Category: Uncategorized

Sports and Loss Aversion

Jul 12

I got this question about the World Cup and I can’t put it in my WSJ column, but I still think it is worth while answering, and particularly today.

 

 

Dear Dan,

You have mentioned many times the principle of loss aversion, where the pain of losing is much higher than the joy of winning. The recent world cup was most likely the largest spectator event in the history of the world, and fans from across the globe were clearly very involved in who would win. If indeed, as suggested by loss aversion, people suffer from losing more than they enjoy winning — why would anyone become a fan of a team? After all, as fans they have about equal chance of losing (which you claim is very painful) and for winning (which you claim does not provide the same extreme emotional impact) – so in total across many game the outcome is not a good deal. Am I missing something in my application of loss aversion? Is loss aversion not relevant to sports?

Fernando

Your description of the problem implies that people have a choice in the matter, and that they carefully consider the benefits vs the costs of becoming a fan of a particular team. Personally, I suspect that the choice of what team to root for is closer to religious convictions than to rational choice — which means that people don’t really make an active choice of what team to root for (at least not a deliberate informed one), and that they are “given” their team-affiliation by their surroundings, family and friends.

Another assumption that is implied in your question is that when people approach the choice of a team, that they consider the possible negative effects of losing relative to the emotional boost of winning. The problem with this part of your argument is that predicting our emotional reactions to losses is something we are not very good at, which means that we are not very likely to accurately take into account the full effect of loss aversion when we make choices.

In your question you also raised the possibility that loss aversion might not apply to sporting events. This is a very interesting possibility, and I would like to speculate why you are (partially) correct. Sporting events are not just about the outcome, and if anything, they are more about the ways in which we experience the games as they unfold over time (yes, even the 7-1 Germany vs Brazil game). Unlike monetary gambles, games take some time, and the time of the game itself is arguably what provide the largest part of the enjoyment. To illustrate this consider two individuals N (Not-caring) and F (Fan). What loss aversion implies is that N will end up with a neutral feeling with any outcome of the game, while F has about equal chance of being somewhat happy or very upset (and the expected value of these two potential outcomes is negative). But, this part of the analysis is taking into account only the outcome of the game. What about the enjoyment during the game itself? Here N is not going to get much emotional value watching the game (by definition he doesn’t care much, and he might even check his phone during the game or flip channels). F on the other hand is going to experience a lot of ups and downs and be emotionally engrossed and invested throughout the game. Now, if we take both the process of the game and the final outcome into account — we could argue that the serious fans are risking a large and painful disappointment at the end of each game, but that they are doing it for the benefit of extracting more enjoyment from the game itself — and this is likely to be a very wise tradeoff that maximizes their overall well-being.

This analysis by the way has another interesting implication — it suggests that the value of being die hard fans is higher for games that take more time, where the fans get to enjoy the process for longer. Maybe this is why so many sports take breaks for time outs and advertisements breaks — they are not only doing it to increase their revenues, but they are also trying to give us, the fans, more time to enjoy the whole experience.

The third annual StartupOnomics

Jul 12

I’m excited to announce our third annual StartupOnomics (August 23-25).

This is an opportunity for companies that are seeking to make world a better place to hang out with experts in behavioral economics. We’ll spend an intensive weekend at the end of August in San Francisco learning about how people make decisions so that your product can have a bigger impact.

In years past we’ve had great companies join us. LumoBack, Warby Parker, Etsy, LearnUp, Basis and more.

This year we’re keeping teams overnight at a beautiful location right under the Golden Gate bridge - Cavallo Point. Epic sunset pictures are all but guaranteed. We’re also excited to include follow up sessions this year, to ensure the learning sticks.

If you’re a company in health, finance, education or green, please apply here by July 25. 

Topics:

 

  •        Product adoption and growth
  •        Increasing active usage
  •        Building loyal customers that love you
  •        Payment strategies
  •        Building a team that loves what they do
  •        Measuring what matters
  •        Testing approaches and best practices

Looking forward to this

 

Dan

 

Arming the Donkeys’ new spot

May 04

Good news! Arming the Donkeys, my (almost!) weekly podcast, will now be available on Tunein Radio, a website and mobile app for music and radio broadcasts. If you’re unfamiliar with the podcast, as close to weekly as possible I interview a different researcher as we explore a topic connected to behavioral economics (self-deception, corruption, will power, you name it). And if you haven’t ventured into the world of Tunein, it’s a fantastic platform worth exploring—you can listen to local stations, broadcast shows, sports, news, and any music genre you could want (Polka, anyone?). And now, Arming the Donkeys! I’m excited to be joining the line up, and hope you’ll visit ATD’s new home.

Thoughts on Lance Armstrong

Jan 18

Book tour talks – June 2012

May 29

 


 

MONDAY, JUNE 4 NEW YORK

Barnes & Noble @82ND and Broadway @7:00pm

 

THURSDAY, JUNE 7 CAMBRIDGE, MA 

Brattle Theater @6:00pm

 

SATURDAY, JUNE 9 WASHINGTON D.C.

Politics & Prose @1:00pm

 

MONDAY, JUNE 11 SAN FRANCISCO

The Booksmith @7:30pm

 

TUESDAY, JUNE 12 PALO ALTO

Oshman Family JCC @7:30pm

 

 

THURSDAY, JUNE 14 LOS ANGELES

Live Talks Los Angeles @7:45am

For tickets: www.livetalksbusiness.com

 

FRIDAY, JUNE 15 SEATTLE

Town Hall @6:00pm

 

WEDNESDAY, JUNE 20 ST. LOUIS

St. Louis County Library Headquarters @7:00pm

 

FRIDAY, JUNE 29 DURHAM

Regulator Bookshop @7:00pm

 

TUESDAY, AUGUST 14 RALEIGH

Quail Ridge Books @7:30pm

A quick new survey!

Feb 15

Now that love is less in the air post-Valentine’s Day, we’d appreciate it if you’d take 5 minutes to fill out this survey.

 

Thanks very much!

Why we really are distracted by shiny objects.

Feb 10

Choosing Brighter Instead of Tastier Candies May Be Good For You:

How Visual Properties of Choice Options Influence Our Decisions

by Mili Milosavljevic, Ph.D.

In 2009, Tropicana redesigned the packaging of its orange juice in an attempt “to reinforce the brand and product attributes [and] rejuvenate the category.”  The company said that “for the first time, Tropicana… will be branded ‘100% orange’, which will be featured as a bold, new graphic on all packaging… [A] proprietary fresh cap… will be another visual signal of the brand’s natural, health benefits.”  Less than 2 months after the redesign, dollar sales of Tropicana orange juice had dropped about 19% or $33 million, with competitors picking up Tropicana’s lost market share.  The company’s response was to immediately bring back the previous version of packaging and determine what went wrong.  Some of the surveyed consumers complained that they missed the old packaging and Tropicana was quick to attribute the flop to messing with the usual suspect: emotional bond that consumers had with the old packaging.  Other consumers, however, noted that the redesign had made it more difficult to spot Tropicana on a store shelf or to differentiate it from other brands.  This alternative explanation suggests that replacing the familiar, prominent, dark-green Tropicana brand name on the packaging, with a sleek, bright-green, 90-degree tilted version dwarfed by an enormous glass of orange juice that replaced the orange with a straw coming out of it caused some consumers to miss the brand and simply pick up another instead.

Is it plausible that simple visual features of choice options, such as a package’s color or brightness, influence consumers’ choices?  Mili Milosavljevic, together with a team of vision scientists and neuroscientists, recently conducted a series of eye-tracking studies in which consumers made real choices between snack food items whose brightness of packaging was systematically varied.  When consumers chose between items they prefer (such as a Snickers bar) and visually enhanced, i.e., brighter, but less preferred options (such as Sour Skittles), a significant portion of their choices was biased toward choosing the brighter, less liked, item. This visual saliency bias, or bias toward brighter-colored items, was even stronger when consumers made choices while being engaged in another cognitively demanding task, akin to talking on a cellphone while shopping in a grocery store.  Finally, the bias toward visually brighter items was especially strong when consumers did not have a strong preference for one item over another (i.e., choosing between Snickers and KitKat bars, which consumers stated they like almost equally).  The latter two variations of the experiment is highly representative of today’s competitive market place and consumers’ tendency to multitask.

So where does this visual saliency bias come from?  The explanation lies in the way that our brain processes information.  When making a simple choice, the brain has to process both visual information that allows us to perceive the choice options, and preference information that estimates how much we like these options.  The brain must reconcile all these signals (and more: memory, expectations, goals) in order to arrive at a decision.  So what this research shows is that sometimes the visual information wins over the preference information – a finding that again shows that choices are driven by many forces aside from actual preference.

So is this visual saliency bias good or bad?  More specifically, is it bad for consumers to rely on something as trivial as the brightness of packaging when making a decision?  Not necessarily.  The visual saliency bias is less likely to occur if you are buying a car or a house, or are engaged in other high-stakes decisions.  The bias is more likely to kick in when the decision is less consequential, less costly, you have less time or capacity to fully engage in it, or the options from which you are choosing are liked just the same.

Dr. Milosavljevic and her colleagues showed that when making such simple choices, consumers can spot and choose most of their preferred items in as little as a third of a second.  Granted, the visual saliency bias may, in some instances, lead us to make suboptimal choices, but that may be a small price to pay in order to go about our daily lives making rapid, mostly good, decisions.  After all, who wants to spend an entire afternoon in front of the store shelf choosing between Snickers and Sour Skittles?


FREE! in Swedish Medicine

Aug 20

I recently learned of an interesting innovation in medical pricing coming from Sweden. This pamphlet from the healthcare authority states (translated): “If you have a respiratory problem and you don’t take antibiotics for it during your first visit to the doctor, you have the right to a second visit within five days free of charge”.

This approach is using the power of FREE! in an attempt to get people to reduce their use of antibiotics. But, I wonder if this approach might be too powerful, such that it will get people who do need antibiotics not to get them. And I also wonder whether this approach will be particularly effective on people who have less money — which might not be ideal.

Honest Tea Declares Chicago Most Honest City, New York Least Honest

Jul 25

From the Huffington Post:

Would you still pay a dollar for Honest Tea if you could take it for free? On July 19, the company conducted an Honest Cities social experiment—it placed unmanned beverage kiosks in 12 American cities. There was a box for people to slip a dollar in, but there were no consequences if they did not pay.

Turns out, Americans (or at least Americans who like Honest Tea) are pretty gosh darn honest. Chicago was the most honest city, with 99 percent of people still paying a dollar. New York was the least honest city—only 86 percent coughed up the buck.

The full results:

Chicago: 99%
Boston: 97%
Seattle: 97%
Dallas: 97%
Atlanta: 96%
Philadelphia: 96%
Cincinnati: 95%
San Francisco: 93%
Miami: 92%
Washington, DC: 91%
Los Angeles: 88%
New York: 86%

Honest Tea is donating all of the money collected, nearly $5,000, to Share Our Strength, City Year and Rails-to-Trails Conservancy. The company is matching the total, bringing the total donated to $10,000.

What kinds of things might have changed this very honest behavior?

Here are some open questions, or maybe future experiments to try:

1) What if the box for paying was not transparent?  If it was opaque, then no one could see if the person in front of the box was really paying and there was no evidence that many people have paid before (based on the number of dollars that were there)
2) What if people approached the booth one by one and without being observed by anyone?
3) What if the experiment was conducted at night? What if people were slightly drunk?
4) What if there was an actor who would go by and take a bottle without paying?  Would it make the other people be less honest? (I think so)
5) Who is more likely to be dishonest, people who come as individuals, or people who come in groups?
6) When it is sunny and people are happier, are they also more honest?

What is clear is that there are lots of interesting questions here.

The Upside of Irrationality is out…

Jun 01

This is an exciting day (but also a bit nerve-racking).

After a lot of hard work, “The Upside of Irrationality” is finally out, and now all I can do is to stand by and see how people react to it.  The Upside of Irrationality covers different topics from Predictably Irrational, but it is also much more personal (hence the nerve-racking part).

Here is a short intro to this book, and if you end up reading it, let me know what you think:

I am going to be on a book tour for a few weeks, and here is a list of places that I will give talks at:

NEW YORK

TUESDAY, JUNE 1; 7:00 pm

B&N

2289 Broadway at 82nd Street

SAN FRANCISCO

THURSDAY, JUNE 3, 7:30PM

Berkeley Arts & Letters

Hillside Club

2286 Cedar Street

Berkeley CA 94709

MONDAY JUNE 7, 7:30PM

The Booksmith

1644 Haight Street

San Francisco CA 94117

SEATTLE

TUESDAY JUNE 8, 7:30PM

Town Hall Seattle

1119 8th Avenue

Seattle, WA

WEDNESDAY, JUNE 9, Noon

Chamber of Commerce lunch

Rainier Square Conference Center

5th and University

BOSTON

THURSDAY, JUNE 10, 6:00PM

Brattle Theater

40 Brattle Street

Cambridge

WASHINGTON, D.C.

SATURDAY, JUNE 12, 3:30PM

Politics & Prose

5015 Connecticut Avenue NW

ST. LOUIS

MONDAY, JUNE 14, 7:00PM

St. Louis County Library

1640 S. Lindbergh Blvd.

CHARLOTTE NC

TUESDAY, JUNE 15, 7:00PM

Joseph Beth Booksellers

4345 Barclay Downs Dr.

DURHAM NC

MONDAY, JULY 19, 7:00PM

Regulator Bookstore

720 9th Street
Durham, NC