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The irrationality of our decisions

January 28, 2010

Dan Ariely, and MIT Professor, ran a webinar for B2B Magazine. The good news is, if you didn’t see the webinar, most of the content in it was covered here, in this TED Talk.  In both the webinar and the talk, he talked about the illusions of our decision making process. First though, he showed us some famous visual illusions. Here is one of them.

In this image, you’re asked what color the two blocks are. When we look at this image, we’re sure that one is brown and one is yellow. Turns out though, if you take away the background of the blocks, they are the same color.

Even more, once we learn the illusion, we still can tell it’s there. Seriously, go back and look at the first picture. Even though we ‘know’ the colors are both brown, our brains won’t let us see it. Indeed, some of you might even be thinking this is a trick (it’s not). Even though we know they are both the same color, we still can’t see that they aren’t.

So Dan wonders; if our eyes are incredible evolutionary system that can do a lot, and they can be easily tricked, then what about the decisions we make when it comes to economics  — a thing we’re not evolutionary designed to understand.

He talked about how our choice is influenced by the options that are presented and used an example on Jams.

There are two in-store displays in a grocery store. One shows six jams, the other shows twenty jams. The first display managed to stop 40% of the people. The second display managed to stop 60%. Everyone who stopped got a coupon for $1 off any Jam in the store.

And the results? 30% of people who say six jams redeemed the coupon and bought Jam. Only 3% of the people who saw 20 Jams redeemed the coupon.

The Paradox of Choice.

There is a great book called the Paradox of Choice, Why More is Less that explains this last phenomena pretty well.  We’re not hardwired to make a choice when faced with more than 7 options.

In a classic experiment described in a phenomenal episode of Radio Lab called “Choice”, they describe an experiment called “The Magic Number Seven” that purported that most people can naturally hold seven (+/- 2) numbers in their heads. When people are asked to remember more than seven numbers, strange things happen. People are asked to remember a number on a piece of paper. They can take as much time as they want, and then walk out of the room and into another room to recite the number.

Some are asked to remember a two digit number and some are asked to remember a seven digit number. As they walk down the hall, they are interrupted by a woman who offers them a “Thank you for participating snack”. The choices are a healthy bowl of fruit, or a huge piece of non-healthy chocolate cake.

The results. The people with two numbers almost always picked the fruit. The people with seven numbers almost always picked the cake. The reason is that the rational part of the brain is in competition with the emotional side. Emotional side wants cake. The rational side knows that fruit is better for them. However, when the rational side is given seven numbers to remember, it can’t compete with the emotional side of the brain, meaning people don’t make a rational decision, they make an emotional one.

Listen here.

So what are the implications of all this? Design matters. When we design anything, and place a communication in front of them, we are giving them a choice. If the choice isn’t clear, they will simply walk away. If the choice has too many options, they will walk away.

2 Comments leave one →
  1. February 12, 2010 9:43 am

    Matt,

    Interesting article. SometimesI feel much of this is only true at a “retail” level and doesn’t pertain to something like a technical product.

    However, I do see that even we get better results when we limit product offerings that are designed to that specific market, verses dumping everything you make on them.

    I think it works best to have specific market/ product brochures and a web site that limits or can focus the “shopper” to a few select choices verses the hundreds of different products you make.

    • February 12, 2010 2:03 pm

      Agreed. A site that deals in technical things can offer limited options, but then have a place whereby they inform people about the category or industry. A knowledge center if you will, where the people in the company who know their stuff share it with potential customers.

      Thanks for reading Bob.

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