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Introduction to Behavioural Economics: What It Is and Why It Matters

This is a complete beginner’s guide to behavioural economics.

Here, you will learn exactly why behavioural economics matter and how you can capitalise on cognitive biases in your marketing.

Topics in this guide include:

  • What is behavioural economics and how it differs from neuromarketing
  • How cognitive biases impact decision-making
  • What are Cialdini’s Principles of Persuasion and how they can be used in marketing
  • The art of nudging and how small changes can lead to big behavioural shifts

So, if this sounds good, keep reading to learn all about behavioural economics.

Chapter 1: What is behavioural economics?

Well, it’s a fancy term that combines two fields: economics and psychology. 

Basically, it’s the study of how people make decisions, and how those decisions impact the economy. 

It takes into account the fact that people are not always rational beings, and that our emotions and biases can influence our decision-making process.

You might be wondering why this matters. 

Well, understanding how people make decisions can help businesses and policymakers make better choices. 

For example, a company might use behavioural economics to design a product that appeals to our emotional side, or a government might use it to create policies that encourage people to make healthier choices.

Behavioural Economics vs. Neuromarketing: What Every Marketer Needs to Know

If you’re a marketer, you’ve probably heard the terms “behavioural economics” and “neuromarketing” thrown around.

But what do these terms actually mean, and how do they differ? 

In this blog post, we’ll explore the similarities and differences between these two fields, and what they mean for your marketing strategies.

The Difference Between Behavioural Economics and Neuromarketing

So, what’s the difference between behavioural economics and neuromarketing? 

At a high level, behavioural economics is the study of how cognitive biases influence decision-making in general, while neuromarketing is the study of how these biases specifically apply to marketing.

Behavioural economists use a variety of tools to study decision-making, including surveys, experiments, and real-world observations. 

They are interested in how people make decisions in a wide range of contexts, from financial planning to healthcare to voting.

Neuromarketers, on the other hand, use tools like fMRI (functional magnetic resonance imaging) and EEG (electroencephalogram) to study the brain activity of consumers as they are exposed to marketing messages. 

They are interested in understanding which specific aspects of marketing are most effective, and how they can be optimized to drive consumer behaviour. 

We have an article dedicated to the subject of neuromarketing, which we will be publishing soon. We’ll update this article with a link to it when it’s live.

Chapter 2: The Role of Cognitive Biases in Decision Making

Let’s start with the basics. 

Both behavioural economics and neuromarketing are based on the idea that our decision-making processes are influenced by a variety of cognitive biases. 

These biases are essentially shortcuts that our brains take in order to process information more efficiently. 

They can be incredibly useful, but they can also lead us to make irrational decisions.

Some examples of cognitive biases include:

  • Confirmation bias: the tendency to seek out information that confirms our pre-existing beliefs
  • Anchoring bias: the tendency to rely too heavily on the first piece of information we receive when making a decision
  • Availability bias: the tendency to overestimate the importance of information that is readily available to us

Understanding these biases is crucial for marketers, as it can help us to create more effective messaging and strategies.

21 Common Cognitive Biases That Affect Buying Decisions

While there are countless cognitive biases that can influence decision-making, there are a few that are particularly relevant to marketing. 

Here are 21 common biases that can affect buying decisions:

  1. Confirmation bias: The tendency to look for and interpret information in a way that confirms pre-existing beliefs.
  2. Anchoring bias: The tendency to rely too heavily on the first piece of information that is encountered when making decisions.
  3. Availability bias: The tendency to overestimate the likelihood of events that are easily recalled from memory.
  4. Bandwagon effect: The tendency to do or believe things because many other people do or believe the same.
  5. Choice-supportive bias: The tendency for people to retroactively justify their past choices and preferences and that their choices are the best ones even if there is evidence to the contrary.
  6. Decoy effect: People’s preferences between two options change when a third, less attractive option is introduced. This third option, or “decoy,” is designed to make one of the other options more appealing, thereby influencing people’s decision-making.
  7. Endowment effect: The tendency to value something more if you already own it. You would pay less for something than you would want another to pay you for the same thing.
  8. Framing effect: The way in which information is presented can influence the decisions people make.
  9. Halo effect: A bias in which people’s overall impression of a person or thing influences their evaluations of specific traits or qualities associated with that person or thing. A tendency to generalise from potentially just one positive trait or feature, an overall positive impression of the product or service.
  10. Herd behaviour: Obvious one! This refers to the tendency of people to follow the actions or beliefs of a larger group, often without fully considering the implications of their actions
  11. Loss aversion: The tendency to prefer avoiding losses over acquiring gains. This is stronger in some than others.
  12. Mere-exposure effect: A psychological phenomenon in which people tend to develop a preference for things that are familiar to them, simply as a result of repeated exposure.
  13. Negativity bias: The tendency to focus more on negative experiences and information than positive ones. Simply put, a customer will remember the one bad thing you did over the ten good things. But its not their fault. It’s how we’re built!
  14. Normalcy bias: This refers to the tendency for people to assume that things will continue to function in the future as they have in the past. This can lead people to be less receptive to contingency and forward planning (insurances they don’t have to have, for example).
  15. Self-serving bias: Very similar to choice-supportive bias. This is when someone accepts information that supports their thoughts, beliefs or interests. In other words, people tend to attribute positive events and outcomes to their own abilities and actions, while blaming negative events and outcomes on external factors or other people. It’s not me, its you!
  16. Status quo bias: When people prefer to maintain the current state of affairs, even when better alternatives exist. When a customer can get cheaper energy, but stick with British Gas! When they can get faster broadband cheaper, but they know their providers tools.
  17. Hindsight Bias: The tendency to believe, after an event has occurred, that you could have predicted or expected the outcome.
  18. Sunk Cost Fallacy: This is where you will continue investing time, money or resources into a project, even if it’s not working out, because of the investment already made.
  19. Recency Bias: This is where a person will give more weight to recent events or influences when making decisions. Football fans are often guilty of this one!
  20. The Dunning-Kruger Effect: The tendency for unskilled individuals to overestimate their own abilities, while skilled individuals tend to underestimate their abilities.
  21. The Curse of Knowledge: The difficulty in imagining what it’s like not to know something you already know. This can influence how you choose to explain a product or service to the customer. Otherwise known as taking things for granted! As a marketer, it’s important to be aware of these biases and how they can impact consumer behaviour. By understanding how and why consumers make decisions, we can create more effective campaigns that speak directly to their needs and desires.

Chapter 3: Who is Cialdini? An Introduction to His Principles of Persuasion

One of the most influential thinkers in the field of behavioural economics is Dr. Robert Cialdini. 

Cialdini’s book “Influence: The Psychology of Persuasion” is a classic in the field, and his principles of persuasion are widely used by marketers to this day.

Cialdini’s principles of persuasion include:

  1. Reciprocity: the idea that people are more likely to give back when they’ve received something of value.
  2. Scarcity: the idea that people value things more when they perceive them to be scarce or rare.
  3. Authority: the idea that people are more likely to trust and follow the advice of experts.
  4. Consistency: the idea that people like to behave in ways that are consistent with their beliefs and values.
  5. Liking: the idea that people are more likely to say “yes” to those they like.
  6. Social proof: the idea that people are more likely to follow the lead of others in similar situations.

Understanding these principles can help you to craft more effective marketing messages that are more likely to resonate with your target audience.

How Cialdini’s Principles of Persuasion Can Be Used in Marketing

1. Reciprocity

This principle states that people feel a sense of obligation to repay others when they receive something. 

In marketing, companies can use this principle by offering free samples, trials, or gifts to their customers. 

For example, a cosmetics brand may offer a free sample of their new moisturiser to customers who sign up for their newsletter. 

By giving customers something for free, the brand creates a sense of obligation, and customers may be more likely to make a purchase in the future.

2. Social Proof

This principle states that people are more likely to take action if they see others doing the same. 

In marketing, companies can use social proof by highlighting positive reviews, testimonials, or user-generated content. 

For example, an online retailer may feature customer reviews on their product pages. 

By showing potential customers that others have had a positive experience with the product, the retailer can increase the likelihood of a purchase.

3. Authority

This principle states that people are more likely to follow the lead of someone who is an expert in their field.

 In marketing, companies can use authority by featuring endorsements from experts, professionals, or celebrities. 

For example, a sports brand may feature an endorsement from a professional athlete on their website. 

By showing that the product is used and trusted by an authority figure, the brand can increase its credibility and influence customer behaviour.

4. Consistency

This principle states that people are more likely to follow through on a commitment if they have made a public or written commitment to it. 

In marketing, companies can use consistency by getting customers to commit to small actions that lead to a larger goal. 

For example, a fitness brand may ask customers to sign up for a free trial of their online fitness program. 

By taking this small action, customers are more likely to continue with the program and make a purchase.

5. Liking

This principle states that people are more likely to be persuaded by people they like or find attractive. 

In marketing, companies can use liking by featuring attractive models, friendly salespeople, or relatable brand ambassadors. 

For example, a fashion brand may feature a popular influencer on their social media channels. 

By using someone who is likeable and relatable, the brand can increase its appeal and influence customer behaviour.

6. Scarcity

This principle states that people are more motivated by the thought of losing something than gaining something. 

In marketing, companies can use scarcity by emphasising limited-time offers, limited stock, or exclusive deals. 

For example, an airline may advertise a limited-time sale on tickets.

By creating a sense of urgency and scarcity, the airline can motivate customers to make a purchase quickly.

Understanding and utilising these principles of persuasion can help companies create more effective marketing campaigns and increase their influence over customer behaviour. 

However, it’s important to use these principles ethically and responsibly to avoid manipulating or deceiving customers.

Chapter 4: Nudging – How Small Changes Can Lead to Big Behavioural Shifts

Another key concept in behavioural economics is the idea of “nudging.” 

Nudging is the practice of using small, subtle changes to the environment to encourage certain behaviours. 

For example, placing healthier food options at eye level in a cafeteria is a nudge that can encourage people to make healthier choices.

Nudging can be a powerful tool for marketers, as it can be used to encourage customers to take certain actions without resorting to heavy-handed tactics. 

By making small changes to the way your product or service is presented, you can nudge consumers in the direction you want them to go.

Here are some examples of nudging being used effectively.

1. The Urinal Fly

Some public urinals have a small etched image of a fly inside the bowl. This small “nudge” has been shown to significantly reduce spillage and cleaning costs, as men subconsciously aim at the fly.

2. The Speed Bump Illusion

When drivers approach a sharp turn on a road, they tend to slow down. 

By painting a white line that mimics a speed bump on the road ahead of the turn, drivers slow down even more.

3. The Default Effect

People tend to stick with the default option when making decisions, even when other options are available. 

For example, when employers automatically enrol new employees into a retirement savings plan, the default option, employees are more likely to save for retirement.

4. The Green Footprints

In Amsterdam’s Schiphol airport, footprints were painted on the floor leading to the bins for recycling paper. 

This “nudge” increased the amount of paper recycled by 46%.

5. The Fruit Bowl

A study found that people ate more fruit when it was placed in a prominent, well-lit fruit bowl, as opposed to hidden in a drawer or cabinet.

6. The Piano Stairs

In Stockholm, the stairs at a subway station were turned into a giant piano. 

Each stair played a different note when stepped on. 

This “nudge” encouraged more people to take the stairs instead of the escalator.

7. The Smiley Face

In a school cafeteria, when a smiley face was placed on a fruit option and a frowny face on a less healthy option, students were more likely to choose the healthier option.

8. The Sneeze Guard

Buffet restaurants use sneeze guards to prevent the spread of germs.

However, research has shown that when plates are placed higher up, closer to the sneeze guard, people take less food because they feel they are being watched.

9. The Healthy Checkout

When healthier snack options were placed at eye level at the checkout of a convenience store, they were chosen more often than unhealthy snacks.

10. The Tax Return “Nudge”

In America, when the IRS included a line on tax forms encouraging people to put their refund into savings, more people chose to do so.

Nudging is a clever way to encourage people to make better choices without forcing them to do so. 

By using subtle cues and tweaks to the environment, we can make it easier for people to make healthier, more sustainable, and more responsible choices. 

So next time you’re looking to make a change in your own life, consider the power of the “nudge.”

It might be just the little push you need!

Applications of Behavioural Economics in the Real World: Examples and Case Studies

So, how can all of this theory be applied in the real world? Here are a few examples of how behavioural economics has been used to drive consumer behaviour:

  1. Using social proof to increase charitable donations: A study found that when people were told that the majority of their neighbours had donated to a charity, they were more likely to donate as well.
  2. Using default options to encourage savings: A study found that when employees were automatically enrolled in a savings plan at work, they were much more likely to continue saving than those who had to opt in.
  3. Using scarcity to drive sales: By limiting the number of items available for sale, companies can create a sense of urgency that can lead to increased sales.

The Impact of Emotions on Economic Decision Making

Finally, it’s important to understand the role that emotions play in economic decision-making. 

While we like to think of ourselves as rational, logical beings, the truth is that our emotions play a much larger role in our decision-making than we often realise.

For example, research has shown that people are more likely to make impulsive buying decisions when they are feeling sad or anxious. 

On the other hand, people are more likely to make thoughtful, deliberate decisions when they are feeling positive and relaxed.

As a marketer, it’s important to be aware of these emotional triggers and to use them to your advantage. 

By creating marketing messages that tap into the emotions of your target audience, you can create a deeper, more meaningful connection with them.

These are just a few examples of the many ways that behavioural economics can be applied in the real world. 

By understanding the principles of behavioural economics and how they can be used to drive consumer behaviour, marketers can create more effective campaigns that are more likely to resonate with their target audience.


In conclusion, understanding the role of cognitive biases in decision-making, the difference between behavioural economics and neuromarketing, and the principles of persuasion can all help marketers to create more effective campaigns that drive consumer behaviour.

By using tools like nudging, social proof, and emotional triggers, marketers can create deeper connections with their target audience and ultimately drive more sales.

So, the next time you’re building a marketing campaign, be sure to keep these concepts in mind! 

If you want to know more about how we can help you convert more on your website using the above, get in touch with Converted today!

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