Behavioral Economics and Subliminal Manipulation
October 25, 2013
The science of economics (to the extent that it can be called
a science) is at its core a study of human behavior. Economies
are simply the result of all of the millions of actions taken
by investors, business people and consumers. But most of the
time economists are telling us about the larger issues like inflation,
wages, unemployment, and production. Behavioral economics, on
the other hand, is a very specialized branch of the science which
looks at the psychology of economic decision making processes
of individuals and (sometimes) institutions. Scientists in this
field study why we buy more or less of something, what affects
our decision to buy or not, and how that might be influenced.
The "ground level" focus of this part of economic
study makes the research findings particularly useful; perhaps
even more useful than the discoveries of significance to national
economies. After all, studies can show that when a government
spends too much and so must tax away too much of an economy it
hurts production and job growth, but the politics of societies
that vote themselves entitlements will usually overrule any productive
use of this knowledge, and the expenditures will stay too high.
Economists can probably demonstrate that shifting taxation more
onto the wealthy doesn't harm an economy if the total amount
of taxes collected and revenue spent stays the same, but the
wealthy will effectively lobby against this anyhow. But discovering
a simple thing like the fact that a person will be more likely
to buy a $100 blender if a $180 blender is sitting next to it
on the shelf is immediately useful -- at least to the owner of
a store selling blenders.
The possibility of immediately applying what is learned by
behavioral economists makes it an exciting field, but it also
suggests that there are many ways to manipulate people when they
are making personal financial decisions. Of course, such subliminal
manipulation in the marketplace (subliminal refers to processes
below the threshold of consciousness) has been going on for as
long as people have been buying and selling things. It's just
getting more scientific now. Let's look at one example, and consider
how we might avoid being victims.
What is Webers Law, and why should you know about it?
It was not originally part of the study of economics. It is was
formulated long ago by Ernst Heinrich Weber (17951878)
from his observations of how humans respond to a physical stimulus.
He measured and quantified this in several ways. In one experiment
he blindfolded a man and gradually increased the weight the subject
was holding. The man was told to respond as soon as he felt the
increase in weight. It was found that the smallest difference
a person can perceive as a difference, is proportional to the
starting value of the weight. In other words, if you start at
an ounce a half-ounce difference is easy to detect, but if you
start at ten pounds you wont notice a difference of even
several ounces. Weber actually created an exact formula describing
A century later scientists in the field of behavioral economics
applied the idea to the money decisions that people routinely
make. In this context the law was stated something like this:
A change of stimulus is more emotional and motivational according
to the base. For example, when subjects were observed or tested
it might be found that they would drive across town to save $10
on a $20 item, but not to save $20 on a $500 item. Notice that
in the latter case the effort was the same for double the savings,
yet people would not normally respond to the savings in the same
way when buying something with a higher price. You can imagine
how this knowledge might be applied.
In case you can't imagine an application, here's an example:
a furniture salesman can safely assume that you wont walk
away from a couch you like, and which costs $1,200, just to save
$20 on it somewhere else. He can avoid dropping the price and
sell you on the other benefits. Another example is one you might
be very familiar with. It is a car buyer's tendency to pay for
many extras that he or she might not have considered buying for
a car that is already owned.
In other words, Weber's Law explains why car dealers can so
successfully sell options for your new vehicle. The day before
you bought that car, you may not have paid even $200 for a stereo
for your vehicle, but you easily agree to pay $400 for one as
part of a new car purchase. The reasoning, or rather the (mostly)
unconscious psychology, goes like this, "Whats $400
more when I am already spending $24,000?" Well, actually,
its the same amount as yesterday, but good luck trying
to explain that to your subconscious mind.
Once you are aware of Webers Law you can start to watch
for examples of it in your own thinking and behavior, in order
to avoid irrational decisions and defeat manipulative sales people.
For example, suppose you normally would travel halfway across
town to save $20 or $30 on groceries. Now you are looking at
a new computer for $899 and your wife mentions that she saw the
same one at another store for $859. Ordinarily you might hesitate
to leave and go to the other store to save $40 on a $900 item,
but if you realize that this is just the psychology of the situation
and an extra thirty minutes work is worth $40 you can choose
to save the money.
There are certainly other areas of life would you expect to
see the effects of Webers Law. You might think nothing
much about who pays some $300 closing cost on a home you are
buying for $200,000, but is that rational. If you would spend
a minute negotiating at a rummage sale to save a buck or two,
why not try to get the seller to pay that cost? By the way, this
psychological phenomenon probably operates in many non-financial
areas as well. I'll let you ponder that thought on your own.
The good news is that you can learn to recognize when you
are being subliminally manipulated, and so avoid making some
irrational decisions. The bad news is that this particular phenomenon
is just one of many that are being investigated and, more recently,
taught to marketers. In the future I'll report on tricks which
are being used to subliminally influence you.
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