Behavioural Economics: its promises and pitfalls in market research

The beginning of the 21st Century has seen behavioural economics rising to prominence, thanks to high-profile academics such as Nobel Prize Laureate Daniel Kahneman and the subsequent adoption of behavioural economics-inspired ideas in public policy. The offshoot of a marriage between economics and psychology, it has certainly proven to be a popular one. So much so that the term is misused to refer to practically anything to do with popular social science. For example, despite being heralded as an application of behavioural economics, it is in fact social psychology that informs much of the research conducted in the public policy domain (Financial Times, 2014). Although the line between these related fields is somewhat blurry, the word choice suggests behavioural economics has a ring to it. The market research industry has not failed to take notice of its popularity and there are now numerous agencies that include behavioural economics in their offerings. Beyond the buzz, what can we as market researchers learn from behavioural economics and related disciplines in social science? And what are the pitfalls when applying behavioural economics in market research?

If there is one lesson behavioural economics has brought to the world, it is this: human beings do not operate as rational choice agents. Instead, we are influenced by how choices are ‘framed’ and presented to us. This is hardly something new to market research. On the most basic level, it is an essential part of our training to recognise the potential for leading questions to skew results. Nevertheless, it gives us food for thought when appraising common practices. Do our research designs (implicitly) assume people are rational decision-making agents? Should we systematically test alternative ways of presenting choices to research participants? These are some of the issues we consider at Accent when working on research aimed at delivering behavioural insights.

More importantly, however, we can draw lessons from the limitations of behavioural economics that have been the subject of extensive academic debates. So far, it has proven difficult to find an accurate, unifying theory of human decision-making. Numerous ‘heuristics’ and ‘biases’ have been supported by evidence, but it is often unclear which rules apply under what circumstances. While this is generally considered bad news for academic research, it also suggests that bespoke market research can be of real added value to clients looking to apply behavioural economics to generate practical insights for their organisation. Competing hypotheses may need to be tested against each other in a realistic, relevant context to yield actionable insights.

The flip side of the coin is that behavioural economics does not offer an easy answer to market research questions. The danger of its popularity is the temptation to cherry-pick bits and pieces to create a compelling – but potentially misleading – narrative. The world is a messy place, but it is all too easy to pretend it is neat and orderly. Another potential pitfall is to favour ‘nudges’ over alternative policy or strategy options because of the perceived attractiveness of a behavioural economic approach. As critics have argued, politicians tend to favour behavioural economic ‘tweaks’, as opposed to politically sensitive but ultimately more effective policies. The same danger lurks when applying it to market research: are we getting to the core of the issue or does our focus on behavioural economics blind us to the bigger picture? Of course, the bigger picture may not always be within the remit of a market research study. Although there is nothing inherently wrong with research that is aimed at fine-tuning, it is important to recognise it as such.

Market research has always drawn from the social sciences and there is no doubt we should engage with behavioural economics and related fields such as social psychology. Whether we will benefit from this engagement will depend on our understanding of the strengths and limitations of their work as well as our skill to apply their findings and methodologies in a context-sensitive manner.

References
Tim Harford (2014), ‘Behavioural Economics and Public Policy’, Financial Times, 21st March. Available at : https://www.ft.com/content/9d7d31a4-aea8-11e3-aaa6-00144feab7de