The science of behaving this Christmas

As a way to conclude another year’s exploration of how behavioural economics can be applied to make your business better, I thought I’d leave you with a Christmas list of behavioural biases. Hope you enjoy.

C is for Cognitive Dissonance

The tension you feel when you realise someone spent more on your gift, and your efforts to rationalise being a cheapskate to yourself. I mean, come on, don’t they know that Christmas is more than just how much money you spend!

H is for Herding

Remember a few years ago when everyone got a copy of The Da Vinci Code for Christmas? We flock towards buying best-selling books and games because there’s safety in choosing something in which others have seen value. But if there’s any lesson from The Da Vinci Code, popularity may be no measure of quality!

R is for Relativity

No, I’m not talking about ‘relatives’ here, I’m talking about how value is judged in relative rather than absolute terms. For instance, we know that vouchers make rational sense – “here’s $50 to spend in a shop I know you like on stuff you want”, but still we baulk at buying them.

One argument is that we worry that it looks like we’ve been lazy, but another is that we are more worried that it makes the amount paid for the gift unambiguous. There’s no dancing around it – you’ve valued the relationship at $50. A non-monetary gift on the other hand is hard to place an absolute value on, will be judged relative to other gifts and expectations and can therefore be construed to be more valuable than its actual cost.

I is for Irrationality

See Christmas. We give gifts to strangers, spray snow on the windows, buy lots of stuff we don’t need, drag a dead tree into our loungeroom and drape lights around it and sit at the dinner table wearing paper crowns that have exploded out of a bon bon. Christmas is the perfect illustration of behavioural economics – we do things that simply do not make rational economics sense. And we love it!

S is for Scarcity

Limited edition items are more highly prized because they are harder to get, and parents find themselves elbowing out their competition for the last ‘must have’ toy on the shelf.

T is for The Paradox of Choice

Hours spent wandering the shops in a stupor testifies to the fact that we love the freedom to choose, but can get paralysed when confronted by too much of it. In desperation, we turn to what others have chosen, refer Herding.

M is for Mental Accounting

Our tendency to think of “Christmas” as a special category of spending that is free from normal budgeting constraints. The emotion of the occasion helps us justify over-spending on those we love because, well, it is Christmas after all. (Same special dispensation rules apply to Champagne and lollies for breakfast.)

A is for Actor-Observer Bias

We tend to judge our behaviour differently to that of others.

If you are on Santa’s nice list it’s because you are inherently a good person whereas others just got there because they did something nice.

If you are on Santa’s naughty list it’s because the situation made you do it, but everyone else deserved to be there because they were actually naughty.

S is for Sunk Cost Fallacy

We hold on to a position or possession (or tradition) because we’ve invested resources and effort into it. We find it difficult to throw out sentimental gifts and can’t seem to budge uncle Ron from his rusted-on perspective on the best way to grow potatoes. We hold on rather than move on.

Thanks for your interest in the application of behavioural science to business this year and I look forward to sharing more in 2014.

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