Cognitive Biases Review!

As we are exploring the human decision making process, cognitive biases play a crucial role when it comes to influencing our decision making process. Biases are the fallacies in our decision making that are there to reduce our time to make a decision. There are over 100 biases that humans have, we are going to talk about some of them here.?

1. Endowment Effect: This bias arises when someone owns something. Humans tend to overvalue the things they own, when in fact, those things are not that valuable. One example can be seen when people sell their house. They think that the price of their house is way more than what other people think and that is why they tend to overvalue it.?

This effect can be used for our advantage. Give people a sense of ownership and they will be more likely to value the thing more than it is. For example, if you go to any store to buy clothes, you might have observed that the salesperson hands over the clothes to you, so that you put it over you and that gives you the sense of ownership. You then think of that cloth more valuable than it really is.??

Some actionable tips:?

1. Give your product to the customers so they can use or give them to have a free trial.?
2. Use vivid images on your website and use sensory descriptions.?

2. IKEA Effect: This bias arises when we are part of building something, we tend to feel the ownership of that thing. When people are participating in assembling something, they feel it’s more valuable. This effect was named after the furniture company IKEA, that gave people the assembling furniture. Since the customers were assembling the furniture and they felt a part of creating that furniture, they wanted to own that furniture and never returned, as it was equivalent to losing something they owned. This is really powerful in influencing human decision making.?

Some actionable tips:?

1. Let your customers finish your product.?
2. Let your customers customise.?
3. Co-creation invokes unity.?

3. Illusory Superiority: This bias arises when we overestimate our good qualities and underestimate our bad qualities. The easiest way to use this is to flatter your customers. This effect works equally even if the flattery is in-genuine.?

4. Precision Bias: According to this, we think of precise values as more valuable than round-off values. Research has shown that when people were asked to perceive values that were precise and rounded off, they values the precise values more.?

Some actionable tips:?

1. Use precise values to offer your product, instead of round off values.?

Something that is similar to Precision Bias is the Syllable Effect. According to it, we tend to value long form numbers more than numbers without symbols. So, 1,000 tends to be more valuable than 1000.?

5. Anchoring Bias: This bias is encountered with the first piece of information offered. This can be seen when you go shopping to a store. The salesperson will in most cases show you the expensive thing first and less expensive later on. Showing the most expensive thing first will make the less expensive thing not very costly and we tend to compare the two prices. That is why we don’t even think a lot before buying the least expensive thing, when we have bought the most expensive thing.?

Some actionable tips:?

1. When offering plans on your website, go from high price to low price and not the opposite.?
2. This can also be used when we use a higher price to show the value of the product and offer it at a lower price.?

If you have seen the infomercials, they use the anchoring bias pretty well. Let me give you an example of the infomercial approach.?

• You’d expect to pay $499
• Thousands sold at $399
• Today only at $199
• We’ll give you a free one
• 3 Payments of just $69

6. Price Illusion: According to it, people are generally impressed by big numbers. This can be really effective when you are creating your own currency to reward people. You can say that $1 is equivalent to 1000 coins in your currency. That makes people think that those points are more valuable, even though it’s just a dollar. It obviously sounds like a lot and that’s why people get this illusion.?

7. More Exposure Effect: According to this, people feel that familiarity is good. That means they tend to stick and incline towards things they’ve known in some way. We can utilise this effect for our advantage just by exposing people to our product more and more in some? way or the other.?

The question that I’d like to ask you is, do you really like something before you buy it or is it just that you’ve been exposed to that thing a lot of times and it seems familiar.?

Some actionable tips:?

1. Repetition: Use brand logo, name etc in multiple places.?
2. Pre-exposure to your product and brand whenever possible.?
3. Use familiar names, imagery etc.?

Note: Too much creativity can sometimes hinder and act against yourself only. If you use some names or things that people haven’t even seen, this can backfire against you, as they might not be able to remember the brand or what it’s offering.?

8. Decoy Effect: This means that people never consider prices in a vacuum. They always make comparisons.?

Actionable Tips:?

1. Add a less attractive offer to boost the sales of a similar offer. For example consider two offers:?

Subscription A:?

• Internet Services: $59
• Internet + Print: $125

Subscription B:?

• Internet Services: $59
• Print Only: $125
• Internet + Print: $125

If you see subscription B becomes naturally more appealing in terms of buying Internet + Print services.?

This is the same effect StarBucks uses to sell its medium-sized coffee more.?

Well, these are some of the biases that play an important role in influencing human decision-making. Just understanding and wrapping our heads around these will allow us to craft our offer in a way that’s way more appealing to the customers. This has been week 8 in the CXL mini-degree. If you have been getting value out of these articles, feel free to share it with your colleagues.?