Top Marketable Cognitive Biases and Why They Are Effective

The human brain is a complex mechanism and understanding it properly is very difficult. However, it is the most favourite organ of marketers. Once you get at least the glimpses of how consumers think and act you can create amazing things.

One of the things that makes the human brain so enigmatic is its unpredictability. You never know what will trigger your customers’ reptilian brain. Therefore a Behavioral Economics exists. By the way, it is one of my top favorite disciplines that sits right in the intersection of marketing and psychology.

Theories About Human Brain

There are three theories, concepts, ideas or whatever they call it — that I like to study in order to grasp the basics of unpredictability of human brain.

The first is called the Triune Brain theory. According to this theory the brain that we know today has evolved gradually and it has three layers. The base is the reptilian brain which is responsible for basic survival functions and instinctual behaviours. The second layer is the mammalian brain. It is involved in a variety of functions related to emotion, memory, and social behaviour. Finally, the outermost layer is called the human brain or neocortex and is responsible for higher cognitive functions, such as reasoning, decision-making, and consciousness. The funniest thing is though, what chiefly dictates the consumer decision making process is the reptilian brain. Remember this.

The second theory is Daniel Kahneman’s groundbreaking work about the thinking process. In his bestselling book “Thinking Fast & Slow”, Dr. Kahneman argues that our brain has two operating systems: system 1 and system 2. System 1 is fast, automatic, intuitive, and operates largely unconsciously. It is responsible for quick, effortless, and automatic cognitive processes, such as perception, recognition, and simple decision-making. Whereas system 2 is slower, deliberate, and conscious. It involves effortful, controlled, and analytical cognitive processes, such as critical thinking, problem-solving, and complex decision-making. Again, consumers in their daily purchases mostly act by system 1. Because it is easy, burns fewer calories and we are lazy. Remember this as well.

And finally the third theory is Sigmund Freud’s Iceberg Theory. According to this model, Freud proposed that the mind can be divided into conscious mind, preconscious mind and unconscious mind. Conscious mind is the level of mental processes that we are aware of and can actively access and control. It includes our thoughts, feelings, perceptions, and memories that are currently in our awareness. Preconscious mind however controls the process that is not currently in our awareness, but can be easily brought into consciousness with effort such memories, thoughts, and feelings. Lastly, the unconscious mind includes thoughts, memories, and desires that are hidden from conscious awareness and again, are believed to influence our behaviour and emotions without our conscious knowledge. And remember this as well.

Top Marketable Cognitive Biases

As we have seen, what controls our consumers’ mind and what impacts on their decision making process is not the conscious process of the brain. It comes from deeper layers, works in an auto mode and in predominantly most cases we are not aware of them. Then let’s learn a few cognitive biases which in fact manifest themselves in our daily purchasing habits.

FOMO

Marketing message example: Join the thousands of happy customers who have already experienced the benefits of our product. Order now before it’s too late!

FOMO stands for “Fear of Missing Out” and it evokes a fear, anxiety or unease that one might experience if they missed out on enjoyable or rewarding experiences. In marketing and advertising, FOMO is leveraged by creating a sense of urgency, scarcity, or exclusivity to encourage people to take action, make purchases, or participate in events to avoid the fear of missing out.

Social media is a great tool to create FOMO not only in consumers’ mind but in our everyday life too. Just imagine you receive an invitation to a friend’s party, but you’re feeling tired and not really in the mood to go out. However, when you start scrolling through your social media feed and see photos and videos of your friends having fun at the party you start feeling a sense of anxiety and worry that you’re missing out on a great time. FOMO sells.

HERD BEHAVIOUR

Marketing message example: Our product is the latest craze that everyone is talking about. Jump on board and experience the excitement of being at the forefront of the hottest trend!

Almost everyone is the “victim” of herd behaviour. Because it gives us a sense of belonging, safety and protection from being left out of a group. Nobody desires to be outcasted. If you look around your circle you can easily observe that individuals in a group tend to follow the actions of others, even if those behaviours may not be rational or logical. We do it even more frequently especially when we lack information, have no idea what to do, feel danger or so. It is a safe choice to follow others.

Imagine you are walking down a popular street filled with restaurants as a tourist and you are hungry. You see two restaurants side by side: one restaurant is bustling with a full house and has a long waiting line of people eagerly waiting to be seated, while the other restaurant next to it is empty with only a few customers. Which one would you go in? It is highly probable that you’ll choose the full restaurant assuming that the full restaurant must be better in terms of food and service even though you don’t know the restaurant and have no idea whether it is true or not. This is how we are being influenced by herd behaviour.

ENDOWMENT EFFECT

Marketing message example: Don’t let go of your perfect cup of coffee. Upgrade to premium and experience your perfect cup every time.

The endowment effect is a cognitive bias where people tend to place a higher value on something that they already possess than on something that they don’t own, even if the two items are identical. One classic example of the endowment effect comes from a study by Daniel Kahneman, Jack Knetsch, and Richard Thaler. In the study, participants were given a mug and then given the opportunity to sell it or trade it for an equally valued alternative (pens). The researchers found that participants required approximately twice as much compensation for the mug once they owned it compared to the amount they were willing to pay to acquire the mug.

You surely have heard about the freemium model where a company offers a basic version of a product or service for free to attract users, with the option to upgrade to a premium or paid version for additional features or benefits. Well this is the perfect usage of the endowment effect. Once they own it the price of the upper model will not seem as much as it used to be.

BARNUM EFFECT

Marketing message example: Discover your unique style with our fashion collection. Whether you’re edgy or classic, our clothes will speak to your individuality.

In a nutshell, tell people vague and general but positive things so they will find a way to accept those statements as accurate descriptions of themselves. This effect is named after P.T. Barnum — a 19th-century showman who used this technique to make his horoscopes and other predictions seem more accurate.

Barnum effect is widely used in marketing, where companies use slogans that are vague enough to apply to many people, but still appeal to individuals on a personal level. “You might like this product because it’s perfect for your style”-like generalised messages still convince customers to perceive these recommendations as highly accurate and relevant to their interests, even though they are based on limited data and may not necessarily be unique to them.

DECOY EFFECT

Marketing message example: Choose Your Perfect Fitness Plan: Basic for $49/month, Premium for $79/month and Ultimate for $99/month.

Imagine you walk into a coffee shop and glance at the menu. You see two options: a small coffee for $3.50 and a large coffee for $6.00. The large coffee seems too expensive, almost double the price of the small one. You start questioning whether it’s worth it, or if you should just get two small coffees instead. The pricing seems to be playing mind games with you.

But then, the coffee shop introduces a third option: a medium coffee for $5.50. Suddenly, the $6.00 for the large coffee doesn’t seem as unreasonable anymore. Why not add 50 cents and get a larger coffee if you are okay to get the medium one because the small is too small? This is what’s known as a “decoy” option and it’s strategically designed to make the large coffee more attractive in comparison.

It’s a subtle but powerful marketing technique that taps into our psychology and influences our choices, ultimately leading to increased sales and revenue for the coffee shop.

FRAMING EFFECT

Marketing message example: Buy our 80% fat-free product and say no to 20% fatty milks made by no-name companies.

In 1970s, Paul Slovic — professor of psychology at the University of Oregon together with Sarah Lichtenstein conducted a very interesting study. Participants were presented with a hypothetical situation where a deadly disease outbreak was expected to kill 600 people. They were then given two options for dealing with the outbreak:

• Option 1: A program that would save 200 people.
• Option 2: A program with a 33% chance of saving all 600 people and a 66% chance of saving no one.

In this “positive” frame, Option 1 emphasised the number of people saved and as a result, was chosen by the majority of participants as the sure gain of saving 200 people. However, when the same situation was presented in a “negative” frame the majority of participants chose Option 2 — the uncertain option with the possibility of saving all 600 people — just because Option 1 ensures 400 net death.

• Option 1: A program that would let 400 people die.
• Option 2: A program with a 33% chance that no one would die and a 66% chance that all 600 people would die.

This is called the Framing Effect. The framing effect is a cognitive bias in which the way information is presented, or “framed,” influences people’s decision and perception.

By the way, I’d choose the 80% fat-free option.

ZEIGARNIK EFFECT

Marketing message example: Dear John, your favourite jacket still is in your shopping cart. A special gift waiting for you once your order is confirmed.

The Zeigarnik Effect is a psychological phenomenon that describes the tendency of the human mind to remember incomplete or interrupted tasks or activities more vividly than those that are completed. Why? Because our brain keeps incomplete tasks or unresolved situations at the forefront of our minds and they create a sense of mental tension and discomfort until they are completed or resolved.

One of the major triggers of this effect is Sunk Cost Fallacy — tendency to continue investing in a task or situation because of the resources already invested, even if it may not be the most rational decision.

How to utilise this effect in marketing? Well, set abandoned cart reminders in your website, use progress bars to visually track customers’ progress towards making a purchase, release teasers before the main videos, incorporate gamification elements while crafting new campaigns and many more.

HYPERBOLIC DISCOUNTING

Marketing message example: Get results faster with our 7-day intensive workout program! Skip the long-term commitments and see immediate progress. Join now and enjoy 50% off!

Did you know that people prefer smaller but immediate rewards to delayed rewards even if the delayed rewards are objectively more valuable? But there is a reason why it is called hyperbolic. Unlike the exponential discounting — which has a constant discount rate regardless of time factor — a hyperbolic discount has a higher discount rate in the near future and lower discount rate in the distant future.

Let’s imagine I offer you two options: $100 now or $200 in one year. Even if the present value of $200 in one year is still much higher than $100 now many people might choose the immediate reward. But as psychologist George Ainslie observed, people might prefer $200 in one year over $100 in 9 months. This could be due to concerns about the reliability of receiving the delayed payment and the potential for earning interest on the immediate amount. But as the time period goes further, the risks apply to both option and the degree of instant gratification decreases — then choosing the bigger reward seems logical.

For further expansion of this topic I recommend looking at cognitive biases such as loss aversion, confirmation bias, optimism bias, price anchoring, halo effect, bandwagon effect and salience effect which are often employed by marketers.

Also, I recommend you to read the following books:

• Thinking, Fast and Slow by Daniel Kahneman
• Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely
• Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner
• Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein
• Misbehaving: The Making of Behavioral Economics by Richard H. Thaler