Apr 13, 2009

Thee Irrationality of our Rational Decisions

In his epic work Hamlet, Shakespeare once wrote, “What a piece of work is a man! how noble in reason! how infinite in faculty! in form and moving how express and admirable! in action how like an angel! in apprehension how like a god! The beauty of the world, the paragon of animals.”

It is remarkable when we consider the scope of everything our minds and bodies are capable of. I’ve watched in amazement the past few months as my one-year-old daughter has learned to walk, pull herself up onto the couch, communicate using sounds and hand gestures, and even feed herself (sort of). We can recognize and process the quarter of a million distinct words of the English language, not to mention the innumerable slang and regional terms, computer jargon, acronyms, etc. We can ride a bicycle or snowboard down a mountain. We can run at full speed, see something in the corner of our eye, then change directions. We can sing and learn to play musical instruments. Truly, humans are amazing creatures.

About one hundred years after Shakespeare penned the quoted lines from Hamlet, the belief that man truly was “noble in reason” moved to the forefront of Western intellectual and philosophical discussions. The Age of Enlightenment was based on the desire for human affairs to be directed by rationality rather than by instinct, tradition, superstition, religious faith or revelation.

In the midst of the Enlightenment, Scottish economist Adam Smith wrote The Wealth of Nations, arguing that people act in their own interest and do so rationally. In other words, consumers will carefully calculate the value of all the options and decide upon the best possible choice for themselves. If mistakes are made, the “invisible hand” of market forces force us to recognize our own irrationality and place us back on the safe path of rationality.

Ever since, economists, marketers, and us as consumers continue to think of ourselves in rational terms. The majority of economic scholars continue to hold to the theory of “economic man,” which suggests that purchasing decisions are the result of largely "rational" and conscious economic calculations of an individual buyer seeking to spend his income on those goods that will deliver the most utility (satisfaction) according to his tastes and relative prices. Many of these principles still constitute the foundation of our economic society today.

Imagine with me for a moment that you have an early morning meeting. You walk into the conference room in the office and take a seat next to a coworker who is taking a sip of their Starbucks coffee. If you were to ask your coworker why they decided to purchase their Starbucks that morning, what sort of responses might you expect to hear? Your coworker will likely describe how he or she enjoys the taste of the particular blend, and that the local Starbucks was conveniently located along their way into the office.

These may indeed be true, but they don’t explain why your coworker chose to drive past several other coffee houses along the way, or why they decided to pay $4.00 instead of helping themselves to the free coffee available in your office’s break room. Or why they decided it was even coffee they wanted in the first place. Is the taste of that morning Starbucks really that much better? Was the Starbucks location and wait time really that much more convenient? Or is something else at play here in the myriad of decisions we make on a daily basis?

Each day we engage in behavior that most of us would consider irrational. Few of us will openly proclaim ourselves to be superstitious, yet how many of us will refuse to walk under a ladder? We avoid black cats. We discuss with some friends how well things appear to be going for ourselves, then instantly begin to search for some wood to knock on. If we break a mirror, the first though that comes into our head is that we have suddenly doomed ourselves to seven years of bad luck. Buildings and airplanes are often built without the thirteenth floor or row. We don’t consider ourselves superstitious, yet irrational behavior such as this exhibits itself constantly.

Whenever we are faced with a decision, or confronted with a product or brand, our brain instantly begins to process thousands of pieces of data and information. Some have said that we only use ten percent of our brains. Neuroscience findings, however, show that our brain is indeed 100% active. Our brain is divided into several primary functional areas and regions which are linked together. One area of the brain does not act independently of the others, and none of the functional areas of our brain are inactive, not even during sleep.

While our brains may be 100% active, the vast majority of our data processing occurs deep below our conscious levels. According to Dr. Gerald Zaltman, an emeritus professor at the Harvard Business School and a former member of the Executive Committee of Harvard University's Mind, Brain, and Behavior Interfaculty Initiative, about 95% of all thoughts, emotions, and learning occur in the unconscious mind—that is, without our conscious awareness.

Part of our own irrationality is due to the fact that human behavior is largely learned. As we grow up, we have experiences each day that leave an imprint upon us. The time our mother raced to comfort us after we hurt ourselves as little children. The time we struck out in little league at a crucial moment in the game. The times we were successful in school, and the times we weren’t. The conversations we’ve had. The teasing and compliments we received as children. The time we broke up with our first high school sweetheart. We are experiencing something every minute of every day, some of which are more memorable for one reason or another and thus may become more permanently retained in our short-term memory. Most become forgotten, but they remain somewhere, working behind the scenes to drive the decisions we make.

How many times have you misplaced car keys, eyeglasses, or the remote control? Is it because your mind did not take account of where they were placed? Not likely. Instead, the thousands of bits of data your brain is processing at any given moment—the sounds, smells, textures, and colors of the environment around us, the phone call we are expecting, the list of things we need to do around the house this weekend, all take up the limited capacity of our short-term memory and squeeze out the exact location of our car keys. The same thing happens with the majority of the experiences we have on a daily basis. We may not be able to recall most of them, but we had them nonetheless and they leave an indelible imprint upon our minds and the decisions we will make in the future.

In his book Predictably Irrational, MIT Sloan School of Management professor Dan Ariely describes an interesting behavioral economics study in which he and two other colleagues set up a table outside a large public building. At the table they offered two different types of chocolates—Lindt truffles and Hershey’s Kisses, with a sign hanging above that read “One chocolate per customer.” The Lindt truffle was priced at 15 cents and the Hershey’s Kiss at one cent. 73 percent chose the truffle and 27 percent chose the Kiss.

They then decided to change the price, offering the Lindt truffle for 14 cents and the Hershey’s Kisses for free. Rational theories of economics and consumer behavior would suggest there would be no difference in response. Both candies had been lowered by the same amount, one cent, and there was still a 14 cent difference between the costs of both of them. But this time, 69 percent passed on the opportunity to purchase the Lindt truffle for a good price and opted for the Hershey’s Kiss instead. Demand for the truffle fell from 73 percent down to 31 percent.

Ariely subsequently conducted other variations of the study, pricing the chocolates at different price points or even placing them next to cash registers so as to eliminate the chance that people were just taking the free Kiss because they didn’t feel like digging around in their pockets or purses for change. Yet in every case, the result was the same. He concludes his account of the experiment by saying:

“According to standard economic theory…the price reduction should not lead to any change in the behavior of our customers… And yet here we were, with people pressing up to the table to grab our Hershey’s Kisses, not because they had made a reasoned cost-benefit analysis before elbowing their way in, but simple because the Kisses were FREE! How strange (but predictable) we humans are!”
Another example comes from Martin Lindstrom’s latest book, Buyology, in which he describes a neuromarketing study which used fMRI data to analyze how participants responded to various branded sights and sounds. One of the brands included in the study was Nokia. Participants rated the images of Nokia phones extremely favorably. But there was an overwhelmingly negative response to the famous Nokia ring tone to the point of actually suppressing the generally enthusiastic feelings participants had when seeing the Nokia phones alone.

The data suggested it was highly likely that the sound of Nokia ring tone was damaging the brand. Consumers clearly had a preference for the phones design and features, so why would a default ring tone that could be easily changed be responsible for holding the brand back?

The sound of the familiar ring tone was evoking negative feelings in consumers, most of them probably unaware it was happening. Consumers connected the sound with the romantic dinner that had been disrupted by a phone call from the boss calling you back to the office, or the coworker who forgets to turn down his cell phone only for the Nokia ring tone to go off in the middle of a crucial conversation or presentation. The problem, Lindstrom discovered, was that consumers associated the sound with “intrusion, disruption, and feelings of annoyance…(and) had come to hold all of the lyrical charm of a nervous breakdown.” As a result, potential customers were being turned off from the brand. A highly irrational reason to decide against a brand, but a powerful one nonetheless.

With so many different variables in play, influencing and driving our decisions on a daily basis, marketers have even more reason to engage in meaningful brand building activities. Branding should not be limited to those with mega-budgets at their disposal. In fact, branding becomes even more critical when budgets get a bit tighter. No marketer will argue that getting through to consumers is tougher today than ever before. We have become overloaded with information to the point of ignoring it altogether. Or so we think.

As we have already discussed, nothing escapes our senses. We are constantly interpreting signals, making up our own perception and understanding of the brands in the environment around us. At the same time, we are constantly sending our own signals to those around us, leading them to make up their minds about our own personal brand. When companies neglect brand building, they are nothing more than a blank sheet of paper, leaving consumers to make up their own minds while perhaps waiting for something more distinct.

Imagine for a moment you have just entered an old European cathedral, temple, or mosque. The experience is an entirely holistic one as it engages all of your senses. You can small the fragrance of the incense, candles, or old wooden benches. You can hear the bells ringing, the subtle tones played from the organ, and the voice of the priest or rabbi or minister speaking. The sunlight streams through the colorful stained glass windows. You touch the stone walls, and recognize the unique architectural arches.

You may begin to have certain feelings as you walk around. Certain emotions or memories may begin to intensify. The experience of walking into the religious setting has communicated a brand message, a powerful one that has invoked the use of all the senses. But now imagine you walk into an entirely different religious setting, perhaps a simple church building. There are no bells tolling and no stained glass windows. What if the same religious leader had been delivering the same sermon in both places? Rational theories would expect people to feel and act the same, but our own experience tells us that is not to be expected. The environment and sensory experience has changed, and even though we may not have been consciously processing the sensory data, the subsequent emotions, thoughts (and decisions) become entirely different.

Picture in your mind a car mechanic. What do you see? Most people would describe someone wearing a pair of grease-stained coveralls and possibly carrying a red shop rag. Now picture in your mind the CEO of a Fortune 500 company making a presentation to a group of investors. What do you see this time? Perhaps you imagined a sharp-looking business professional, wearing an expensive looking pinstripe suit and a starched white shirt and tie. But what if you were one of those investors in that meeting, and someone looking like the mechanic walks in to present. Even if their delivery and knowledge and expertise were the same, would you trust them? What if you walked into the mechanic’s shop only to find someone in a three piece suit hanging over the hood of your car? Would you have the confidence they would be able to do the job correctly?

That so much of our decision-making is influenced by subconscious elements does not mean that we are unable to control ourselves or immune from the consequences of our decisions. Instead, by better understanding our own irrational behavior, we gain more control over ourselves and the decisions we make. The more rational we claim to be, the more irrational we really are. It is by acknowledging our own irrationality that we actually gain control.

Similarly, marketers need to recognize the irrationality of consumers and act accordingly. In a sense, the irrationality of consumers is understandable and even predictable, and can be used to design everything from products, brand strategies, retail store layouts, campaign tactics and more. Not because we have somehow tapped into the subconscious of consumers and have deviously “tricked” them, but because we are delivering meaningful and desirable products, services, and experiences that are both emotionally engaging and enhance the lives of consumers.

This is why traditional marketing approaches which assume that consumers will act rationally struggle for success. Each decision we make is influenced by countless factors, some rational and most irrational. Multiple emotions, instincts, cultural norms, thoughts, values, beliefs, and experiences kick in and lead us to a decision. When considered, we are far from the “rational creatures” that we, along with the philosophers, politicians, economists and others, have long supposed ourselves to be.

Even most marketers that understand the irrationality of consumers still heavily rely on research techniques and information that only works properly if reason rules the day. A company spokesperson for Microsoft said it well when they acknowledged that “human beings are often poor reporters of their own actions.” A focus group participant is unlikely to admit that the real reason they purchased the large McMansion that put them on the brink of bankruptcy is because it appealed so much to their sense of vanity and desire to show their friends they could afford such a house. New and innovative qualitative research techniques and methodologies, in addition to the more recent emergence of neuromarketing practices, are necessary in order for marketers to have a window into the human mind and the ability to decode what consumers really are thinking and feeling, and what is ultimately behind our consumer behavior.

In the end, Shakespeare wasn’t incorrect when he proclaimed, “What a piece of work is a man!” Scientists and marketers alike are only beginning to understanding the depths of the human mind. The veiled forces that shape our decisions each day are not frightening, but exciting. It does not make the job more complex for marketers. If anything, when armed with understanding, it gives us greater ability to promote our products and services and build brands in a more meaningful and thrilling way.