In a slightly unusual gesture, a chap called Morgastern has handed you £100 to play with. Though a kind offer, he doesn’t allow you to keep all of it. You are obliged to offer a portion of it to Morgastern’s pal – Von Neumann. You decide to offer him £10. If he accepts, you keep your £90 and he leaves with £10 – not a bad outcome for you. If, however, he thinks you’ve treated him unfairly, he can choose to reject your offer, in which case you both leave with nothing – disaster.
Labelled the ultimatum game, the above is an archetypal scenario studied by game theorists. Game theory has long been used as a tool to understand decision-making under uncertainty. Conventionally, game theory leant on many constraining assumptions about the people involved in the games and the states of the games. People were assumed to know all the rules of the games and preferences of other people; people were modelled as perfectly rational, obeying the theory of maximum utility and were perfectly informed.
Bound by these assumptions, game theory and economic theory would advocate that you only offer Von Neumann a single penny because he would be forgoing a potential gain if he rejected the offer – why say no to free money, no matter how small? To you and me, this seems ridiculous – you’d never imagine getting away with such a selfish act. But, traditional economics modelled man in all situations as homo oeconomicus – the economic man of pure rationality who wouldn’t mind this selfishness – he would happily accept the one penny offer.
Essentially, Game Theory built a structured approach to understand people and their decisions, who themselves were modelled as predictable, rule-abiding and rational.
In contrast, advertisers and salesmen have always intuitively perceived people to be flawed and irrational. They have long played on this principle in the hope of shifting people’s behaviour towards making sup-optimal economic decisions.
For many years they have understood concepts such as the influence of social conformity and the power of branding. A justifiably over-referenced studies illustrate this point.
The Asch paradigm refers to a study performed in 1952 by Solomon Asch where subjects were given a wonderfully straight forward perceptual task. The experimenter asked his subjects to compare the length of a line on one sheet to three other lines on another.
The subjects were asked to identify which of three matched up with the one they had been provided with – easy, right? In isolation, yes, most people can get this right. But, as soon as the subject was told how other (fake) subjects had voted (for an incorrect line); they were far more likely to make an incorrect judgement. Social pressure and the desire to conform is sufficiently strong enough to skew a task as easy as this!
Marketers have created communications around these paradigms and principles such as social conformity to lead people to elect for one product over another and to convince consumers to pay more to achieve a desired social status.
Despite instinctively recognising many of these facets of human nature, advertisers have scarcely been able to construct a solid, rigorous infrastructure to consistently and effectively implement behaviour change. Naturally, impressions are wasted on those who are uninterested or are already sufficiently interested that the ad need not have been there. Further, finding the right place and the right time to encourage a certain behaviour has proved a struggle.
So, game theory found a structure but failed to understand the audience and advertisers understood the audience but failed to build a structured approach to reach them. But, things are changing…
Game theory is slowly being replaced by what is now termed behavioural game theory – the study of what people actually do in strategic situations as opposed to the idealised response. This takes the traditional assumptions of homo rationalis (the rational man) and replaces them with the systematic biases and social influences that actually determine our behaviour and decision making – aptly termed homo heuristicus. Though a relatively young field, it is starting to uncover the actual responses to traditional strategic games and in turn building new, life-like models of behaviour in strategic games.
In a similar light and pioneered by Total Media, behavioural planning is the structured approach by which ads are targeted at the right moments to yield a desired behaviour change, where audiences can act on it before it slips into the vast pool of irretrievable and inoperable memories of communications. This dispels the old models of planning where audiences were generalised and ads were wastefully positioned.
Together behavioural planning and behavioural game theory can be said to be converging on a newfound structured approach to a more carefully structured and defined audience – who, thanks to Dan Ariely and many others; we now understand to be predictably irrational. This provides a new framework by which marketers can implement behaviour change interventions that are deep rooted in contemporary principles of behavioural science and nudge people towards specific behaviours at the right moments.