Elina halonen main stage - 2013pdf

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Elina Halonen, The Irrational Agency, UK

Festival of NewMR 2013 - Main Stage

Locally IrrationalApplying behavioural economics in different cultures

Elina HalonenPartner and Co-FounderThe Irrational Agency, UK



Why is this important?

Increase in research in Asia and Latin America

Understanding the impact of different cultural contexts on consumers’

decision-making more important than ever.

Culture exerts a powerful influence on decision making and BE

Cultural differences have more diverse and wide-ranging implications

for marketing and market research than just acquiescence bias or

extreme response styles in surveys.

BE is being adopted by researchers across the world

Most of the research we’ve drawn on so far has been conducted in

the US or UK – to what extent can we apply this knowledge globally?

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2

3



“Global” behavioural economics?

Popular BE literature: “cognitive biases are universal”

“The biggest challenge for our field in the next

10 years would be to understand the generality

of the findings we have. We have been ignoring

culture too much.” Dan Ariely

Source: Interview on InDecision blog (http://indecisionblog.com/2013/08/17/research-heroes-dan-ariely/)

A relatively new and unexplored field: cognitive theories on decision making

rarely consider culture as a factor

…but an increasing body of research suggests that many

biases and heuristics function differently in different cultures!

However, 96% of samples in psychological studies come from WEIRD

countries with only 12% of the world’s population: a randomly selected

American is 300 times more likely to be a research participant than is a

randomly selected person from outside of the West!

http://indecisionblog.com/2013/08/17/research-heroes-dan-ariely/



Culture as a psychological lens

No generally accepted definition of culture

Most often we think about the impact of culture through social aspects

But surely at least the purely

cognitive aspects of decision

making are the same

everywhere?

Focus on a certain aspect depending on

the specific area of interest

Often defined through e.g. values, social

norms, rituals, beliefs, attitudes…



Which one is longer?



How WEIRD!

Strength

of the

illusion



Is it just anecdotal evidence?

Time/hyperbolic discounting in 45 countries

Differences related to wealth and education + cultural factors (individualism,

uncertainty avoidance, importance of tradition) as well as time concepts

(linear/cyclical)

Encoding of time in language and intertemporal choice in 76 countries

Speakers of languages that grammatically associate future and present save

more, retire with more wealth, smoke less etc.

Economic, social and linguistic

environments strongly shape people’s

behaviour, motivations and

preferences



What makes us different from each other?

In fact, there are some measurable differences between cultures which do

affect how a person’s cognition works while they make decisions.

1. Self-concept: individual/collective

2. Information processing style: holistic/analytic

3. Other effects such as difference in time perspective

123

These make the BE biases work

differently in different countries.



It’s a bi-polar world

Individualism Collectivism

• detachment from relationships and

community self relatively independent

from others

• relationships, roles and status within

the social system important self

inseparable from social relations

• self-view defined through

internal attributes such traits, abilities,

personal values and preferences

• behaviour seen as under control of

the individual, arising from internal

attributes

• self-view defined through

relationships with others

• behaviour not seen as a reflection

of internal traits



The self as a lens

Self-concepts shape how we see the world

Organize information, direct attention to relevant information, shape

motivations, influence emotional experiences, etc.

A continuum between two poles: independent and interdependent

Self‐contained individuals, autonomous agents consisting of their attitudes,

personality traits, and abilities?

OR

Interpersonal beings, intertwined with one another in social webs, with

role‐based obligations towards others?

Where people find themselves on this

continuum has significant

consequences for a variety of

emotions, cognitions, and motivations.



Self-enhancement & choice

Choices reflect our values, assumptions and shared meanings

Choice as an individual endeavour and reflection of inner attributes vs. an

act that takes other people into account and says little about the chooser?

Cultures have different assumptions about uniqueness

In Western contexts, uniqueness is good and choice is almost a duty

In Western contexts, choice is an act of

self-expression and inherently good

If you value uniqueness you want to see yourself as different from others

Differentiation from others through displaying

variation in choices



Diversification bias & variety-seeking

When choice is an act of self-expression, it becomes important

Psychological impact of lack of choice or failed choice is larger, which

leads to strategies such as variety-seeking

People have a tendency to seek variety in both what and how they choose

…or so says research conducted in Western cultural contexts!

In collectivistic cultures choice is often an interpersonal task

The success or failure of making a choice that portrays oneself in the most

positive light not as big a concern weaker tendency to seek variation in

choice

Variety-seeking is related to a desire to express

the uniqueness of internal attributes which is

stronger in Western contexts – same

assumptions may not apply elsewhere!



Extended self & the endowment effect

Owners (potential sellers) to value objects more than potential buyers do

Simply owning an object enhances its perceived worth – or does it?

Almost all endowment effect research conducted in the West!

Ownership activates an association between an object and the self

I value myself I value this object = self boosts the object’s value

Influenced by the degree to which self-enhancement is culturally valued

East: lesser degree of self-enhancement mere ownership doesn’t

enhance an object’s value

Larger endowment effect in West than East!

Sales tactics such as free trial may be less

effective in these cultural contexts



Tunnel Vision vs. Wide Angle

Analytic Holistic



You get what you pay for… or do you?

Price is as a signal of quality – a true marketing universal?

Research in Western countries suggests few cultural differences

Price influences consumers’ quality judgments

Price traditionally seen as extrinsic cue – separate from elements like the

product, its design or ingredients

Consumers in certain cultural contexts will

evaluate products more holistically, which

enhances the effect of framing a decision in a

particular way

New research: self-concept can influence the strength

Interdependent self-concept linked with a tendency

to evaluate products more holistically, making price

a much stronger cue for quality!



Sunk cost effect across the world

A commonly observed fallacy where goods or

opportunities are valued not according to their

future benefits but according to the resources

previously consumed to acquire them.

Past investments in time/money that have

already been incurred and cannot be

recovered.

Sunk costs are…



The experiment

Assume that you have spent £36 on a ticket for a concert by

artist X.

Several weeks later you buy a £18 ticket to a concert by artist

Y. You think you will enjoy the concert by Y more than the

concert by artist X. As you are putting your just-purchased

ticket for Y's concert in your wallet, you notice that both

concerts are on the same night! It's too late to sell either

ticket, and you cannot return either one. The tickets are not

transferable so you cannot sell one.

You must use one ticket and not the other. Which concert will

you attend?

Experiment amended from Arkes & Blumer (1985)



Where’s the effect?

Overall, different result to original study

Different sample – not undergraduates

and not just US

More people may have learned about

the sunk cost effect since the original

study

54%

32%

46%

68%

ARKES & BLUMER

(1985)

OUR EXPERIMENT

ShowsSCE

Does notshow SCE

Base: Arkes & Blumer (n=61), our experiment (n=4800)



Variance between countries

54%

46%

45%

39%

30%

26%

25%

25%

23%

23%

22%

0% 10% 20% 30% 40% 50% 60%

Brazil

India

SA

Mexico

UK

US

Spain

Germany

Russia

Sweden

China

Clear differences between countries -

what links India, Brazil, Mexico & South

Africa? No measured psychological

scale clearly explains this effect!

Some link with GDP/head + strong,

correlation with fixed investment/capita.

Vicious circle: certain decisions and

decision styles might create cultural and

economic trends which in turn

perpetuate the same types of decisions?

In other words: we can’t assume that

these biases work similarly or are

equally strong in different cultures. % showing SCE

Base: n=c.400/country



From non-rationality to non-universality?

Understanding cultural influences on thought is crucial for everyone

attempting to accurately describe and predict consumers’ decision making.

BE findings and theories might be universally applicable, but in-depth

knowledge of the specific cultural context is crucial for effective applications.

However, cross-cultural research in BE is in its infancy – no “off-the-shelf”

solutions exist yet so requires extensive understanding of the potential

impact of culture on decision making!

123

As we gradually abandon the error of rationality and

adopt more principles from behavioural economics,

let's make sure we don't entrench a new mistake:

universality



THANK YOU!

Elina Halonen

Partner & Co-founder

The Irrational Agency

www.theirrationalagency.com

@irrationalagcy @infomagpie

http://www.theirrationalagency.com/



Q & A

Sue YorkNewMR

Elina HalonenThe Irrational Agency, UK

Elina halonen main stage - 2013pdf

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