Cognitive Biases and Shopping

Watching shoppers navigate a retail environment is often analogous to watching mice scurry about a maze. Each individual shopper¹s needs, response to environmental stimuli, procurement methods and decision-making abilities play out as a continuous large-scale experiment in cognitive function. Instead of wafting the smell of cheese down corridors or administering shocks, however, retailers instead often prey upon the consumer in a (usually) more subtle way: exploiting cognitive biases.

Cognitive biases are patterns of deviation in judgment occurring in specific contexts or situations. They’re near universal quirks of the human rational thought-process triggered by memory, perception and emotion. Now, a retailer might find emotionally salient influence difficult to consistently achieve. Similarly, hitting the right notes of nostalgia without becoming kitsch is very hit-or-miss in such a context sensitive environment. Luckily (for them), however, the retailer can usually hang their hat on the consistent failure of consumers to process numbers or have a cogent dialogue between their hunter-gatherer instincts and their wallet.

An arrow both manufacturers and retailers frequently pull from their quiver is the focusing effect, or Anchoring. This is the human tendency to rely too heavily, or “focus,” on one trait, symbol/word or piece of information when making purchasing decisions.

What this means for Best Buy is that they can slap HD on anything and the consumer will assume it’s a superior product, making the Blue Shirts quest to upsell that much easier. This bias is also the reason that your friend dropped $100 on Monster Cables HDMI cables instead of the $10 regular brand HDMI cables, even though they are the exact same product. Sure, logic would dictate that, because it is a digital cable acting as a conduit for 1’s and 0’s, conductivity and bandwidth don’t really mean anything, either it works or it doesn’t – but because your friend’s brain registers the “HD” designation on the packaging and the plus is shinier, it must be better.

You can also see this at work in the grocery store. Sales of organic food have skyrocketed. Never mind that the USDA and FDA’s classification for “natural” and “organic” are tenuous at best, the word “organic” symbolizes pure, healthy and better. A simple sticker can immediately trigger this response in the consumer’s mind: “No wormy, pesticide-ridden peasant produce for my family, by God, as a loving parent I’m committed to providing the healthiest safest food I can.” One word will illicit all of that, whether it’s grounded and rational or not.

[At this point I will just type the word “3D.” You know what I’m talking about and you know exactly what just popped into your head when you read that particularly nasty little word. I’m not going to go into it. The millions of dollars we as a nation have pumped into the studio and electronic company coffers for a gimmick and a shitty visual product is just astounding. We just keep chasing that first Avatar high, don’t we? Moving on…]

Another brain-glitch that retailers frequently profit from is Irrational Escalation, essentially the phenomenon where people justify increased investment in a decision, based on a prior investment or cumulative prior investment, even if that decision was a mistake. This is the logical fallacy that leads shoppers to spend an extra $80+ in warrantees on that treadmill they might use, because, hey, they spent that $300 for this nice hamster wheel why not insure it against damage for six months. This fallacy is also responsible for service plans, my father spending $300 to fix the A/C on a car worth $750, it’s why Mila Kunis stayed with Macauly Culkin so long, and explains my purchase of a ticket to Star Wars: Episode III (damn it). This also leads to post-purchase rationalization, where we convince ourselves that we made the financially smart decision, even though we know deep-down that we’re an idiot.

Finally, the third most-exploited (and most-evil) cognitive bias by retailers has to be Hyperbolic Discounting, the tendency for people to prefer more immediate payoffs relative to later payoffs, where the tendency increases the closer to the present both payoffs are. This makes sense from an evolutionary standpoint; that dead deer probably wouldn’t be very tasty in 100 days and “compound interest” is mutually exclusive to a society whose technological hallmark is flint knapping.

Where do we find this in the retail environment? I’ll tell you after you finish signing up for that J.Crew credit card with the first-time use 20% discount. Moral hazards and Lemons be damned, you would literally just die without that pashmina pink scarf for your chihuaha, Snickers. We want what we want, and we want it right now. It’s like our wallets are quietly chanting suffrage slogans from our back pockets whenever that new version of the iPhone catches our eye. Bugs? What bugs? Luckily the Apple Store also sells Apple service plans and warrantees, right?

There are at least 30 decision-making cognitive biases that play right into retailers’ hands. It’s just that easy to manipulate consumers, or to set consumers up to manipulate themselves.

By Matt Cloud

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