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The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

Jun 21, 2019

We are getting near the end of our eight week series on all the biases. There is just one more to go after this one, which is about how our brains are biased toward novelty and stories. The first six episodes in the series, which are linked in the show notes, were on personal biases, how we are biased toward others (both individuals and groups), memory, present versus future, selective attention, and last week was all about how math is hard. Turns out we aren’t so good with money, value, numbers, games and probabilities.

So, why do we take shortcuts or accept something as a fact without actually doing the investigative work behind it? It all has to do with our lazy brain. The truth is we have the power to use our brains however we want. Learning some of the lazy brain biases will help us use our brain more efficiently in our life and our businesses - or at least help us understand the science behind some of our choices. 

Show Notes

  • [04:58] The default effect, which was covered in episode 20 and again in episode 38 as part of the series on nudges. We humans are most likely to choose a default option when we are provided one, whether it is in our best interest or not.
  • [05:39] Due to the decoy effect someone’s preference for a choice or product will change based on the options that are presented.
  • [08:05] We have an automation bias, which leads us to have an excessive dependence on automated systems, this can create a situation where those automated decisions override the choices of individuals that would be more correct and accurate.
  • [08:43] There are lots of things automation can’t do properly, so it is important to be thoughtful and take a look under the hood every now and then.
  • [09:08] The law of the instrument, where we are overly reliant on a familiar tool. The old adage to explain this is, “If all you have is a hammer...everything looks like a nail.”
  • [09:26] Functional fixedness is where someone is limited to using an object only in the way it is traditionally designed or expected to be used.
  • [09:49] Our businesses would be best served if we could look at a problem in a new way, from a new angle, and find a new approach.
  • [10:49] A great example featuring the Apollo XIII story.
  • [11:54] Our brains are looking for the easiest answer and solution most of the time, the way the information is presented – or the frame – can determine what actions we take.
  • [12:44] When I talk about anchoring and pricing I always recommend to start with the highest price first.
  • [13:00] The contrast effect makes it so different stimuli are viewed differently based on what was seen just before it.
  • [14:12] Interoceptive bias is when we believe that input from our senses are used to influence our external decisions.
  • [15:22] The ambiguity effect is when we avoid options and choices where we don’t know the odds or likelihood of the outcome in advance, and we would rather choose an option with bad odds that we happen to know, than go down the unknown path.
  • [15:55] Action bias is where we take an action to feel like we are in control of something.
  • [17:38] There are two versions of illicit transference. The fallacy of composition is when you assume things about a group because of one person you have interacted with. The fallacy of division is where you determine each individual must be like the whole group.
  • [20:59] When we are presented with tasks that are particularly daunting, we may become a victim of Parkinson's law of triviality, which is also known as bikeshedding. This is when trivial issues are given way too much weight and we can get stuck on the small stuff to avoid fixing the big stuff.
  • [23:03] Lag effect is how we learn better if our studying is spread out over time instead of trying to cram it all in during one session. The levels of processing effect is where not all methods of putting information into our memory have the same level of effectiveness
  • [24:07] The list length effect is where we can remember more items when given a longer list. Our brains are only as lazy as we allow them to be.
  • [24:56] Take a limiting belief that you have and push the limits.

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