Homo Sapiens to Homo Economicus: What marketing must forget.

Last week I saw a nature documentary on the BBC.

“Here he is in all his splendour”, boomed David Attenborough, “Some lucky lands are home to the majestic peacock or ferocious tiger. Both pale in the comparison to this creature we see today in London…homo economicus.”

“See him walk across the city in full rationality. Rationally dressed, rationally speaking, rationally calculating. Unusual among animals, he doesn’t spend time with his partner and offspring. Instead he rationally spends his evenings in the supermarket to maximise his happiness, poring over the ingredients on several tins of soup. What a sight to behold!”

In the past hundred years, we’ve evolved from homo sapiens to homo economicus and no one’s mentioned it to us.

In economics, we somehow absorbed the myth that humans are completely logical without an ounce of emotion. It started off as just a model: it was good to simplify things. The danger was that it came to be believed as true. Not just by economists but by advertisers too.

It’s tragic that we need to come up with a phrase called “behavioural economics” just to explain things we already know. Fortunately, it’s not new — it’s breaking a myth. Even the Bank of England have said the same.

Behavioural economics is just seeing human beings as they actually are — irrational. Or as Dan Ariely puts it: “predictably irrational”. That means complete with all our biases. Fears of losing what we have, gaining things for free, wanting something now rather than later, wanting something just because it’s expensive or scarce. Luckily, it’s something we can predict and game.

Look at this example in the Economist.

The introduction of the irrelevant middle choice — that no one would pick — makes the bottom choice more appealing. Because the bottom choice is more appealing than the middle choice, psychologically it seems more appealing overall. So more people opt for the bottom choice over the top one.

Today marketers would do well to inject a bit of common sense to enhance their understanding of us as consumers. Existing models may be inferior. But with a bit of psychology, they could connect to understand consumer needs more. It’s easy to mistake it as a form of deception. Instead, it appeals to what consumers actually desire and want.

Basic steps

Marketers who use behavioural economics could gain a competitive advantage.

First, digital and technology. If you can understand the consumer decision-making process online more, then you can gain an advantage. As a rough example, look at how Facebook recognises “loss-aversion” — you value losing more than gaining something. If you decide to quit Facebook, you are shown pictures of your friends. This is not just an emotional plea, it means that you value the relationships you’ve built over the free time you may gain. So you backtrack and decide not to quit. Facebook continues to use your data. It profits by framing your exit it as a loss, even though you may gain overall.

Second, our preference for specialised services. A figure has been floating about that says we spend 80% of our time on three apps. Specialised apps appeal to us even though something like Google would be just as effective. There’s a novelty and fast habit-forming behaviour associated with new apps. Multi-services seem to be the past.

Third is “choice architecture”. The way that items are shown to you, like in the earlier Economist example. If options can be presented in a more enticing way, then you would be likely to purchase it. Chunking big tasks in to smaller ones is already a strategy employed in consumer surveys. Long lists are divided in to simple sections that make us more able to understand the consumer. Listen to these ten songs, then five new ones by this artist, and soon you get a picture for how much more simpler it is to market a new artist or album or genre on Spotify.

Maybe it’s noble, even flattering, that for years we’ve been treated as rational. Indeed, some of our irrational behaviour can be fought against if we think long and hard why we’re doing the things we do. It’s promising that we’re becoming more and more aware of our own weaknesses in thought. Until then, marketers would do well to just respect us and serve us for what we actually are.

Humans.