Why are business psychology insights relevant in marketing? Business psychology has arrived in the German-speaking world since the beginning of the 20th century and offers insights into human behavior and social relationships in an economic context. In an article in the SZ, 184 cognitive effects, biases and heuristics were summarized in this regard. The problem: with such psychological insights, the world seems at once more understandable and yet significantly more complicated. Keeping an overview and sorting out one’s own behavior is not so easy – but does it have to be done at all?
Biases and fallacies that we encounter more frequently in everyday life are, for example, the hindsight bias or the fundamental attribution error. Hindsight bias is about overestimating the occurrence of an event in retrospect, when the outcome is already clear. An obvious example is the prediction of the price development of stocks. When you look at the share price, it seems very predictable, but in reality it is not. In Fundamental Attribution Error, we overestimate personality traits in others and underestimate situational influences. However, when it comes to evaluating the same behavior in ourselves, the judgment is exactly the opposite. If someone is unpunctual, it is seen as a character trait of this person. If, however, we are unpunctual, it is due, for example, to traffic jams or some other situation-related reason.
Effects and biases affect all of our lives. For although our brains give us each a distinct identity and personality, the heuristics, biases, errors, and dilemmas are present in all of us – whether we are aware of them or not. Cognitive biases, then, influence personal and business decisions. Since marketing is much about influencing buying behavior and communicating and perceiving brands, a look into the human brain should not be underestimated in order to bring more successful marketing concepts to market.
System 1 vs. System 2
To get an initial understanding of how the brain works, it helps to take a look at the book Thinking, Fast and Slow by psychologist Daniel Kahneman. Here, the Nobel Prize winner describes the division of the brain into System 1 and System 2. System 1 is the automatic, fast system by which everyday decisions are made unconsciously. In contrast, system 2 functions in our full consciousness and is active when it comes to complex decisions and processes. Another important aspect is that these two systems do not act in isolation from each other, but influence each other. Actively made decisions of system 2 influence how our system 1 perceives the world and vice versa. Many purchase decisions, especially in the B2C area, are made via system 1 and are therefore, more than we would like and even think, influenced by heuristics and unconscious, automatic and rather irrational decisions. In the B2B area, the groupthink phenomenon as well as possible company and own career interests are added, which lead to irrational decisions.
System 1 makes our lives much easier. It takes the path of least resistance, and this does not immediately represent a problem or should be seen as such. Because with all the information available in the digital world, analysis paralysis would otherwise strike before a decision is made. In this case, no decision can be made because the analysis of the situation slows down or completely stops the decision-making process. Planned targeting at this point can be correspondingly effective. Potential customers can be convinced to make a purchase or existing customer relationships can be strengthened. The decision is thus taken away from them, since System 1 can start at this point instead of System 2.
Effective marketing through the attribution of cognitive effects
In order to optimize (digital) marketing measures, it can be helpful to know about cognitive effects such as the decoy effect, the anchor effect or loss aversion. These can be used to convince people of the merits of one’s own products or services. Nevertheless, cognitive biases should be treated with caution. For example, loss aversion is not equally pronounced in everyone and is context-dependent (Moderating Loss Aversion, K. Mrkva et al., 2020).
So if you want to work with the psychological effects and biases in the field of digital marketing, it also makes sense to check the effect by collecting and evaluating data. In the digital field, this is quite easy to implement through A/B testing.
Because no matter how, our brain likes to play tricks on us. No one can be free of this and claim to act more objectively than the others. Unless the decision is made based on studies and statistics – because then decisions are made with system 2.
To come back to the question posed at the beginning: is it necessary to keep track of which cognitive distortion is currently at work and how it influences one’s own or others’ decisions? In this regard, psychologist Gerd Gigerenzer has voiced the criticism of trying to explain everything with cognitive distortions. Whether an effect is actually present or whether it is merely a random error rather than a systematic one is often difficult to say. This is because it is not necessarily a matter of recognizing everything as an error; rather, the fact is that humans are not rational beings. So there are decisions that are based on cognitive biases. Likewise, there are decisions that are made based on cognitive intelligence.
Conclusion
In summary, whether in personal or business life, it makes sense to deal with heuristics and biases of the brain. Because to recognize,
when, for example, we put our money into our mental accounts (mental accounting),
when we only acknowledge the facts that support our own opinion (confirmation bias) or
when we prefer the group to which we feel we belong (ingroup bias),
can help to rethink the interaction with people and to understand more precisely. It also supports openness and understanding towards other people. Through such psychological insights, we can not only question and better understand our own behavior, but also in marketing the buying behavior of customers. The better people and their decisions are understood, the more meaningful and authentic marketing measures can be designed. And customers and companies benefit from this in equal measure.
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