Man Crush: Dan Ariely

A Behavioral Economist Teaches Us About Trust & Revenge

Dan Ariely throwing up economic gang signs.

Dan Ariely is a behavioral economist and professor of psychology and behavioral economics at Duke University.  If I had a Fave5 on my phone of my go-to-thought leaders, Dan Ariely would certainly be on that list.  I’ve ruminated about the usefulness of behavioral economics and application of game frameworks to marketing before, and Dan Ariely is one of the foremost leaders that I look to in this category.

I’ve learned a ton from reading Dan Ariely published work and interviews and here’s one of my favorite tools that I’ve picked up from him: The Trust Game.  Here’s how you play:

Step 1: Assemble your core team and label them as “A” or “B”.  Have an “A” pair with a “B”.

Step 2: Give “A” $100 and two options: take money and go home OR send it to player “B”.  If “A” sends it to player “B”, the money will quadruple.

Step 3: If “A” keeps it, then that’s it.  If “A” sends it to player “B”, now “B” has two options: send “A” $200 or go home with $400.

What this exercise teaches is the distinction between rational and irrational decisions.  If “A” were rational, then “A” would keep the $100.  But this is typically not the case.  In most instances, “A” will pass the money to “B” and “B” would pass $200 back to “A”.

The Trust Game Part 2:

For those “B”s who kept the money, the facilitator goes back to player “A” and says, “sorry ‘A’ – but I can help.  For every $1 you give me, then I’ll go track down ‘B’ and get back $2 of your money.”  What would “B” do?  In studies, it’s shown that an overwhelming amount of “B”s in this instance would seek revenge.

The takeaway(s) from these exercises surround trust and revenge – but they center on something even more useful: the proclivity of people to make irrational decisions.  In both instances, there is a rational decision and an irrational decision.  In both instances, the prevalence of irrationality motivates significant actions that spur significant outcomes.

The marketing implication is this: rational decisions do not permeate every customer decision.  Marketing’s responsibility is to create the right structures, incentives, and motivations for customers.  Businesses need to understand the irrationalities of their customers and take that into account.

-johnny

Read more about Dan Ariely and the illogic nature of consumers in this fun piece by CNN Money: Why You’re a Big Sucker.

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