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Neuroeconomic Mechanisms of Behaviour and Strategy Insights

Monday 23rd April

People’s decision making, including customer decisions, are determined by perceptions of value of choices generated by the brain’s reward system. The value of each choice depends on the perception of its cost and benefit for the individual. People decide to conduct behaviour if its benefit is sufficiently high and cost sufficiently low.

These perceptions are entirely subjective – if you run up 10 flights of stairs you would be exhausted, and running another 10 would seem like an impossible task. The perception of cost would greatly exceed the perception of benefit of this behaviour. If, however, someone offered you a million pounds to do that, you would suddenly feel full of energy.

The perceptions of value have certain biochemical underpinning, defined by the brain’s functional architecture and communicated using neurotransmitters, most notably dopamine. Dopamine is released whenever we encounter an unexpected reward (reward prediction error). It stimulates our motor system and generates behavioural vigour – a sensation of being full of energy and increased speed of actions. Lack of dopamine decreases perception of value of behaviours, leading to inaction. Conversely, a rise of dopamine increases the value of behaviour regardless of its cost.

Death of dopamine-releasing cells is a hallmark of Parkinson’s disease, which results in social withdrawal, apathy and bradykinesia (difficulty of conducting motor actions). By contrast, overactive dopaminergic system is present in individuals with high scores on the psychopathy scale, leading to extreme focus on achieving goals and conducting actions at all cost. Consequently, the higher we go on the social ladder the more psychopaths we encounter.

The mechanics of how brain valuates behaviour can provide useful strategy insights. This can be most clearly observed in businesses which offer reward-based services such as sports betting. One of our clients, Kwiff, randomly increases betting odds for its customers. The excitement associated with winning a bet is here coupled with the excitement of getting increased odds. In neuroeconomic terms we can see a double layered mechanism of dopamine release, which dramatically improves the conventional single-layered betting experience. One may imagine the introduction of further layers to improve the experience even more.

Neuroeconomics also teaches us that time delay between an action and reward decreases the perception of value of this reward (temporal discounting effect). This gives us an insight that awarding increased odds immediately after placing a bet gives users better experience than a delayed odds increase.

 

Another factor in determining the perception of value is perceived probability of receiving a reward or incurring a cost. We may not be able to increase this probability as awarding increased odds to too many users would impact business viability. We can, however, increase the perception of this probability. People are afraid of flying not because aircrafts are dangerous but because they perceive them as such due to exposure and availability heuristic. Media may show a plane which crashed today but they do not show thousands of planes which did not crash today. This changes the perception of probability of a crash event. Similarly, by exposing customers to advertising which repeatedly shows real people who received increased odds we can change how people perceive the probability of winning.

Neuroeconomics is the basis of success of many other companies. Facebook employs a whole team of experts who generate insights on how the platform should be structured to ensure growth and retention of users. It engages people’s dopaminergic system on many levels providing them with multiple reinforcing rewards. Receiving likes, positive comments and getting our content shared gives us social validation. Closed discussion groups connect us with like-minded individuals we can share our ideas with and further validate each other’s opinion. Ever changing nature of the news feed catches our attention as novelty is gratifying. The feed is fully customisable and it displays the posts which we are most likely to be interested in. We get hooked on constantly checking our profile as a possible rewarding event is associated with another dopamine release.

Even if we encounter a negative content or we are victims of trolling, it only increases our need for social validation, and where can we get it from if not from our Facebook friends… Perception of value of rewards increases when we are in low mood or when we experience any form of distress (c.f. comfort eating). For this reason, negative experiences only motivate us further to seek rewards on the social network.

Article Written by

Darius Lucas

Behavioural Analyst, Total Media

Darius works as a behavioural analyst and specialises in consumer psychology and neuroeconomics. He started working at Total Media after completing his MSc in Psychological Research at Oxford.

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