Why bother about changing behavior?
The most powerful way to make decisions is by
understanding your customers and their needs.
People are heavily influenced by a variety of cognitive biases,
emotions, and environmental factors that they may not even be aware of.
We need shortcuts or rules of thumb to guide our decision-making.
These shortcuts are biased, meaning they deviate
from the optimal rational behavior in a consitent direction.
Why people behave the way they do
a few examples of our cognitive quirks……
Anchoring
- easily hooked -
People become attached to the first piece of information they are presented with,
known as ‘the anchor’ , when making judgments or estimates. Anchoring affects various areas,
including negotiations, pricing, and estimations in everyday decisions.
For example, a retailer might set a high initial price and then offer a discount,
making the discounted price seem more attractive due to the anchoring effect.
Loss aversion
- Why getting new stuff is not the same -
The pain of losing is (psychologically) twice as powerful as the pleasure of gaining.
Loss aversion is especially common when we make financial decisions.
It helps explain why people might stick with a bad investment rather than selling it at a loss,
or why they might avoid risks even when potential rewards are substantial.
Loss aversion can influence various decisions, from financial investments to personal choices,
often leading people to be ‘overly cautious or resistant to change’ .
This concept was introduced by psychologists Daniel Kahneman and Amos Tversky.
Confirmation bias
Why do we favor our existing beliefs?
No one likes to be proven wrong, and when information is presented
that violates our beliefs, it is only natural to push back.
The confirmation bias describes our underlying tendency to notice, focus on,
and give greater credence to evidence that fits with our existing beliefs.
Evaluating evidence takes time and energy, and so our brain looks for shortcuts
to make the process more efficient.