Albert Einstein, Nelson Mandela, Martin Luther King Jr. — these are just a few names in history who have been awarded for challenging traditional thinking with human emotions. Joining this distinguished list is economist Richard Thaler, recently awarded a Nobel Prize for groundbreaking research on irrational, yet predictable, human behavior and the impact such behavior has on economics.
While the idea of behavioral economics has been around for some time, it has failed to take into consideration a crucial factor -- human nature. Real people don’t behave as rationally or as predictably as data or numbers might suggest.
Through his work, Thaler has proved that people are not only irrational, but they also act in a consistent way, so their behavior can still be anticipated.
For years, the teaching of economics was built on the assumption that people make rational buying decisions based on a desire to increase their economic well-being and security. Thaler’s theory of “mental accounting” suggests that people actually create separate accounts in their minds, which causes them to focus on the narrow impacts of each account as opposed to the overall economic effect.
For example, people might use the cost savings from lower gas prices to purchase premium gas, instead of saving the money. They assume: “This money in my budget has been allocated for gas, so that’s what I’ll spend it on.”
Thaler’s book, "Nudge," supports this thinking by suggesting that small incentives from the government can persuade people to make certain decisions.
For example, the British government found that people were more likely to pay their automobile registration fees if the billing letters included a photo of the vehicle. As a result of human sentiment, owners were more likely to make the financial decision to pay their fees.
The same idea can be applied in marketing.
While Big Data can help marketers reach people with more precision than ever before, it can’t always help us predict human nature. Don’t get me wrong -- data plays a vital role in helping marketers determine who target audiences are as well as where and when they prefer to engage them and with what content.
But precision can’t help us create ideas on a human scale. Only feelings can do this.