Behavioral Economics in Marketing: Managing Cognitive Dissonance

What is Behavioral Economics?

Behavioral economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another. 

What is Cognitive Dissonance? 

Cognitive dissonance is the phenomenon of having inconsistent thoughts, beliefs, values or attitudes. Cognitive dissonance is typically experienced as a psychological stress. In other words, cognitive dissonance is the mental conflict that occurs when a person's behaviors and beliefs do not align. Cognitive dissonance can also occur when new information contradicts existing beliefs. 

Those experiencing this phenomenon attempt to relieve this discomfort in a multitude of ways including "explaining things away" or rejecting new information that conflicts with their existing beliefs. American social psychologist, Leon Festinger, was credited with the theory of cognitive dissonance in 1957. Since then, a remarkable body of research has accumulated on cognitive dissonance, how it is experienced, the effects of the experience on the brain through neuroscience visualization and various applications. Cognitive dissonance theory can be applied to vast array of fields including consumer behavior, politics, communication, mass media, social behavior and leadership to name a few.

For Example

Consider a person who is interested in purchasing a new vehicle. Most likely, they will research a multitude of car makers, models, etc. They will narrow it down to a few cars that they test drive. At last, they choose that perfect car and they purchase it.

When pulling out of the lot, they may notice a blind spot that they hadn't noticed during the test drive. A month later they may realize that the air conditioner isn't as strong as they would like. These little nuances contribute to their cognitive dissonance. The idea that the car they chose was perfect is conflicted with the slight imperfections that they find. Cognitive dissonance in consumer behavior is often called buyer's remorse. 

The classic example of cognitive dissonance is the Meat Paradox. The Meat Paradox examines the question, "How can individuals care about animals, but also eat them?" Psychologists Brock Bastian and Steve Loughnan posit that knowingly eating animals that were raised in poor conditions is inconsistent with a view of oneself as a moral person. One way that people in many cultures deal with the cognitive dissonance is to "de-animalize" meat, thereby reducing the psychological tension of meat eating. 

There are many examples of cognitive dissonance that span industries and applications. This article focuses solely on applying the theory of cognitive dissonance to management and leadership. 

Leadership in Marketing Application - Managing Cognitive Dissonance

There are three main ways in which leaders experience and alleviate cognitive dissonance in the work place: people management, expectation management and strong communication.

People Management - The first way a leader can experience cognitive dissonance in the the workplace is when they hire an employee that doesn't live up to expectations. For example, imagine hiring an employee that comes with amazing credentials from Ivy League schools to executive level experience. The expectation would be that this employee will outperform other employees. They are driven, have cutting edge ideas and they will bring a high level of growth - quickly and efficiently.

But...what if this "stellar" employee turns out to not be so stellar? What if they don't bring the cutting edge ideas? What if all their projects land flat on their face? What if all that predicted growth really ended up in losses...or even huge losses? From the outside, you would think it would be time to think twice of that "stellar" employee.

The truth is, as humans, because of cognitive dissonance, managers will often try to explain it away:

• with statements such as "we are experiencing low consumer confidence" or "growth takes time"
• or simply shove it under the carpet
• unfortunately, many managers simply place the blame on other employees without such "stellar" credentials

Understanding human behavior, through the study of behavioral economics, can give managers a leg up. If managers know that their predisposition is to ignore and avoid when their expectations don't match reality; they are more likely to take that step back and look at the actual facts. 

Expectation management - If an employee has a high level of expectation that is not met, the employee will experience cognitive dissonance. For example, if the boss announces to the entire company that they are handing out higher-than-average pay raises this year but a few employees receive a lower-than-average pay raise; those employees would experience cognitive dissonance. The way to avoid this would be to either not announce the large pay raise to the entire company or to give appropriate caveats to explain why or why someone would not receive that large raise.

Another way that a manager could leverage expectation to minimize employee cognitive dissonance is through the setting of standards and adhering to them. In the pay raise example, if a company were to set standard pay raises with definitive work performance parameters, the employee would know if they were getting the raise and the amount it was ahead of time. This would eliminate any confusion or cognitive dissonance. Further, this would promote a positive work environment as employees would have a verifiable expectation.

Further, employers can leverage expectations to minimize employee cognitive dissonance by instituting company ethos. Company ethos is a distinguishing character, sentiment, moral nature or guiding belief of a company and its people. Common examples of company ethos are stewardship, client value creation, ethics, integrity, performance, passion, etc.. The company ethos should be the backbone of everything the company does from the product or service it creates to how the employees are treated; company ethos should be incorporated into every decision the company makes. This holds even more true in harder decisions and harder times, as the saying goes, "What you do in the dark defines who you are in the light." Companies who are instituting company ethos should develop checks and balances to assure that employees and managers at every level are upholding the company ethos.

Communication - Lastly, strong communication can alleviate employee cognitive dissonance. Good communication defines expectations, creates commitment, builds relationships and provides clarity in a palatable manner. Good communication also means that you listen to your employees and take their feelings and ideas into account. If an employee feels heard, they will experience less cognitive dissonance, be happier and more productive.

Wrapping it Up

Understanding how we as humans make decisions is an important part of marketing and leadership. Behavioral economics is the study of decision making and can give keen insight into employee behavior and help to shape your leadership skills. 

Cognitive dissonance is the phenomenon of having inconsistent thoughts, beliefs, values or attitudes and can cause psychological stress. People who experience cognitive dissonance can act irrationally to relieve that stress. Leaders can alleviate cognitive dissonance through expectation management and strong communication.

About the Author

Sandra Thomas-Comenole is a marketing professional with over 15 years of outstanding marketing experience and accomplishments, more than 8 years of senior management experience and a rigorously quantitative education in economics from Rensselaer Polytechnic Institute. As a creative, driven, and visionary leader known for breakthrough results, she possesses a range of knowledge and qualifications that has allowed her to be an integral part of the success and growth of several companies spanning a wide range of industries.

Her expertise lies in successfully conceptualizing and implementing innovative marketing initiatives—including both digital and traditional media channels—to drive market impact and expansion. She possesses a deep understanding of product development, market research, international relations, strategic relationships, negotiations and social media management. Check out her profile here: Sandra Thomas-Comenole, Marketing Leader

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