Five things you need to know about how people make decisions

The digital era has brought about two major changes. First, consumer behaviour is more irrational than we used to think. Second, changes in the immediacy of media, use of the internet and the availability of data mean we can get closer to consumer decisions than ever before.

1. Understanding human behaviour by applying behavioural economics.

Sounds heavy, but behavioural economics is the theory (and not a very new one) behind why people behave as they do, for financial or social gain.

Consumer decision making has never been completely rational or conscious. We are learning why people regularly make decisions that appear irrational, why communication should focus on changing behaviour rather than attitude and why the context in which consumers make decisions is so important.

Why, for example, does adding one highly expensive purchasing option increase average order value? Because people base decisions on relative, rather than absolute, information - context is everything. Behavioural economics can help brands understand how consumers make decisions and inform their approach to product development, marketing and communications.

2. First example - Chunking.

Parts are easier than wholes. The way a task is presented affects people's willingness to take it on and complete it. Something presented as one long task to be conducted in a single act will be less likely to attract people than something ‘chunked' into bite-sized stages. Think how much more inclined you are to fill in forms with clear divisions and directions or, when online, you can save and quit part-way through.

3. Second example - Social herding.

People are more likely to do things they think others do and more likely to do something if they think they are being observed or monitored. For example, governments are discovering that the most effective way to get people to reduce energy consumption is not to show them how much money they can save, but to show them how much more energy they use than the average.

4. Third example - Choice architecture.

Choosing is relative to what you can have, not absolutely about what you want. We are all ‘choice architects' because there is no neutral way to present a choice. For example, presenting something first on a list can influence the likelihood of it being chosen (the ‘primacy' effect), as can presenting it last (the ‘recency' effect).

Price framing is an example of this, where context is hugely important. We recently found an example where response rates for a banner campaign selling $1,000 TVs were highest when placed in upscale holiday and travel sites. This worked because if you spent $3,000+ on a holiday, a $1,000 TV seems relatively cheap.

5. The way forward.

Traditional market research, which relies mainly on people reporting their behaviour and attitudes, does not reveal these types of insight because of the unconscious nature of many of the decisions consumers take.

In future, we will rely less on claimed attitudinal research and there will be greater use of ‘behavioural' information - observational research, search and digital data which provide us with consumer ‘footprints'. We will apply ‘test and learn' approaches more often and put greater focus on consumer data and consumer psychology.

With this knowledge, we have the potential to revolutionize the way we actively engage audiences in the future.