After Midterm

Product Centric

Maximizing profit through volume and cost reductions, and competitive advantage through product expertise

Customer Centricity

focusing on appeasing customers rather than C-Suite & using data about customers to maximise profit

Social Norms

"If everyone else is doing something, I should do it too" - Facebook: show people others are voting will encourage more to vote

Class 20: How to become a behavioral scientist

(come back)

Purpose of Libertarian Paternalism

(nudge) Idea is to make beneficial choices simpler or more default, thus ;'nudging' people towards them, while still maintaining their right to choose alternative paths for instance, automatically enrolling employees in a pension plan but allowing them the option to opt out

Nudge

- An intervention targeting people's choices / decisions - Designed to alter decisions in a predictable way - Cannot forbid any options or significantly change economic incentives(i.e., the nudge should be cheap and easy to avoid) - A nudge should alter behavior of humans but be ignored by 'econs'(rational agents) ex) placing healthier food options at eye level in the cafeteria

MEALS (acronym)

- Mental Accounting - Endowment Effect - Anchoring - Loss Aversion - Status Quo Bias (aka Default Effects)

Nudge Examples

- Speed camera lottery: rewards those who obey the speed limit with th efeed paid by those who violated it - Reducing cig litter on the streets (best soccer player) ( Ballot Bins) - Plastic bag tax - smaller plates = less food - 3D child on the road to improve safety - piano stairs encourage movement

The United States is more collectivist than individualistic. True False

False

Maggie King

Leader in Customer Insights and Anthropology - Senior manager at Danone - CU Alumni - focusing on strategy & insights - set up Narrative Insights

LTV

Lifetime value - average of all existing customers lifetime value

Which Hofstede Cultural Dimension has the most to do with the concept of Nurture? A) High Individualism B) Low Masculinity C) Low Power Distance D) High Uncertainty avoidance

Low masculinity

What is a common mistake that companies make regarding CLV?

Only focusing on CAC and disregarding the importance of maintaining strong customer relations

Choice Architecture

Organizing contexts for better decision-making in health, wealth, and happiness.

Human Capital View (Tylers)

People are actually learning something in college, increasing their productivity

Defaults: Status Quo Bias

People prefer whatever they are defaulted to & are resistant to movements from that ex) organ donors (opt in; opt out)

Authority

People tend to obey authority figures or those who appear to have expertise or knowledge. Example: A dentist's recommendation for a particular brand of toothpaste.

Scarcity

Perceived scarcity will generate demand, as people perceive items as more valuable when they are less available. Example: Limited-time offers or exclusive deals that create a sense of urgency to buy before the item runs out.

Customer Lifetime Value

Prediction of the net profit attributed to the entire future relationship with a customer Customer value/how much they spend per year * lifetime - initial costs

Frequency

Total number of order/ total number of unique customers

T or F? The origin of the word 'sheepskin effect' can be traced back to the fact that sheepskin diplomas became an easy way for scholars to travel with their credentials?

True

T/F A free sample when you walk into a candy shop and then feeling the need to purchase candy, could be an example of reciprocity.

True

T/F The concept of "asking for a small request and if you agree, you're more likely to comply with a larger request" is called the Foot in the Door Technique.

True

Dan Berry

UK behavioral insights team in department of health - Project: increase medication endurance - Job: Hills and Norton director of behavioral science - works on challenges like road safety, how to get patients to take their medication - Client: drug company that makes cure for helpatitis C

what do principles of persuasion do?

make us say yes - shortcuts or rules of thumb to guide decision making

P-Hacking

manipulating data or analyses to artificially get significant p-values identified by R.A. Fisher also known as cherry picking

To calculate P-value we look at the:

null hypothesis: the idea that there's no effect

Commitment

people want their beliefs/behavior to be consistent with their values Foot-in-the-door: ask for a small favor and once someone has committed to that, ask for a related large favor Low-balling: omitting unpleasant aspects until after a commitment has been madeExample: If a customer verbally commits to an appointment, they're more likely to keep it.

Injunctive norms

perception of what ought to be - unwritten rules that guide social interaction and are often enforced through social rewards and punishments - example: one shouldn't litter in public

According to Bryan Caplan, author of The Case Against Education, which year of school matters the most?

Senior Year

Sheepskin Effect

Economic phenomenon observing that people who completed an academic degree earn a greater income than people who have an equivalent amount of studying without processing an academic degree - the greater an individuals educational attainment, the lower the unemployment rate

UK tax data example

- had a letter saying please pay taxes - changed the first line of the letter to employ social norms: told people how many other people payed their taxes on time

Limitations of Hofstede's Cultural Dimensions

- methodology of the original research. The survey it was based on was limited to the employees of IBM, with responses from sales and marketing employees only - the world has changed since creating it

ways to "terminate" a customer

- reduce services to unprofitable customers - charge fees for costly services - educate customers to use less costly service channels

whats causing replicability crisis?

- unscrupulous researchers: researchers that are more concerned with attention than good science - don't fully understand P Values

The Endowment Effect

Emotional bias that casues individuals to value an owned object higher, often irrationally, than its market value - "ownership" and "loss aversion" as the two main psychological reasons causing the endowment effect ex) CU ticket exchange

6 Principles of Persuasion

1. Reciprocity 2. Commitment/consistency 3. Social Proof 4. Liking 5. Authority 6. Scarcity CLASSR

What was the most recent Cultural Dimension Hofstede added? indulgence versus self-restraint Individualism-collectivism Long-term orientation Vs Short-term Orientation Masculinity-femininity

indulgence versus self-restraint

customer lifetime period

1/ churn rate

Liking

3 important factors: we like people who are similar to us, who complement us, who cooperate with us Example: A salesperson finding common ground with a potential client during a conversation to build rapport and increase the chance of a sale.

Availability Heuristic

A psychological process where people judge the

How can we determine legitimate studies from non-legitimate ones?

A small study, a small sample, a great ability to be flexible with research and design, and the greater financial interests involved are all be indicators that a study might have been p-hacked

Libertarian Paternalism (type of choice architects)

Answers:Is it ok to nudge? **Libertarian Paternalism**: Subtly influencing behavior without limiting freedom of choice. (Paternalism to help people) (libertarian nudge doesn't force/ coerce) coined by: Richard Thaler

AVO

Average - total sales rev / total number of orders

Which example from the in-class material demonstrates the effectiveness of a nudge in reducing cigarette litter? A. Placing no-smoking signs in public areas. B. Using 'Ballot Bins' for people to vote between Messi and Ronaldo with their cigarette butts. C. Banning smoking in certain outdoor locations. D. Offering financial rewards for collecting cigarette litter.

B. Using 'Ballot Bins' for people to vote between Messi and Ronaldo with their cigarette butts.

Robert Cialdini

Book: "Influence: They Psychology of Persuasion" 'Weapons of Influence': - turquoise jewelry - mother turkey (cheep-cheep)

Signalling View (Alex view

By going to college, people are sending to the job market that they have higher IQ or have greater ability. But if they didn't send that signal, their income would be much lower, so you have to send that signal to get the higher income.

In the context of 'Nudges', what role does a 'Choice Architect' play? A. Designs strict policies for behavior control. B. Provides multiple choices with equal prominence. C. Influences decision-making by organizing the environment. D. Teaches individuals how to make better choices.

C. Influences decision-making by organizing the environment.

Strategies for self-control

Clocky: An alarm clock that moves away if you don't wake up, preventing continuous snoozing. Casino Bans: Allowance for gambling addicts to voluntarily ban themselves from casinos. Non-Interest Bearing Savings: Accounts designed to encourage saving, even if they come with downsides like low returns and reduced liquidity. Mental Accounting: Assigning specific monetary amounts to particular needs or categories, helping reduce spontaneous spending.

Brian Wansink

Cornell professor who had 15 of his studies retracted after he revealed his p-hacking practices

Richard Thaler & Sunstein

Created Nudge - Richard book: 'Nudge' learnings under

Dana Carney

Cuddy's co-author who later admitted that the results had been p-hacked

What is culture?

Culture is the characteristics of a particular group of people that differentiate it from other groups

Social norms are more effective when they are in a group that Pertains to your identity Is close to you Is cooler than you A and B

D

Sandra Matz

David W. Zalaznick Associate Professor of Business Columbia Business School

Dan Berry

Director of Behavioral Science Hill & Knowlton

Dan Bennett

Director of Behvairoal Science Consulting Ogilvy

Keith O'Brien (Interview)

Global Behavioral Insight Lead Simply Business Went to University College of London works primarily in product design

Francesca Gino

Harvard professor who was recently exposed for making up data in her experiments

What is a common limitation of calculating CLV?

Having data stored in multiple databases

How did Brian's studies get revealed for p-hacking?

He accidentally revealed himself through his blog

Human capital

Is the stock of habits, skills, knowledge and attributes embodied in the ability to perform labor so as to produce economic value.

How does political orientation influence consumer behavior?

Study done using Supermarket scanner data to determine facts about consumer behavior and political influence Liberals are more likely to boycott a brand that does not align with their political views Conservatives are more hesitant to try new products because they prefer the status quo

Which of the following best describes the 'sheepskin effect'. The tendency for wool prices to increase during times of economic inflation. The Increased earning potential for individuals who complete levels of higher education compared to those with equivalent years of education but no degree. The impact of rural agricultural policies on the national economy. The phenomenon where investment in technology leads to a decrease in manual labor jobs in the agricultural sector.

The Increased earning potential for individuals who complete levels of higher education compared to those with equivalent years of education but no degree.

Behavioral Science

The study of how people, feel, and act in different situations

can use CLV to

You'll know how much to spend on acquisition (should be lower than CLV). Can help you determine which customers will be VIPS (can find top 5%) Find weak points Plan advertising budget Measure ad performance

Social Proof

also known as social norms"if everyone is doing something, I should too" Injunctive norms: what people ought to do Descriptive norms: what people are doing Examples in class: OPower showed your usage compared to the usage of others.

Geert Hofstede

cultural dimensions theory is a framework for understanding cultural differencesHofte

CAC

customer acquisition costs Total marketing + sales expenses / # of new customers. Can get more complicated, you always want your customer lifetime value to exceed your CAC

CRR

customer retention rate Number of customers at the end of period -number of customer acquires during the period / number of customers at the start * 100 Should divide customers into groups to make more accurate

Article "behavioural economics, consumer behaviour and consumer policy: state of the art" by Reisch & Zhao

discuss: - status quo bias - anchoring effect - endowment effect - sunk-cost effect - availability heuristics - the power of simplicity challenges the assumption that individuals are always rational and seek to maximize their utility

orientations: horizontal & vertical vertical

emphasizing hierarchy and status

Reciprocity

feeling the need to give back example: A restaurant offers free bread before a meal, prompting diners to leave a larger tip

fixed-action patterns

genetically based behaviors, seen across a species, that can be set off by a specific stimulus

Mental Accounting

how we tend to assign subjective value to our money, usually in ways that violate basic economic principle - girl math (give money mental labels) - money is fungible: each unit is interchangeable and indistinguishable (doesnt change)

Richard Thaler

identified mental accounting

Amy Cuddy

power posing

Descriptive norms

refers to the perception of what is - what people actually do in specific situations - simply describe what most people do without assigning a judgement of whether its correct or not example: if someone sees that most of their colleagues take a short coffee break in the afternoon, they might start to take a coffee break, perceiving it as a normal behavior

Replicability crisis

researchers have found it difficult to replicate or reproduce the results of previous studies. This crisis has significant implications for the credibility and reliability of scientific research

Chicago Heights study

school districts and teacher's salaries where they were trying to motivate teachers to increase students test scores. They found they gave teachers money at the beginning of the year and then telling them they would take it away if students did poorly resulted in a 10% increase in test scores.

Opower example

showed your usage compared to the usage of others. They realized that people were adapting both ways (boomerang effect) to this (increasing usage if they were below average and decreasing if they were above average), so they started showing that being below average in usage was a good thing with a smiley face as an injunctive norm.

Foot in the door technique

small request and if you agree, you're more likely to comply with a larger request - Jonathan Friedman and Scott Frasier tested it

Hofstede defines culture as

the collective programming of the mind which distinguishes the members of one group or society from those of another

The Power of Simplicity

the effectiveness of reducing complexity to focus on fundamental principles and clear objectives. It involves channeling resources and efforts towards a single goal, cutting through distractions and complications.

Churn Rate

the number of customers who stop doing business with a company during a given period. (# of customers at end of time period - # of customers at the beg of the time period) / # of customers at beginning of time period

Anchoring

the tendency, in making judgments, to rely on the first piece of information encountered or information that comes most quickly to mind

Sunk-Cost Effect

the willingness to do something because of money or effort already spent - continue going to core power even though I don't enjoy it

The formula for CLV is

there is no one formula

orientations: horizontal & vertical horizontal

valuing equality

Indiviualism and collectivism individualism

view themselves as independent of others and tend to prioritize personal goals over in-group goals

Indiviualism and collectivism Collectivism

view themselves as socially embedded with others and generally prioritizing in-group goals over personal goals

Loss Aversion

we emphasize losses more than gains Daniel Kahneman