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Behavioral Economics A Story About Chemical Incentives and Decisions Presented By: Jeff Otto www.productcollaborative.com

Behavioral Economics

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Slides Jeff Otto recently used in his discussion w/ mentees of The Product Mentor. The Product Mentor is a program designed to pair Product Mentors and Mentees from around the World, across all industries, from start-up to enterprise, guided by the fundamental goals…Better Decisions. Better Products. Better Product People. Throughout the program, each mentor leads a conversation in an area of their expertise that is live streamed and available to both mentee and the broader product community. http://TheProductMentor.com

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Page 1: Behavioral Economics

Behavioral EconomicsA Story About Chemical Incentives and Decisions

Presented By: Jeff Otto

www.productcollaborative.com

Page 2: Behavioral Economics

What Is It?

Page 3: Behavioral Economics

Conventional Economics“Human Decision Making Is Rational” “Eh..Not So Much…”

Hit Me!

Behavioral Economics

Page 4: Behavioral Economics

A Little History…

Adam Smith

Human behavior is under the influence of the passions

The Godfather of Behavioral Economics

Page 5: Behavioral Economics

Deep In Our Brain, Chemicals Drive Us

(3) Neocortex Brain

– Our Analytical Mind

(2) Limbic Brain

– Our Emotional Mind

(1) Reptilian Brain

– Our Instinctive Mind

Page 6: Behavioral Economics

Deep In Our Brain, Chemicals Drive Us

DopamineSerotoninOxytocinCortisol

Page 7: Behavioral Economics

Why Is This Relevant To You?

Page 8: Behavioral Economics

(there is a dark side)

Page 9: Behavioral Economics

Get Your Money’s Worth…

Page 10: Behavioral Economics

DOPAMINE (SIMPLIFIED)

Dopamine - The Brain’s Candy

YOUR BRAIN ON DOPAMINE

Page 11: Behavioral Economics

The Feeling of Accomplishment

= =

Practical Example To Triggering Dopamine

Page 12: Behavioral Economics

Trey Parker and Matt Stone’s Take On This

YOU DIDN”T BUILD A MOBILE GAME, YOU BUILT

AN “ADDITION MACHINE”!!!

Page 13: Behavioral Economics

Serotonin Addiction (Personified)

Page 14: Behavioral Economics

Practical Example To Triggering Serotonin

Give PUBLIC Recognition and Status To Your Users, Customers, Employees:

Page 15: Behavioral Economics

Oxytocin – The Love & Trust Molecule

Page 16: Behavioral Economics

Practical Example To Trigger Oxytocin

Build User / Customer Communities and Encourage:

Page 17: Behavioral Economics

Cortisol – The Stress Hormone

Page 18: Behavioral Economics

Too Much Jam! - Triggering Decision Paralysis

Page 19: Behavioral Economics

60% of people stopped at the booth with more choices

60%

40%

40% 60%

But…10x more people purchased from the booth with fewer choices

3%

30%

67%

30% 3%

Page 20: Behavioral Economics

Analyzing Decision Paralysis

1 – 6 Choices 7 – 20 Choices 21 + Choices

I can handle that.. I’m a little overwhelmed Ahh… I need help deciding!

Consumers are initially attracted to a broad variety BUT when making a purchase decision…

They Freeze Up

Page 21: Behavioral Economics

Four Options Is The Psychological “Sweet Spot”

Page 22: Behavioral Economics

Recap of Key Take Aways

Chemical What is it?How to trigger it(or avoid triggering it)

Dopamine “Brain Candy”Congratulate, set markers to show progress, and remind users of the reward at the end.

Serotonin “Power Molecule”Give status, give badges of honor, and give them publicly

Oxytocin “Love & Trust Builder”Let your user community share, collaborate and let them “like” each other.

Cortisol “The Stress Hormone”Make decisions easy, don’t give prospects more than 4 options and default their choices.

Page 23: Behavioral Economics

Want to dig deeper? - Works Cited In Today’s Talk:

• A Random Walk Down Wall Street, The Time-Tested Strategy for Successful Investing - Burton Malkiel

• Manipulate Me: The Booming Business In Behavioral Economics – Ben Steverman, Bloomberg.com

• Adam Smith, Behavioral Economist? Interview with Professor Nava Ashraf, Harvard Business School

• Leaders Eat Last – Why Some Teams Pull Together And Others Don’t – Simon Sinek

• Predictably Irrational, Hidden Forces That Shape Our Decisions – Dan Ariely

• 5 Behavioral Economics Principles Marketers Can't Afford to Ignore – Piyanka Jain and Mukul Patki, Forbes March 1st 2013

• When Choice is Demotivating: Can One Desire Too Much of a Good Thing? Sheena S. Iyengar and Mark R. Lepper, Columbia University

• Too Many Choices: A Problem That Can Paralyze, Alina Tugend, New York Times

• Cowan, Nelson (2001). "The magical number 4 in short-term memory: A reconsideration of mental storage capacity". Behavioral and Brain Sciences 24(1): 87–114; discussion 114–85.

Page 24: Behavioral Economics

Thank You!

Jeff Otto

www.productcollaborative.com