How Do Biases Influence Our Spending?
Biases impact what we perceive and how we spend money.
Posted Jun 27, 2017
How can we be more mindful consumers? In the last two posts, we examined a few facets of this question by exploring some of the techniques marketers use to persuade us to spend. Now, in the final post of this three-part series on marketing and influence, we’re going to look inward at some of the all-too-human biases that can leave us open to these potent methods. These biases don’t exist because we’re just not smart or savvy enough. Everyone has biases of some kind, but it’s not always easy to accept that. It feels reassuring to think we’ve got our fingers on the pulse of reality. And oftentimes we do. We humans can be keen, discerning observers of life! All the same, biases can color our viewpoint in many instances. But thankfully, when we can acknowledge that we’re all susceptible to biases, we’re actually in a better position to shield ourselves against the subtle pull of sundry sales tactics.
As we roam through the world of biases, your mind may assure you, “Don’t worry! These don’t really apply to you!” while other people’s biases readily flit through your memory. Believe it or not, that itself is a bias, and we’ll look at it here in this post. Or perhaps you are willing to admit that you have your fair share of biases. If this is you, research reveals you’re still apt to miscalculate them, believing you hold less than you really do. And that’s OK. As we’ll see next, biases are linked to how our brains function.
Let’s start by looking at the bright side of biases. They stem from an exceedingly pragmatic brain, which has to process endless reams of information all day, every day. And you, my friend, have a full life to life. You don’t have time to painstakingly sift through everything you come across with equally attentive detail. So your brain has to make choices if it’s going to be efficient enough to allow you to do everything you need to do.
There are basically two ways your brain processes information. The first is called systematic processing. When your brain is in this mode, you’re paying attention. You’re thoughtfully, slowly, and studiously considering information, and you have the luxury to take your time. Just think of times when you felt mentally engaged and mindful, taking in what’s in front of you with an astute eye. Perhaps it was a work project, a news story, or a choice between two cars to buy. Sure, it takes more energy and time, but this is what’s required to get the job done.
But let’s say you lack knowledge that’s vital for you to prudently weigh the information at hand, or you’re exhausted or uninterested in what you’re hearing, or you have too little time to carefully reflect. In that case, your brain will switch gears and take the easy path, which brings us to the second kind of processing known as heuristic processing. When you’re in the heuristic mode, your brain relies on mental bypass routes that furnish you with the ability to make decisions quickly, and with less information. In essence, you’re dipping into a toolbox of simple guidelines and formulas to make choices, and you don’t need a lot of time, energy, alertness, effort, or knowledge to do it.
And we should thank our lucky stars that we’re endowed with both mental gears because we’d be totally dysfunctional otherwise. Imagine what would happen if you didn’t have the capacity to veer a little nearer to autopilot at times. You’d have to study all the laws and philosophically weigh whether you should follow each of them or not. You wouldn’t be able to simply rely on your doctor’s lifestyle recommendations and trust her advice. How does she really know what’s good for you, and why should you take her word for it? If you saw other people screaming and running from a building, you wouldn’t take that as a sign that you should follow their lead. After all, maybe you just need to check out the situation for yourself. Every encounter with people would require careful, lengthy deliberation about what their intentions are and what they’re trying to tell you. Patterns that emerge quickly for others would take you forever and a day to figure out. In other words, it just wouldn’t work!
However, because your brain’s heuristic processing is faster and works with less information, even though it’s immensely useful, errors are bound to happen. An example that always comes to mind involves a friend’s husband. He was in a hurry one night and decided to run to reach his destination. A woman walking alone saw him quickly approaching and ran away, presumably because she believed he was about to harm her. In that moment, all she had to go on was that she was alone at night with a stranger running directly toward her. Sure, he could be in a hurry, but he could also be an assailant. She didn’t have time to debate which was true, so her brain took the fast path and told her to run. But her swift judgment was incorrect–my friend’s husband is an immensely kind and gentle human being who would never hurt a soul. In fact, he felt terribly when he realized he frightened her.
And when it comes to what we buy, our brain takes these shortcuts, too. Sometimes these mental timesavers lend us a helping hand in making decisions, like when we take the word of our dentist who recommends a certain toothpaste. But heuristic processing can also sidetrack us, leading us to spend money in ways we probably wouldn’t if we were taking in the situation a little more mindfully. So what kinds of biases do people have, and how can they impact consumer choices?Let’s turn to that question next.
Biases of Our Brain
I’ll Take Whatever Is Available, Please
Certain memories just pop to mind easier than others, don’t they? If I asked you to write down a list of memories as quickly as you could without editing yourself in any way, the ones that emerge first are probably going to involve moments that a) happened close to the present time (e.g., the cereal you had for breakfast yesterday), b) were especially noteworthy and weighty (e.g., your wedding day), and c) stand out because they’re so uncommon (e.g., when you hiked into an ancient volcano). And with the availability heuristic, we’re apt to rely on memories that readily enter our mind when we’re trying to guesstimate how often a situation occurs or how likely it is to happen. This can lead to errors, such as:
Overestimating the odds that something will occur (e.g., a person who believes another plane crash is likely to occur in the immediate aftermath of one)
Seeing more of a relationship between two situations than is actually the case (e.g., someone who believes fender benders tend to happen on Mondays because his last two did)
Misjudging how common a circumstance is (e.g., a friend who believes that one-piece swim suits are all the rage because she easily remembers seeing a couple of them at a pool party the weekend before)
So how does the availability heuristic apply to marketing? We can find one example in pricing. If we repeatedly see ads highlighting a store's low-cost prices and we haven't really spent much time in that store before, we're more likely to remember those prices later and will view the store as a place with a lot of bargains. And marked down prices are certainly a draw for most of us!
Just Give Me What Feels Like the Usual
The representativeness heuristic can also lead us into erroneous waters. When we’re using this heuristic, we’re comparing a certain situation, person, or thing against our idea of what that situation, person, or thing is usually like.
At times, this heuristic serves us quite well. If the ground starts to shake underneath you and you’re in California (and many other places), you would do well to rapidly match that situation with your notion of an earthquake. If someone bursts into a bank with a ski mask and a gun, it’s a sound idea to quickly pair this person with your concept of a robber and behave accordingly. Where we stumble and fall flat is when we mistakenly assume that the general image we have in our head always matches the reality before us. I vividly remember the first time I felt the grating under my feet rumble as an underground train dashed beneath me in Boston. As a native Californian, that sensation felt like the onset of an earthquake to me, so I braced myself for what was to come, then laughed with relief when I realization it was only a train.
And it can also sway what we buy. For example, think of the impressive array of items we usually find in stores. Some of the products we come across are unfamiliar, lacking well-known brand names to back them up (e.g., generic cold medicine, soda, or paper towels). Now imagine that the presentation and packaging of one of these more obscure products made it look like a big name brand that’s more recognizable to you (e.g., Advil Cold and Sinus, Coke Zero, Brawny Paper Towels). If you decided to buy the unknown brand, concluding it’s much the same as the popular brand because both products look alike, the representativeness heuristic would be in action. Of course, this doesn’t mean that the lesser known product isn’t just as good. You could very well be right! The takeaway point here is that the representativeness heuristic can influence our purchasing decisions.
I think It’s Time for a Little A and A
In daily life, we routinely have to make rough guesses. About how much ice do we want to put in our ice coffee? How close to the stop sign should we actually press the breaks? How much do we want to request as a starting salary? How much should we put away for retirement? How many apples should we buy? How many shoes for work do we really need? Should we get two winter sweaters, or four? How many cans of soup and rolls of toilet paper will be sufficient? You get the idea. And what each question requires is some number we can use at the outset. This is called anchoring, and we need it to make a host of decisions, including all of the ones we just talked about.
However, we may not always choose the proper anchor, and that’s where we make biased errors. For instance, we may request less salary than our abilities merit, underestimate how much we need to live comfortably in our retirement years, or buy more apples than we can eat before they go bad. So then we tweak the anchor we’ve set, and this is called the adjustment. An adjustment could be a personal promise to ask for a larger salary in the future, to increase our savings goal for retirement and set aside more money from our paycheck, or to buy fewer apples.
The trouble is that we have a bias here, too. We tend to stay too close to our anchor, not making many adjustments at all, and marketers profit. One research study found that when stores put a buying limit on a product, we tend to wind up using that limit as our anchor, and then any small-scale adjustments we make keep us near that anchor. For instance, let’s say we walk into a shoe store and an employee tells us that we can’t buy more than four pairs of shoes. Because we tend to start from an anchor and make inadequate adjustments afterward, we’re more apt to start with a game plan of buying four pairs of shoes, even if we were originally planning on buying just one. And even if we don’t reach our anchor of four pairs, we’ll veer very little from that number (e.g., three shoes instead of four). This translates into major profits for the store as it convinces its customers to buy more, ironically, by limiting how much they can purchase.
I Just Don’t See It!
There are other heuristics and biases that we didn’t have a chance to cover here, but as we bring this article to a close, let’s not forget the bias blind spot. This is the bias that we don’t really have biases, or at least not at the level that other people do. And if it’s unsettling to accept that you, too, have biases that can impact your decisions, hopefully you can find some comfort in the realization that you’re in good company with the rest of the human race. No one is above bias. And in the world of marketing, if we can own this truth that we are never wholly immune to bias and influence, we’ll stand on sturdier ground to spend our money mindfully, as we choose, not as marketers wish.