Thursday, October 23, 2008

Emotional buying

A friend of mine recently asked me, "is it true that 75% of our buying decisions are based on emotion? It sounds like a made up statistic". This was my response:

The quick answer is that we have two type of processes that go on in our brains when making any decision:
System 1 is when we use our intuition. This is fast, automatic, effortless and rooted in emotion. It is our gut instinct
System 2 is when we use our reasoning. This slow, controlled, effortful and rule-governed. We have to consciously so it

Most decisions, including buying decisions, involve people using a combination of System 1 and System 2. Classic Economics has flaws because is assumes we are all rational players with perfect information using System 2 only. Behavioral economics, psychology etc recognizes the importance of system 1.

There is a growing amount of research on how they interact. I think it's fair to say:

- everyone uses system 1 all the time without realizing it. e.g. most people choose their life partner on this

- different people engage system 2 (reasoning) for different decisions in different situations but generally those they consider v important. some buying decisions fall into this category, many don't

- but it's not so much a question of what % of buying decisions are based on emotion. All of them are. But they are also partly based in reasoned thinking. The real question is do we think rationally then let in our emotions to influence the decision to some extent? Or do we have a gut instinct ("I like the look of John McCain", "I love that dress") and then use all the data & reasoning to justify that initial reaction?

- there is near overwhelming evidence that the latter is true. this a robust but depressing finding. it explains why republicans and democrats so deeply believe that their view of the world is right - look out for the upcoming book by Jonathan Haidt, 'The Righteous Mind'

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