Startup general interest

How context affects behaviour

By January 15, 2010 6 Comments

It’s been a bit of a social science week here on TheEquityKicker so when I came across a post from Valeroni Maltoni on entitled What Really Affects Behaviour? I was excited to find out the answer.  And that answer is, as well as all the rational elements of decision making we are largely familiar with context plays a surprisingly important role.

The following example of pricing from the Economist makes the point brilliantly.  They ran two different yearly subscription offers, the first had two options and the second had those same two plus a third.  The third option was in this case the ‘context’ and it dramatically changed the way respondents chose between the other two.

    Offer 1

    Percentage uptake

    Offer 2

    Percentage uptake

    Online only $5916%Online only $5968%
    Print and online $12584%Print and online $12532%
    Print only $1250%  

As you can see from this table the existence of the nonsense third option in Offer 1 resulted in a much higher take up of print and online than when the option wasn’t there – 84% versus 32%.

Split testing of different offers can get you a long way towards this sort of result, and is of course to be encouraged, but insights into how people sometimes operate irrationally can help the decision on which offers to test.  If the Economist had been operating from a purely rational model of decision making they simply wouldn’t have tried out an offer which included an option which no-one in their right minds would go for.

The scientific explanation for why this ruse from the Economist paid off is that when having to choose between multiple desirable options they will begin to consider multiple hypothetical trade-offs and evaluate them in terms of missed opportunities rather than opportunity potential – thus changing the outcome. 

Valeroni’s post is worth full read if you are into this kind of thing.  I liked the start, where she recommends three of my favourite books, but it gets better as she goes on to list a number of areas where behavioural science impacts pricing and product/service – these include free offers, anchoring pricing, doing things in groups instead of one-on-one, personalisation, packaging, being human and peer pressure.

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