Associative learning

The following extract is taken from ‘Decoded, The Science Behind Why We Buy’, by Phil Barden.

“What does the brain, or more specifically the autopilot, do with all the input it receives? It’s used for learning. But the way the autopilot learns is different to what we normally think of when we think of learning. This learning is not like the way we learn is school, rather it is based on what is called associative learning. Let’s look at an example.

The first time we hear the word ‘No’ it is just some phonetic pattern, a sound. But we recognise that the voice becomes louder and Mum’s face looks different the second time she says it. Some minutes later the word ‘No’ is accompanied by her taking something away from us. After a while relearn the meaning of the word ‘No’. This implicit learning is completely different to how we learn a foreign language in school. If we are walking down the street with our mother and there is a group of rough-looking youths in front of us, we experience our mother holding our hand more tightly and she starts to distance ourselves from them, and perhaps walks quicker. The next day she acts similarly, but this time not because of a gang of youths but because of a dog. This time she says, ‘Watch out for the dog, it might bite you.’ What we learn is that when there is some danger, our hand is held more tightly. And consequently, we learn that the youths are also associated with danger.”

Our brains form connections between signals when they occur together. Over time these are repeated and the connection is reinforced. What fires together, wires together.

Hyperbolic discounting

From Decoded, by Phil Barden.

“Getting ill in 20 years is not as threatening as having a headache tomorrow. We usually prefer smaller, more immediate payoffs to larger, more distant ones. The offer of £100 today maybe preferred to the promise of one of £120 next year. Behavioural economists refer to this as ‘hyperbolic discounting’: we have a very high discount rate for the future compared with the here and now. This is why we discount the future very heavily when sacrifices are acquired in the present, such as stopping smoking or exercising more often. We recognise this from our own experience: we all know that we should adopt a healthier lifestyle in order to prevent illness in the future, but this consequence is not currently perceivable to us and this allows us to opt for the cigarette and the better because their value is available to us right now. This future discounting is the reason why we tend to spend more when using credit cards – the pain of paying is deferred to some future moment.”

Simply put, the more distant a gain is the more we discount its value.

Channel Capacity

In ‘The Tipping Point’, author Malcolm Gladwell introduces the concept of Channel Capacity.

“There is a concept in cognitive psychology called the channel capacity, which refers to the amount of space in our brain for certain kinds of information.”

You’d be forgiven for thinking that “the amount of space in our brain for certain kinds of information” is a vague and noncommittal definition. In typical Gladwell style, he uses simple language to introduce an idea before employing more engaging storytelling techniques to expand upon it.

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Cortical relief and the first-choice brand effect

The following excerpt is taken from the excellent ‘Decoded: The Science Behind Why We Buy’ by Phil Barden:

“In a study into the neural bases of decision making, German neuroeconomist `Professor Peter Kenning and his associates looked at brain scans of people who had been shown photographs of pairs of brands. These photos either included the person’s stated favourite brand or did not. Every time they were shown one of the photographs, each person was told to choose a brand to buy. There were two main findings. First, when a favourite brand was included, the brain areas activated were different to when two non-favourite brands were exposed. When the favourite brand was present the choice was made instantly and, correspondingly, the brain showed significantly less activity in areas involved in reflective thinking, an effect the scientists named ‘cortical relief’. Instead, brain regions involved in intuitive decision making were activated (in particular the so-called ventro-medial prefrontal cortex in the frontal lobe). In other words, strong brands have a real effect in the brain, and this effect is to enable intuitive and rapid decision making without thinking.

Secondly, this cortical relief effect occurs only for the respondent’s number one brand – even the brand ranked second does not trigger this intuitive decision making. The scientists call this the ‘first-choice brand effect’. One target we set as marketers is to be in our target consumer’s relevant, or consideration, set. This research indicates that the optimal target is to maximise the number of consumers for whom we are the number one brand – being in the relevant set is not sufficient to enable this intuitive decision making and, of course, no revenue is earned by the brand that was nearly bought!”

Goal dilution

In 2007, Ying Zhang and Ayelet Fishbach published ‘The Dilution Model: How Additional Goals Undermine the Perceived Instrumentality of a Shared Path’.

The paper outlined the ‘goal dilution’ concept. From the paper:

“The authors found that an increase in the number of simultaneous, salient goals that can be satisfied via a single means weakens the associative strength between that means and each individual goal, and as a result, individuals perceive the means as less effective for the attainment of each goal. Consequently, means that are connected to multiple (vs. single) goals are less likely to be chosen and pursued when only one of these goals is activated.”

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Loss aversion

In Priceless, a book studying the hidden psychology of value, William Poundstone provides a concise definition of loss aversion:

“Losing money (anything of value) hurts more than gaining that same thing delights.”

In ‘Decoded‘, the marketer Phil Barden provides a similarly eloquent definition:

“We dislike loses more than we like gains of an equivalent amount.”

Poundstone goes on to illustrate how much more we dislike losses:

“You can demonstrate loss of version by offering a bet on a coin toss. Tales you lose £100, and heads you win X. How big does X have to be for you to take the bet?

Surveys show that few want to accept a ‘fair’ bet, that’s with X = £100. Few accept X = £110, which offers a nice expected profit. (Those who do accept at this price tend to be gamblers, arbitrageurs, or economists.) The average person requires roughly a £200 price to balance the prospect of an equally probable £100 loss.”

Barden then goes on to take a closer look at loss aversion’s relevance to marketing.

In order to encourage people to buy a product we often communicate a call to action, in which it is common to focus on telling consumers how much they can save. As this reduces the perceived pain, it works. However, the ‘how’ of the saving makes a difference. An energy company in the US found that when they communicated to their customers that switching to energy-saving mode would save (and therefore they would gain) $200 a year, it had very low take-up. However, when they changed the message to show that by not switching to energy-saving mode they would lose $200, there was an extremely positive response. The mechanism behind that is loss aversion.

Furthermore:

Loss aversion is one major barrier for people when it comes to switching brands or adopting innovations: the risk of losing something we value can be exceeded only by offering twice the value. We sometimes come across this in focus groups. Consumers talk positively about a new product or service, but when asked whether they want to exchange the product they currently use for the new one, they suddenly start to reject the new one in favor of what they have. Very often the point is not to get across the best possible value but to avoid the threat of incurring a loss or being disappointed.”

So, people place a higher value on a good that they own than on an identical good that they do not own.

If you’re mathematically minded, we can graph the value that Barden and Poundstone brought to life. It seems, if we receive ‘x’ in gains we experience ‘y’ of pleasure. That’s the blue rectangle below. However, if we lose ‘x’ we experience ‘2y’ of pain. That’s the grey rectangle below.

02 LossAversion