Here are few good books on consumer behaviour.
The mystery of the human condition has puzzled poets and writers for millennia, yet modern economists have boiled it down to a simple equation. According to most modern economists, we are driven by the need to maximize our utility and minimize cost. Yet, if you witness humans in their natural habitat – the real world – you will see that we are driven by many other factors, some of which are perfectly contrary to maximizing utility.
Marketers, advertisers and political strategists have known this for a long time, but the field of studying human behavior within the context of business and economics has only recently become fashionable. Behavioral economists attempt to explain how people actually behave, rather than how they should behave.
If you have not delved into this fascinating field before, here are the books I recommend to get started. Unlike most economics books, these are not filled with theories and equations, but with often amusing and recognizable quirks of human behavior.
Thinking, Fast and Slow, by Daniel Kahneman
Published in 2011, this book began the dismantling of an idea the uber rational decision maker, driven to maximize his utility, long held as the standard of mankind by economists.
Written by Daniel Kahneman, a psychologist who won the Nobel prize in economic science, and his long time collaborator Almost Tversky, Thinking, Fast and Slow delineates between two systems of thinking. System One is fast, and based on instinct and emotion, and largely unconscious, whereas System Two is based on logic and deliberation. System One detects flirtation or hostility in a face, System Two builds a financial model
Most of our behavior is governed by System One, and often the decisions made by System One are then justified by System Two. The authors introduce the idea of “cognitive biases” – unconscious mistakes in our reasoning, such our tendency to overestimate benefits and underestimate costs of projects.
While at times this book may make you despair for humanity’s ability to make rational decisions, it is useful to show us our own blind spots.
Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler and Cass Sunstein
Written by another Nobel Prize Winner for economic sciences and Professor at the University of Chicago Booth School of Business (for full disclosure, where I got my MBA), Nudge follows on the work started by Kahneman and Tversky.
Again, set to disprove the man of traditional economic theory, the authors write, “If you look at economics textbooks, you will learn that homo economicus can think like Albert Einstein, store as much memory as IBM’s Big Blue and exercise the willpower of Mahatma Gandhi.”
The authors argue that in a world full of temptation, where credit cards, doughnuts and great television, are often too much to resist, simple nudges can help us make better choices. A nudge can be as simple as leaving a box ticked as a default choice, or slight changes in wording in a fundraising letter.
Nudge became a must read in political establishments and led to the creation of Nudge Units in the U.S. and U.K. David Halpern, chief executive of the U.K.’s Behavioral Insights Team, said that their unit’s work early work collected an extra £200m in tax revenue through some small changes in reminder letters.
For entrepreneurs, a basic understanding of nudges is essential, because it is the entrepreneur’s job to sell constantly, to clients, to employees and to investors. If working with human psychology rather than against it got the U.K. government millions in tax revenue, then entrepreneurs can use the same thinking to raise money and win new contracts.
Alchemy, The Surprising Power of Ideas That Don’t Make Sense by Rory Sutherland
The most recent, and the funniest book on the subject is by Ogilvy Vice Chair Rory Sutherland. Alchemy is both a book on human behavior and a rallying cry to stand up against the spreadsheet mafia dominating most government and corporate policies today. Sutherland argues that an over reliance on data leaves no room for emotion, which is what really drives us. Alchemy is full of examples of how human behavior runs contrary to the laws of economics from Sutherland’s work at Ogilvy. For example, both scarcity and ubiquity can help sell products, but the context matters. Luxury handbags are desired for their scarcity, but foods often sell more if you label them as best sellers. As Sutherland says, “the opposite of a good idea, can also be a good idea”.
Sutherland argues that “for a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.”
Influence, the Psychology of Persuasion, by Robert Cialdini
The uniqueness of Cialdini’s approach to studying human behavior was to learn it from people who know how to influence it, rather than study it via controlled lab experiments. He spent time with marketers, door to door salesmen and cult leaders to understand how these masters of persuasion get people to do the seemingly impossible.
The six elements of persuasion identified by Cialdini are reciprocity, consistency, social proof, liking, authority, and scarcity. There are plenty of lessons for entrepreneurs. For example, if you have created a new product and do not know how to price it, Cialdini says go for gold. If we do not have any other information, we assume that expensive means good.
Why She Buys, by Bridget Brennan
Written by a marketer who focuses on the female consumer, Brennan offers a guide on how to make products and sell them to women. She argues that “gender is the most powerful determinant of how a person views the world and everything in it. It’s more powerful than age, income, race or geography.”
Like the other books, Brennan focuses on what women actually do, for societal and biological reasons, rather than what economists believe they should do. For example, women tend to make buying decisions based on not only how they will use a product, but also take into consideration how others in their life will use it too. The female customer will often choose to minimize her own utility, in order to maximize that of others.
Hooked: How to Build Habit-Forming Products, by Air Eyal
A must read if you are making an app or website and want to keep your users coming back. Eyal combines the disciplines of design, technology and psychology into a guide on how to make “habit forming products”. With case studies from some household names in technology today, this book is full of insights on consumer behavior for product and design teams. While a book on habit forming products may be controversial today, it is simply an extension of the art of persuasion. Just as people can be great orators and persuaders, and choose how to use these powers, so can product design teams. While Facebook and Instagram can weaponize attention and increase anxiety, apps like Headspace add to our peace and wellbeing. The study of human behavior is fascinating in its contradictions. Careers, businesses and government policies only succeed if they have a genuine impact on how people behave, rather than produce yet another set of rules that make us feel guilty for ignoring.