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.

I am a scientist and occasional season ticket holder at Duke. So on Friday, I was understandably sad with the Duke loss. But as I watched the rest of America celebrate on Twitter, I felt no anger toward everyone else’s joy. Because everyone else got to experience the same joy that I long to experience each time I watch a top seed (that isn’t Duke) playing a low seed. Like so many, I want to see the underdog win.

Because no matter whether you’re a punk or prep, a janitor or CEO, or work at Mercer or even Duke, at times you feel like an underdog. Maybe you’ve been given the lowest step on the economic ladder, maybe you’re a struggling artist, or maybe you’re a scientist battling to modernize research. At the end of the day, so many of us feel like underdogs and we want nothing more than to see another underdog succeed.

Luckily for us, we can count on the annual March Madness to provide a few underdog success stories. And then millions of us can flock to a momentary allegiance with a college we have to use Google Maps to locate. In the past it has been George Mason, Virginia Commonwealth University, and Butler, and this year we’ve momentarily been given quite a few more.

In America, especially compared to other countries, the underdog narrative is an honorable and relatable narrative. From the American patriots in 1776 to the George Mason Patriots in 2006, the story has always been part of this country’s culture.

From March Madness to Luke Skywalker, we Americans crave more and more stories about underdogs. We demand it in every fictional and nonfictional story. Even the more privileged characters in popular storylines, such as the elite James Bond or billionaire Tony Stark must at sometime become outcast underdogs. If they didn’t we wouldn’t relate to them. The narrative is so much a part of our culture that politicians are forced to conform to the underdog narrative, even if they really don’t fit it.

In fact, the narrative is so strong that Neeru Paharia of Georgetown University and colleagues named a psychological effect after it, simply naming it “The Underdog Effect.” They found that groups (e.g. companies or maybe even basketball teams) can gain goodwill from others when they present themselves as underdogs. This effect was stronger for people who personally related with the narrative and stronger in cultures where the narrative was more prevalent (e.g. America).

More than ever, today we need these stories. Many political pundits on both sides of the spectrum have argued that the hope of the American underdog dream is fading. For this reason we are desperate to keep this important hope alive. Believing that an underdog will win in Texas this year might be a good way to keep the flame of that hope burning.

If only for my sake, that hope didn’t require a Duke loss. Oh well. Time for me to start rooting for a school I know nothing about. I need to leave you all now. I’ve got some Google mapping to do.

~Troy Campbell~

 

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

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.

 

 

MONDAY, JUNE 4 NEW YORK

Barnes & Noble @82^ND 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

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!

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?

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.