Friday, July 24, 2009


Behavioral Economics stresses that Human's often act irrationally. This is the bane of Advertising and Marketing. It causes people to buy things on impulse that they shouldn't buy and thus have buyers regret. And it also prevents people from buying things they should buy out of fear of change.

And the worst of all scenarios someone who resists trying something (major acquisition cost!), and then finally gives in and has buyers remorse.

As much as I read behavioral studies on how people act in general, you still can't guarantee people will act as expected. It is what makes like unique and wonderful, but it also adds significant cost to consumer retailers and businesses.

Think of the Supermarket Discount Loyalty Cards. Your data shows that Mrs. Jones comes in once a week and buys a Dark Chocolate Bar. Murphy's Law and Behavioral Economics will show that stocking the bar specifically for Mrs. Jone will most likely be the right choice. But 5 weeks of the year she buys White Chocolate with Almonds!

Think of all the gun and ammo manufacturers who ramped up production because of the buying spree of guns prior to Obama coming to office (irrationality to the extreme). Now they have over stock because the same paranoid people realized they were foolish and sales dropped! So irrational behavior did a double hit on the gun makers. They failed to meet unexpected demand. Then the demand died just when they ramped up!

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