Behavioral economics challenges a fundamental assumption of mainstream economics. For decades, economists have assumed that people make economic decisions rationally. The traditional view says that people weigh the economic costs and benefits of proposed actions, have relatively stable preferences, and usually act to maximize their economic self interest. Behavioral economics holds that people don't always make rational economic choices because they unconsciously use heuristics (mental shortcuts) that produce several cognitive biases.
In his landmark book Thinking, Fast and Slow, psychologist Daniel Kahneman - whose research with fellow psychologist Amos Tversky laid the foundation for behavioral economics - argues that heuristics and biases originate in the ways we think and learn. Kahneman says that the cognitive processes used by humans can be thought of as two "systems."
- System 1 (fast thinking) operates automatically, quickly, with little or no effort, and with no sense of voluntary control.
- System 2 (slow thinking) consists of thinking processes that are reflective, controlled, deliberative, and analytical.
According to Kahneman, when we think of ourselves, we identify with System 2, our rational self, but System 1 actually originates many of the impressions and feelings that are the sources of the explicit beliefs and deliberative choices of System 2.
Kahneman puts it this way: "System 1 continuously generates suggestions for System 2: impressions, intuitions, and feelings. If endorsed by System 2, impressions and intuitions turn into beliefs, and impulses turn into voluntary actions. When all goes smoothly, which is most of the time, System 2 adopts the suggestions of System 1 with little or no modification."
Therefore, System 1 exerts a powerful influence on the economic decisions we make, including decisions about the purchase of products or services.
System 1 thinking is valuable and, in fact, essential to our well-being. We live in a world that is both complex and rapidly changing, and we don't have the time, energy, or information processing capacity to consciously and deliberately analyze every event or circumstance that we encounter. If we didn't have a mechanism for thinking fast, automatically, and effortlessly, we simply couldn't function effectively. The good news is, System 1 is generally good at what it does - the "suggestions" that it makes to System 2 are usually accurate and appropriate.
However, System 1 also has biases. It tends to make systematic and predictable logical errors in certain circumstances. In Thinking, Fast and Slow, Kahneman identified 22 characteristics of System 1 thinking that can contribute to biased decision making. All of these characteristics are important for marketers, but some of them are particularly relevant for creating engaging and persuasive content. For example, System 1:
- Links a sense of cognitive ease to illusions of truth - if something is familiar and easy to understand, we are more likely to believe it is true
- Responds more strongly to losses than to gains, which makes framing content messages the right way particularly important
- Infers and exaggerates consistency (the halo effect)
- Sometimes substitutes an easier question for a difficult one
In upcoming posts, I'll discuss how marketers can use these characteristics of human thinking to make marketing content more compelling.