Behavioral Economics + Marketing Overview

Behavioral economics is the study of human decision-making, bringing psychological insights to the field of economics. It acknowledges that our behavior is seldom fully rational and aims to uncover and predict our irrationality through the study of heuristics (mental shortcuts), social pressures, and biases. 

Marketers have been relying on principles from behavioral economics even before the field was formed by Daniel Kahneman and Amos Tversky in the late 1970’s. We can see countless examples of marketing teams employing principles such as simplicity in design, harnessing the power of “free,” and creating default options. However, these principles are often used because they work rather than based on an understanding of why they work. Behavioral economics explains how simple design creates cognitive ease which leads us to be less critical, “buy one get one free” works because people prefer a free bonus to an equivalent discount, and default options work because they eliminate the immobilizing power of the paradox of choice.

 What’s missing from today’s digital marketing teams is behavioral economics applied in a systematic and overarching manner. Behavioral economics studies how to elicit and change behavior, which is quite literally the job of the marketer. Applying these principles in every step of the marketing funnel means teams can predict which copy and creative will elicit action, frame promotions to lower customer acquisition costs, and create products that hook consumers. 

This website focuses on digital advertising for technology companies, though is applicable to all kinds of marketing. Below you will find blog posts that outline when and how behavioral economics should be applied to marketing, as well as case studies showing companies that are already excelling in this pursuit.