James barry's The Progress of Human Knowledge and Culture, which – appropriately – surrounded us at the RSA yesterday

“Behavioural Economics provides a floodgate of inspiration to our industry. Our challenge is to ‘chunk’ it down, and apply it in ways which make a meaningful difference to client agency dialogue and communications planning and execution. It’s just the sort of breath of fresh air we need to stimulate our intellectual juices and rise above conversations about time sheets and schedule. It gets us back to the core of what we do and why we do it.”

Rory Sutherland, IPA President

and so yesterday I gathered at the RSA with other industry folk as the IPA, led by Rory, began its journey into the world of Behavioural Economics.  and a brilliant session it was.  it was such a stimulating morning that I'm at a bit of a loss on how to capture it all – so I'll have a go at listing the gems that I took out of each of the talks before adding some thoughts of my own at the end.

First up was Doctor Matt Grist who is director of the RSA's Social Brain project

Grist introduced us to the notion that Behavioural Economics are a "patchwork of theories that predict irrational behaviour", (versus rational behaviour as predicted by neo-classical theory) – essentially its Economics + Psychology

Behavioural Economics in action has been popularised by books like Nudge.  'nudges' work by guiding behaviour thru changes in choice architecture…  ie its not awareness and consideration that primarily dictate our choices but the context in which those choices are made, here's a good example…

historical consensus has been that there are two systems in the brain; automatic and reflective.  automatic is when we take our regular tube journey or are reading a book.  reflective is when we have to concentrate on taking a new / different route to work or have to write an essay.  but Grist proposed a third element and a new model:

Grist's model of the brain's three behavioural systems

this opened up the interesting question of how much of our behaviour we actually have control over?  Grist observed that we ought to think of these brain systems as "libertarian paternalistic" ie they are supposed not to erode autonomy and responsibility – this is achieved thru training; top-down, sideways and bottom up.  I then got awfully lost and at one point I fear I scratched my head and squinted.

anyhoo the next stage, for Grist, is understanding to what extent thinking in terms of the threefold system above empowers people to be more autonomous and responsible?

next up was Nick Chater, Professor of Cognitive and Decision Sciences at University College London

his three themes were how we perceive magnitudes, decisions and valuations all without the context of internal scales.  it turns out that we have very limited capability to put a value on anything…  everything is relative.  when perceiving magnitudes we only have about five 'buckets' in which to separate out degrees on any particular perspective on the world.  the system is limited at a very basic cognitive level.

when it comes to decision making, we're similarly it turns out "all over the place" – all we have is binary judgments.  take for example £300.  if I was to say I'm going to put £300 in your wallet, right now, your response would probably be "whoo hoo" or something similar.  if however I was to say I'm going to right now take £300 off of your mortgage, your response would probably be "so what?!" or something similar.

…the point is that exactly the same amount of money engendered totally different responses because of the context in which it was placed.  everything is relative, but relative in a very limited (binary) sense.  the same contextualisation applies when we get used to a variable having a certain amount – so for example in banks money generally goes in in much bigger chunks than it comes out…  the consequence: losing £300 is a lot more worse than gaining £300 is better.

the same applies for time discounting…  analysis of Google data demonstrates our pre-occupation with the immediate future and our ambivalence to the distant future.

finally, when it comes to perceiving valuations, we can't.  we know the price of everything and the value of nothing.  experiments with pain (like Dr Peter Venkman at the start of GhostBusters) show how the value of pain (ie how much we're prepared to pay to avoid it) changes depending on how much we have to spend.  demand is extra-ordinarily malleable.  how much is the value of a cup of coffee?  don't know, how much does it cost?  £2.  I guess its value is £2 then…

then it was up to IPA President Rory Sutherland to tell us why we should care about any of this

he's written a full piece on this in this weeks Campaign, which is a great read, but here are a few of his gems from yesterday…

most successful businesses of recent times have started by figuring out how to make value, and only then worked out how to make money off of the back of that value.  as an industry though where we make money and where we add value are different things – we've "hitched our fortunes to media spend", and here's the danger; if – as supply increases – media becomes cheaper, it will have less value to clients (see above) and those clients will skimp on the expense of getting the most out of that media (or other exposure).

people have a preference to solve problems with infrastructure solutions rather than persuasion solutions.  but persuasion solutions can be a lot more effective.  and we, the communications industry, should be experts in the applied-psychology business.  "ad-folk are better at ideation off of a theory"  …understanding and applying behavioural economics is fundamental to the success of most businesses and social problems.  he gave a wonderful example, I don't know if its true…

Rolls Royce were having problems selling cars in their regular showrooms.  so instead they sold them at Yacht fairs, where the items on sale go for a few million rather than a few hundred thousand.  "I think I won't buy that £8m yacht" says mister man.  then he sees a lovely Rolls Royce and thinks, "I've just saved £8m, what's £350k for a lovely car?!" …behavioural economics works.

the last speaker was Nick Southgate, who explored how we could apply all of this

first up brand preference.  people don't express a preference when they don't need to.  structure is more important than preference, indeed structure creates preference…  competitive positioning is very important to brands; it what creates the structure – and therefore determines preferences – within a category.

second, brand positioning.  in example after example, introduction of a third choice massively changes the preferences of the first two.  one implication – the launch of 'me too' products actually make the existing market leader look better.

thirdly from a creative perspective, testimonials don't work.  behavioural economics might help explain why…  the plan to make us buy something because someone expresses their preference for it is flawed by the – incorrect – assumption that behaviour follows attitude.  but we forget our attitude whilst automatically going on with a behaviour…   you get to the top of the stairs (automatically) and on the way forget why you were going upstairs.  chimpanzees do the same thing – they will remember that they're looking for a stick to get termites only whilst the termite hill is in view.  behavioural economics is something that would seem to apply to all great apes…

and then on to the panel discussion which I won't summarise but instead pick a few themes that emerged…

targeting

it had occurred to me throughout the session, and was suggested by an audience member, that understanding BE presented opportunities for better targeting.  does understanding what BE tells us make attitudinal targeting redundant?  if we don't make decisions based on attitude, then why are we segmenting people based on what they think?  and if so, what should we be identifying and segmenting people based on?  anyone?

NB Mark Lund (formerly of DKLW and now Chief Executive of the COI) who was on the panel noted that the COI would be publishing research at the end of November that "will affect segmentation" and that will demonstrate the requirement for another degree of (agency) segmentation.

agency and industry structures

Lund suggested that he believed that agencies will have to get flatter and wider; with expertise spread across a wider number of areas.  he referred to the adage that to a man with a hammer, every solution looks like a nail…  if agencies are to provide more holistic solutions, they're going to require more than hammers.

Kate Waters, Planning Partner at Partners Andrew Aldridge, observed that "we don't have the right relationships to make our ideas happen" – beyond the buying of conventional media spaces, experiential, DR we have little implementational skill.  if BE says we need to be creating structures that influence behaviour, then we're severely limited in the structures we can change.  our industry engine is one built around awareness generation and perception change.  we may need to seriously reconsider our long-term agency and industry structures.

ethics

a wonderful debate on this one, does the ability to sub-consciously affect what people do give us too much power?  and is there are conflict between planning the Change for Life campaign in the morning and a campaign for Snickers in the afternoon?

"there is no conflict" said Lund – paraphrasing Darth Vader, "clients would much prefer people eat less but for six decades … its about quality as well as quantity of consumption".  but this misses the wider point highlighted repeatedly by Waters; much of this isn't new.  we've been in the business of affecting what people think and do for a century – all BE does is bring us an appropriate, and consistent, language for what it is that we do.

I'll leave the last word on ethics to Rory – "I'd rather be perceived as evil than be perceived as ineffective"

…

and so that was that.  awesome morning and lots of questions raised which now need to be answered.  workshops are going to be held in November, details of which are here.  I urge you to get involved.  I'll leave you with more of the lovely Rory, talking recently at TED.  enjoy.