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Behavioral Economics:The Impending Death of Consumer Research

Behavioral Economics

“If you’re interested in why people buy things, you can’t afford to ignore this stuff”

The ability of brand owners to generate consumer insights and predict behavior is based on the “rational man” model of consumer decision-making. It assumed that we make choices based upon reasoned, weighted calculi which can be quantified and measured. Now the advent and ascendency of Behavioral Economics (this stuff!)with its insights into the “non-rational” dimensions of consumer decision-making is poised to challenge and change these traditional research methods; it does so by calling into question whether we really know the “why” behind the behavior.

Without answers to the “Why”, consumer research becomes limited to demographic and socio-graphic correlations which lack the granularity of psychographic insights; it is the latter that provides the insights which makes mass-customization of product-message-offer and differentiated content possible helping to drive purchasing decisions. The resulting segmentation model depends on knowing not just “who” or “ what”, but why they behaved as they did.

Here are three examples of how BE alerts us to the need for new thinking about questionnaire design:

1) The reasons we give for decisions are most often driven by what is called “heuristics” habitual ways of non-reflective decision-making. However ,

2).When queried we tend to fall into the “narrative fallacy”, stories we contrive to explain our behavior by putting ourselves in a better light!the light of the “rational man” and when asked about brand and purchase preferences,

3). We tend to default to the “endowment effect” the tendency to place a greater value on what we already own.The effect on measuring the relationship between opinion, brand loyalty and action would be impacted here as well.

What can be done? How we frame our questions becomes essential; context becomes as important as content in that BE teaches us that the “path by which consumers arrive at a choice is as important as the choice itself”.

What do you see as the challenge of Behavioral Economics?

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