be e-shop), browsed around and chose one that was not too big, not too small, within your budget and had a nice image?

If you agree that option B is more plausible, then you realize that your preference was not preexistent, but it was constructed on the spot. In this case the choice environment – the products in the store and how they were arranged and picked – significantly influenced your choice.

So, unless you have a very clear preexisting strong preference, there is a good chance that your choice is influenced by the choice environment.

Let’s see why we fail to recognize the influence of the choice environment.

Let’s continue with the TV set example and imagine that on your way to the parking lot, a very nice person stops you and asks why you picked that particular type of TV set.

Very likely you are completely unaware of the influences of the choice environment. Moreover, you might be a bit confused yourself on the things that lead to your choice. But now you have made the purchase and in order to simply feel comfortable with yourself, you come up with different reasons. For example, you might say that this TV has a large diagonal and it is decently priced, that the brand of the manufacturer is a prestigious one etc.

All of these might be true, but they had nothing to do with your choice. They are simply post-rationalizations. These are simply the explanations you give yourself for the already done action.

Another way of seeing post-rationalization is to think if these reasons would have predicted your choice before entering the store. Very likely the answer is No.

Learn Choice Architecture: How to Design
Choice Environments that Influence Choice

Join me in Designing Decisions - Training on Choice Architecture.

Learn Dutch co. – Pikant & Naumof Case Study on Optimizing Offers

Learn Dutch co. is a small education company which provides Dutch language courses for foreigners living in The Netherlands. The courses are structured on a proficiency base, ranging from beginners basics to working proficiency. Naturally most students start from the very beginning level, namely the 10 weeks long introductory course.

Learn Dutch co. faces the following issue: out of the students who took the introductory course (10 lessons, introductory level) very few - e.g. 20% - enroll in the second module of the course (10 weeks basic level).

This is a considerable issue since most of the people who enroll in the more advanced courses are individuals who took the basics courses at the same institute – Learn Dutch co. Thus increasing the enrollment rate for the second module of the beginners course (basics) will lead to higher income now and it will create the premises for having more students for the more advanced courses too. 

The Current Situation

At this moment, Learn Dutch co. has the following approach to encouraging people who took the introductory course to enroll in the second one: at the end of the last (tenth) lesson from the introductory course, students are informed that they can enroll in the second module (basics) by filling in a form. They can also choose from five options when they want to start the second module (e.g. July, September etc.). Moreover, people who took the first course and enroll in the second module get a 10% discount on the fee for the second course.

The Pikant & Naumof Analysis from a Behavioral Perspective

Before commencing the analysis one issue should be taken into account, namely the high variety of clients that Learn Dutch co. has. The motivations people have to take Dutch lessons are highly relevant. Some clients of Learn Dutch co. are expat housewives (husbands) who want to learn Dutch so that they can better understand what is sold in supermarkets or to chat with their neighbors. Others are foreign students who want to integrate a bit better and to figure out what is going on around them. Others are expats who usually work in English speaking environments, but want to learn the local language to not be completely isolated only in the expat community.

Considering this wide array of motivations for taking Dutch language courses and the background of different categories (e.g. expats working in multinationals work long hours and travel quite frequently, students have a considerable workload and not that much money etc.) we should be prudent in our expectations on improving the enrollment rates. This is not to say that nothing can be done, but rather to be realistic in what optimization of offerings can do in the given situation. So don’t expect miracles.

With regard to the decision process of enrolling or not in the second module (beginners basic) of the Dutch language course, we have to acknowledge that many students who approach the end of the first module (beginners introductory) face some considerable ambiguity. After 8-9 lessons, one is barely acquainted with the Dutch language (which by the way is not easy to learn) and continuing with another 10 lessons is perceived as an uncertain endeavor. It is obvious for everyone that ten more lessons of Dutch will only improve one’s ability of speaking Dutch. However, many students feel that they have not made the best out of the first course, that spending another X00 Euros on the second module is not necessarily the best thing they could do with the money, that Dutch is a difficult language and the progress achieved after ten more lessons will not be satisfactory and that anyhow, one can “get away” without learning the local language since every Dutch person speaks very good English and the Dutch are in general “foreigners friendly”.

At the same time, after about nine lessons students start to understand a bit what is going on around them; they start understanding what the signs on the streets say, understand some of what is written on labels; they can have a very brief conversation with the florist or barkeeper etc. They would want to learn more, but are uncertain.

The decision to continue or not with the second module is a difficult one.

This uncertainty and ambiguity leads many students to not making a decision and going with the status quo, namely not continue with the second module.

Most interestingly, this ambiguity and uncertainty were nowhere in sight when students enrolled in the first module. Before starting the course, most students are (over) optimistic and feel / think that they will learn Dutch very fast, that they will have enough time to do their homework properly and to study on their own. This is pure optimism about the future and focalism (discarding other contextual factors that will occur in the future).

The Pikant & Naumof Behavioral Optimization of Offer

Considering the fact that most students are (overly) optimistic when they enroll for the first course and are uncertain and in doubt at the end of the first course when they have to decide whether they are going to enroll in the second course, Pikant & Naumof recommends the following:

First, eliminate from the Learn Dutch co. offer the “beginners introductory” course as an independent product.

Second, Offer the “Beginners introductory” and “Beginners basics” courses (total of 20 lessons) as one flexible product. This “combo” product should have the following characteristics.

When signing up for the beginners course, students are “by default” enrolled to continue with the second module after the first ten lessons are finished.

At the moment of enrollment students will pay only the fee for the first module (ten lessons). The payment for the second module will be done only at the end of the first module (in ten weeks from the beginning of the course).

After the first ten lessons (module one), students who are not happy with the course, or with their progress or are too busy can drop out of the second module and not pay the fee for the second module.

This Optimization should Work Because…

First, when signing up for a beginner course in Dutch (or any language) many people don’t have a clear idea of what they want to learn, more specifically they don’t have a clear picture of up to which level they should go. ... 

Continue reading on the new website of