I teach a course on consumer irrationality and market failure at the Fuqua School of Business. I open up one of my lectures with a brief video demonstration of what psychologists call “the McGurk effect.” (See an example here.) In the video, a man makes the sound “ba ba ba.” About half of my students invariably identify the sound accurately. But the other half? They swear on their mothers’ graves that he said “fa fa fa.”
Why such strong disagreement? Because that latter half of my class listened to the videos with their eyes wide open, and their eyes told their ears what to hear. You see, the people who made the video spliced in the sound of the man saying “ba, ba, ba” over a video of him saying “fa fa fa.” Confronted with this inconsistent sensory evidence, these students’ brains tried to come up with a coherent picture of the world. As a result, they mistakenly believed the man was saying something he wasn’t saying.
I show this video to my students as a way of illustrating an important point about the way markets work – people who understand the human brain are in a position to manipulate other people. As I show in my book Free Market Madness, such manipulations can influence consumer behavior, causing people to buy what they otherwise wouldn’t buy, eat what they otherwise wouldn’t eat, and spend what they cannot afford to spend. Indeed, an increasing number of companies are employing behavioral scientists to help them sell consumer products.
This isn’t necessarily a bad thing. If companies never sold their products, we wouldn’t have a functioning economy. But the influence of behavioral scientists on the marketplace isn’t always a good thing either. It means that free markets – where informed consumers freely decide what products to purchase – may not be as free as we think, because we consumers are influenced in ways outside of our awareness. We sometimes make purchases that go against our best interests, because clever companies have figured out ways to nudge the wallets out of our pockets. We enter the supermarket with a shopping list, and invariably purchase additional items on impulse, often less healthy foods—in part because the supermarket designers know what foods to place in which locations to spur on such purchases. We pay off the “minimum balance” on our credit cards, unaware that this minimum balance will not come close to helping us pay off our debts in a reasonable time frame—in part, because the credit card companies have studies how we will respond to phrases like “minimum payment.”
There is a lot more I could write about this topic. But in the spirit of brevity, I want to leave you with a simple word of caution:
Your next purchase might not be decided upon as freely as you think!
**Previously posted on Forbes**