Rationally choosing the irrational
Why do people keep buying Apple products if they are not technically great and there are better value alternatives? Why do people keep eating at McDonald’s if the food is so bad for your health?
I was asking myself these type of questions lately, and I realised that it has to do with the part of how people perceive things. And I also understood that why people choose these types of brands. And one of the reasons is because they are able to remove negatives from your decision making process.
When designing or introducing new products on the market, it’s important to understand that the business of eliminating negatives in a product or service is a critical part. Why? Because certain little weird things make us anxious that puts us off buying things. For example, the most common one is being frightened of looking foolish in front of your peers when buying an unknown product. Before I explain that, let’s understand two behavioural economics terms — satisficing and maximising.
Satisficing and maximising
Herbert Simon, a Nobel prize winner in economics, coined two terms that are important in understanding how we make decision. The terms are satisficing and maximising. Which are two models of human behaviour.
To generalise, let’s say you are planning a wedding. In this case, you are most likely, to choose what’s the best and most memorable space to celebrate. You would definitely not choose a McDonald’s but would prefer to rent a great restaurant. Or let’s say that you are buying a new car, you will start comparing all the details like consumption, speed, comfort, etc. In this case, you are maximising.
When we maximise, we look for the best and most rational thing to choose from. Maximisers rely on external sources for evaluation. Rather than asking themselves if they enjoy their choice, they are more likely to check their decisions based on its reputation, social status, and other external cues.
But let’s say that you are on the road in the middle of an unknown city and you are starving. You can feel how your stomach is growling. And in that case, very few people will reason. And you are most likely to go to a McDonald’s rather than a restaurant with healthy food. And that’s satisficing.
Which, of course, is not the best experience, but it’s probably the best you could get in that context. You should keep in mind that when you are satisficing, you are not thinking of what is the most rational or best meal you can have in that context. You are more concerned with “How can I avoid having a bad meal at this point?” or “How can I avoid getting food poisoned?”
When we satisfice, we look for something that is good enough. Satisficers ask themselves if this is an excellent choice and meets her needs, not whether it is indeed “the best.”
Understanding people to understand their actions
If some people doubt why do we even still have McDonald’s around, if it provides such bad food, it’s because of satisficing. There’s always a better restaurant in town, but we are afraid of the unknown and quality is subjective for most of us. And we as human beings are not prone to making complicated decisions. We will always stick to what is familiar, socially acceptable, we did before or easy and cheap to use.
Our job then is to do whatever is required to overcome the psychological obstacles that consumers may have when buying whatever it is our clients or our company wants to sell. Our secondary job is actually understanding people well enough so we can develop products that people want to buy at a price they want to pay. And that’s it. These are the two ways, you either change the people or circumstances so the existing product sells more, or you change the product so the people want it more — Rory Sutherland, The Wiki Man
Quality and performance is subjective
In the market of motorbikes, people who buy one, say they are maximisers. They do their research before buying one. Speed, performance, consumption, comfort, etc. But I would argue that, and in the end, all they buy is a thrill, not a rationally selected piece of metal. It’s more of a hobby for them rather than a means of transport.
Now let’s say that you decide to buy a new TV one day. Unless you are the weirdo that knows all the micro details of all TV’s on the market, you would want a TV that is in the top 15% to 20% and does not suck. So you are more likely to buy a TV from a company like Sony, LG, Phillips than a company called Bobby’s TV. Because you never heard of them.
And of course, with design alone, you won’t solve the problem for Bobby’s TV to compete with other brands. Why? Because you also need a mix of good marketing here.
But there are two things to take into account. Our first role here is to work on clarity in terms of choice, and the second is to reduce the level of anxiety when buying an object. So it’s not about getting someone to buy a TV from Sony, but get them non-anxious when purchasing a TV from Bobby’s TV.
We seem to be nervy as people. So a good thing to work on is to encourage reassurance that what we are doing is not weird or not socially acceptable. The business of removing negatives is our job. And it is an important one. Because there are small things that make people anxious and puts them off buying specific stuff. For example, being frightened to look foolish when purchasing a TV from Bobby’s TV.
How market research lies to you
Let’s say that you take a Samsung tablet and an Apple’s iPad and you do market research on which people would buy. You put the list of specs in front of people, which in the end proves that Samsung is better. Then you ask them: “Which one would you buy?”
In this case, all of us would act like a maximiser. Almost all people would say that they are convinced of the technical superiority of Samsung and would buy one. But weirdly enough, even if people said so, three days later they would go and buy an iPad. Why would you do that?
If it were a logical answer, we would already have found the answer — Rory Sutherland
The same process of thinking applies to any object you buy. And the interesting thing here is that social norms will influence your decision more than the rational part of your brain. Because if that person had purchased a Samsung and went back home, all of his friends would ask him: “Why did you buy a Samsung tablet and not an iPad?”. And that’s what will put a lot of people off. And that’s the type of anxiety I was talking about. We don’t want to stand out in the crowd with a bad purchase.
We look for avoiding embarassement
Let’s say that you a buy a new Mercedes or BMW and it breaks down. Most of your friends would say that they feel sorry for you and feel sympathy. But if you would have bought an Alfa Romeo, most of your friends would have said: “What did you expect fool? Next time buy a good one. Like a Ford or something.”
Avoiding embarrassment is a significant influence in a human decision making process.
You don’t want to look like a fool in front of other people or your friends. That’s why nobody will judge you for having an iPhone but will do if you have an LG smartphone or any other not so known brand. And of course, some socially brave people don’t care about other people’s opinions. But how many are they? Probably about 10% are immune from that.
This type of mentality, of avoiding embarrassment, applies even in investing. I was reading once a book in which it was described how brokers were giving suggestions on which stocks to buy. And there was this paragraph were an older broker gave advice to a younger one: “You can’t go wrong with buying or selling IBM stocks. But if it does go wrong, this means something is bad with the market.” Basically, if you didn’t want to look like a fool when recommending a bad investment, recommend what’s tried and big.
And this way you can understand that we are eager to lose profits or a technical superiority of our products, only to take make a safer bet on our personal image in front of others.
Not everything that can be counted counts and not everything that counts can be counted — Rory Sutherland
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