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The Emerging Importance of Behavioral Science in Economics and Marketing

I bet not many of my readers can't wait till the next book on economics comes out. Well, rarely having any interest myself in such books, I   have been quite surprised by the extent to which two recent books from high priests of the dismal science held my attention.

The first book I read was Dan Ariely’s Predictably Irrational: The Hidden Forces That Shape Our Decisions. Ariely is a pioneer thinker in the new branch of economics called “behavioral economics.” Amazingly, over 235 years after Adam Smith famously claimed that the movement of markets was caused by an “invisible hand” that reflected people’s rational decisions taken on their own behalf, mainstream economics mainstream economists are beginning to suspect that the “rational” part of people’s decisions has been overplayed.

Dan Kenneth Arrow, Nobel Prize laureate in economics commented, “"Dan Ariely's ingenious experiments explore deeply how our economic behavior is influenced by irrational forces and social norms. In a charmingly informal style that makes it accessible to a wide audience, Predictably Irrational provides a standing criticism to the explanatory power of rational egotistic choice."

I next read George Akerlof and Robert Shiller’s Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism. Akerlof is another Nobel laureate in economics. Shiller is a prominent Yale economist and the Shiller of the widely followed Case-Shiller Home Price Index. Akerlof and Shiller honor John Maynard Keynes, one of the most influential economists in modern times whose 1936 magnum opus, General Theory of Employment, Interest and Money, by titling their book after Keynes term to signify irrational behavior in the marketplace, “animal spirits.”

I was fascinated to learn that when mainstream economists took to Keynesian economics they conveniently left out Keynes’ thinking about how rational behavior was not as prominent in the marketplace as classical economics held. It seems that mainstream economists have a left brain view of the world, one in which everything that happens ultimately has a predictable cause. The idea that some things just happen is an anathema to left brain constructs of reality.

But the esteemed John Maynard Keynes knew that the Newtonian-inspired idea that left brain based reason underlies the comings and goings of markets was wrong-minded in its exclusivity. In the first place, were all human behavior predictable the case would be closed on the ancient quandary of philosophers about whether or not free will exists. The notion that determinism shapes human, hence market behavior forecloses the possibility of free will.

Sadly, the denizens of the marketing profession have by and large had the same mechanistic view of markets. Rather than become in-depth students of human behavior, most marketers have depended on anecdotal and statistical renderings of behavior. To the extent that behavioral science has been part of marketing tradition, it has been pretty much focused on social psychology, a field that is not very concerned with individual behavior independent of social contexts.

But a new dawn appears on the horizon – in marketing as well as in economics. As behavioral economics is beginning to chip away at flawed assumptions about markets from an economic perspective, behavioral marketing is doing the same from a marketing perspective. At long last there is growing recognition among marketers that human behavior cannot be totally reduced to numbers.

Animal Spirits does a superb job of undercutting economists traditional obeisance to numbers – to the reduction of market forces including human behavior to mere statistical constructs. For that reason, I heartily recommend the book (as well as Ariely’s Predictably Irrational) to marketers as well as to all others involved in any aspect of business. Few of us will not be able to read Predictably Irrational without seeing ourselves in some of the experiments Ariely has conducted that show how de minimus the role of rational behavior is in our marketplace behavior.

And aside from supporting Ariely’s thesis, Animal Spirits tells why, as nothing else I’ve read does, the Financial Crash of 2008 occurred. Contrary to the view of many it was not due so much to regulatory failures and greed in corporate executive suites as to the failure of analysts and other investment p

Do yourself a very large favor and get both of these books. You'll gain a better understanding of why economists and markets get it wrong so often.

A Millennial's Guide to Millennial Guides

 

Regular readers will immediately notice the new look of this blog’s banner. The  Ageless Marketing Blog is now sponsored by Immersion Active of Frederick, Maryland, the only marketing agency in the U.S. specializing exclusively in online marketing to 40+ markets. Immersion Active’s founders, David Weigelt and Jonathan Boehman, have recently authored Dot Boom, a book that builds on the principles of ageless marketing that I have articulated. They expand the concept of ageless marketing, adapting it to the challenges the Internet poses to marketers. Their chapter, “A Model for Meaningful Online Engagement” alone is worth the price of the book and then some by a goodly margin.

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Fast Company ran an article last week entitled A Millennial's Guide to Millennial Guides.  It was written by Dan Macsai, a Millennial who reflects on various claims made by sundry authors about Millennial attitudes and behavior. Millennials are generally regarded as those born between 1982 and 2001.

Macsai regards a number of claims made about the attitudes and behavior of Millennials as “half-truths.” Interestingly, however, many of the same claims were made about boomers decades ago. Remember for example when boomers were being called the most selfish generation in history? Macsai talks about Jean M. Twenge’s claim in her book Generation Me that Millennials are absurdly self-involved. “GenMe takes for granted that the self comes first," she says. Forty years or so earlier boomers were first described as the “Me Generation.” The claim was made with the clear implication that boomers were the first generation of youth in history to be consummately self-absorbed.

Macsai sarcastically cites a litany of claims that various authors say distinguish his and his fellow Millennials’ behavior in the marketplace, workplace and play place. But substitute "boomer" for "Millennial" and you come up with how marketers saw boomers decades ago.

For sure there are stylistic differences between boomers in their earlier years and today's Millennials. However; to a remarkable degree the substantive elements of Millennials’ attitudes and behavior mirror the attitudes and behavior of boomers in their youthful years.

I modestly regard myself as something of a “homegrown” expert on generational behavior. I have a 24-year-old daughter named Stephanie who is a Millennial. My oldest is 50-year-old Sabrina who is a boomer. The next two kids, Laura and Karen are boomers, too. Then came my two Gen X-ers, Brian and Michelle. In short, I have sired children in each of marketer's current three favorite generations.

While each of my children have distinct markers of their individuality, like babies crawling across the floor together, all six kids have developed in a more or less predictable fashion. Their development has been consistent with the observations of Carl Jung, Abraham Maslow, Erik Erikson, and other luminaries in the field of human development. Even into their middle age years they continue developing in somewhat predictable fashion, all without sacrificing their distinctive individualities.

A focus on consumers in the context of generational positions began in the early 1960s with a landmark agreement between the television ratings organization Nielson and the ABC television network. ABC was running third in the three-network television industry when it came up with an idea for more effectively competing against NBC and CBS.

ABC's audience was somewhat younger than NBC and CBS audiences. ABC sold Nielson on adding to their reports on household viewership reports on viewers by age. This was the foundation of generational marketing. This change in viewership reporting made it possible for ABC to sell advertisers on the idea of getting young people into their brands before they made lifetime decisions. Though research has shown that few consumers make lifetime brand commitments in their youth, claiming such in the early 1960s proved to be a winning marketing ploy for ABC in its quest for increasing the inflow of advertising dollars.

In eschewing sweeping generalizations made about the attitudes and behavior of Millennials in his Fast Company  article Dan Macsai has put marketers on notice that they invite disappointing results in their campaigns if they take much of what self-styled experts say on Millennials at face value.