Editor’s note: Alex Batchelor is chief operating officer at BrainJuicer, a London-based research agency.
A long time ago, I spoke at a conference in front of 6,000 accountants. Like all good speakers, I had lovingly prepared my speech on the value of brands. I had thought about my accounting training and had a serious and analytical presentation looking at the proportion of corporate value that was represented by intangible assets.
I had studied FRS 10 and 11 (which cover goodwill and intangible assets) and even their predecessor SSAP 22. I had also estimated what proportion of the corporate goodwill (or intangible assets) could be attributed to brands and had prepared charts on the performance of branded companies over 20 years for the FTSE 100, FTSE 250 and the S&P 500. To stop the French and the Germans from feeling left out, we also looked at the CAC and the DAX indexes.
It was a lot of work, designed to convince a skeptical audience with rational and methodical analysis. I was the last speaker of the day, the only one who was not an esteemed accountant and the only thing standing between the audience and a well-earned drink.
Waiting in the wings, I had a sudden thought: I didn’t believe that people made decisions rationally and methodically. Why did I think that I was going to convince my audience with an analytical presentation? As I strode out onto the stage to the usual polite applause, I decided to switch things up.
The first question I asked my audience was how many of them drove a car. Six thousand accountants politely raised their hand. I followed up this with an even simpler question: How many of you know how to do investment appraisal? Six thousand accountants – intimately involved in the mysteries of net present value, discounted cash flow, IRR and even the newly-developed option valuation methods – politely raised their hands for the second time. I then asked them my third question: How many of you have done an investment appraisal using any method before buying your car? Six very sad looking accountants in the front row raised their hands. The other 5,994 had the decency to look mildly embarrassed.
That, I said, is branding. I did not care which car they drove, whether it was a £100,000 Porsche, a standard Toyota or a £500 car they bought off a secondhand car lot: the truth was that almost everyone in that room had made an emotional decision to buy their car. They had chosen with their hearts and feelings even though they had the skills to make a more considered decision. Many later told me that they had chosen cars that they felt said something about them.
Most people are not accountants, do not understand discounted cash flow and do not have the skills to do a fully depreciated pence-per-mile running analysis on their car. Most marketers and researchers also know this is not how people make decisions – but they often struggle to advance this hypothesis in the boardrooms of the companies they work for.
Boardrooms themselves are not paragons of rational decision-making. I have almost lost count of the number of times I have heard clients say that their board is full of accountants, engineers or “hyper-rational” types – and that only a fully-costed business proposal will do. Yet there are now many experiments that show how ridiculous that belief is. Framing and unconscious bias trump rational thought in almost every situation!
Framing of decisions
Framing effect refers to when the same problem is presented using different representations of information and people make significant changes to their decisions or even reverse their decisions. A classic example was used by Amos Tversky and Daniel Kahneman back in their 1981 paper, “The framing of decisions and the psychology of choice.”
Imagine that the U.S. is preparing for an outbreak of an unusual Asian disease that is expected to kill 600 people. Two alternative programs have been proposed to combat the disease. Scientific estimates of the consequences of the programs are calculated.
One program uses a positive frame for the information to get people to choose between A and B. If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a one-third probability that all 600 people will be saved and a two-third probability that no one will be saved.
The other program uses a negative frame to get people to choose between C and D. If Program C is adopted, 400 people will die. If Program D is adopted, there is a one-third probability that no one will die and a two-third probability that all people will die.
Since A and C and B and D are logically equivalent (in probability terms), there should be no difference in preference for people. Also, there should be no shift of preferences from risk-seeking to risk-avoiding simply because of how the problem is described. However, Tversky and Kahneman state that 71 percent of the participants would choose A rather than B in a positive frame, while 72 percent of the participants would choose D rather than C in a negative frame.
Power of unconscious bias
The perils of unconscious bias were nicely revealed in a 2011 experiment involving Israeli judges by Shai Danziger, Jonathan Levav and Liora Avnaim-Pesso. The study – Extraneous Factors in Judicial Decisions – looked at over 1,000 parole decisions made by eight Israeli judges over a 10-month period. Its conclusion seemed at odds with the principle that judges apply legal reasons to the facts of a case in a rational, mechanical and deliberative manner.
The study showed that the percentage of favorable rulings dropped gradually from 65 percent to nearly zero within each decision session and returned abruptly to approximately 65 percent after a break. In short, chances of getting parole were linked to the breaks where the judges got food and refreshment, an extraneous variable that should have no bearing on legal decision-making. But the truth is we tend to default to the easiest decision after a depletion of our mental resources when we are under pressure to make repeated decisions.
Emotion in the boardroom
What is the learning here for those asking for board approval? If your decision relies on the status quo, go last and get the slot just before lunch, as the easy decision for the board is to approve the thing they have often approved before. If your board approval is for something significant and new, go first and give your board doughnuts (and perhaps recognize that it will not get approved at the first visit).
The idea that we do not make precise, rational, analytical decisions is a hard one for marketers to win with many business colleagues. I could talk about Phineas Gage or, even worse, reference somatic markers and the guidance of behavior (read Damasio’s book Descartes’ Error – it is great) but the reality is that all neuroscientists now agree that the human brain does not really work in a rational, analytical way. There is also a growing body of evidence that links emotions and memories. The learning should be to create positive emotions – through the products we make, the services we deliver and the ways in which we communicate with our customers. I am sure there is a lot more commercial value to be derived that way.
Indeed, if I was to take my own advice then I would suggest that, rather than reading any of the academic papers I have referred to above, you should watch the Disney Pixar movie Inside Out. It’s a fun-filled, thought-provoking journey through the minds of three protagonists – a teenage girl and her parents. Based on some of the latest thinking in the behavioral sciences, you will likely remember the movie’s conclusions about the power of happiness and sadness to motivate us.