behavioral economics and social media

8/18/2019 Behavioral Economics and Social Media

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COLOGNE BUSINESS SCHOOL (CBS)

Behavioral Economics and

Social Media

Term Paper for “Advanced Media and Entertainment

Management”Winter Semester 2015Lecturer Prof! "r! #u$ia Maint%

&ag'u (inodMA 15 in )nternationa$ Media and Mar*eting

Student+,o! 1155-00002


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Table of Conen

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P&),)PLE 1 T.E E33ET 3 E6PE&)E,E!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7P&),)PLE 2 LSS A(E&S), T.&48. & E3E&E,E "EPE,"E,E!!!!!!!!!!!!!!!7P&),)PLE T.E P&/LEM 3 SEL3+,T&L A ," P&&AST),AT),!!!!!!9P&),)PLE : T.E P&)E 3 W,E&S.)P!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!-P&),)PLE 5: ,TE6T 3 4& .A&ATE& !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!-P&),)PLE 7 PATE&,AL)SM )S 8" A ," /A"!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!;

Cha#er *% !##l+in, Behavioral Economics Theories To Social Media "" $-

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Economics traditiona$$< =or*s on t'e princip$e of assuming peop$e are rationa$ >< nature and

using t'at economists >ase t'eir t'eories to determine economic >e'avior or outcomes in a

considered scenario! /e'aviora$ economics ta*es t'e assumption ? “'umans are rationa$ ><

nature” out of t'e e@uation and uses cognitive socia$ and emotiona$ inf$uences on economic

>e'avior to deve$op t'eories a>out peop$eBs perceptions of va$ues and a range of >iases!

/e'aviora$ economics uses ps< our 'a>its fee$ings p'e app$ied to various domains

suc' as finance 'ea$t' consumer mar*eting and pu>$ic po$icies! Since our =or$d isinterconnected t'roug' Socia$ Media >usinesses and psefore >ecause t'ese socia$

structures are an important determinant of economic >e'avior! T'e aut'or 'opes to provide

an out$oo* into

1! .o= Socia$ Media is inf$uenced >< /e'aviora$ Economics t'roug' its princip$es and

sa$ient eDamp$es!2! .o= economic >e'avior can >e understood >< considering and ana$


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Cha#er $% !n inrod&cion o Behavioral Economics

$"$ 1ha is Behavioral Economics2

Loo*ing at peop$e in genera$ and assuming t'e< are a$$ reasona>$e and $ogica$ individua$s

going a>out t'eir $ives in an order$< manner is s'ared >< a range of economists po$ic<

ma*ers and most of t'e genera$ popu$ation! f course t'is vie= is on$< some='at correct!

.uman >eings are capa>$e of eDtraordinar< acts suc' as $earning a mu$titude of $anguages

recogni%ing t'ousands of faces in a cro=d =it'out getting confused painting t'e Sistine

c'ape$ and so on! /ut ='i$e =eBre capa>$e of =onderfu$ acts from time to time =e are a$so

prone to ma*ing mista*es and t'e cost of t'ese mista*es are often fata$ or cost$

ou cou$d ta*e t'e eDamp$e of “driving and teDting”! )ts repeated man< times >< eDperts and

common sense a$so suggests t'at teDting and driving do not go toget'er! ne can eit'er

simp$< c'oose to drive and not teDt during t'is activit< or 'eFs'e cou$d teDt first and t'en

c'oose to drive uninterrupted! So 'o= is t'is re$ated to t'e discussion of >e'aviora$

economics Guite simp$e'ave despite *no=ing

t'at suc' an act is inconsistent =it' our $ong term interests

T'e economists assume everi$it< to act over $ong term in t'e eDact =a< as predicted! T'e =a< =e

approac' t'e =or$d is mears a standing testament to t'e =a< =e approac' our

o=n $ives! ur most >asic pro>$em is t'at =e cannot predict t'e s'are of our pro>$ems in

modern $ife due to our o=n irrationa$it


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economics 'as a$so >een defined as t'e com>ination of microeconomic concepts princip$es

and measures a$ong =it' concepts princip$es and eDperimenta$ met'ods deve$oped ><

>e'avior ana$$e to eDp$ain ='at peop$e rea$$< =ant and ='< t'eir preferences are re$ative socia$ and

conteDtua$ >ut not a>so$ute! T'a$er H2015 p! 25I out$ines t'at t'e core premise of economic

t'eor< is t'at peop$e c'oose >< optimi%ing! )f est serve e'avior as un>iased! T'e premise of optimi%ation can >e =itnessed in our da< to da< $ives

t'roug' t'e ce a possi>i$it< >ecause economists >ased t'eir financia$ mode$s >ased on predictive

'uman >e'avior of resisting >ig c'anges!

)n retrospect >e'aviora$ scientist A$eD Samson summari%ed /e'aviora$ Economics into siD

points H2015 p! 1I

1I Sma$$ c'anges can 'ave $arge effects!2I Psac*ground cu$tura$

inf$uences p'


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as a

comp$ement so as to form a frame=or* ='ere t'e *e< varia>$es are consumption and decision

ma*ing!

T'e *e< independent varia>$es t'at inf$uence consumption and >e'avior are

$" The dela+ be5een he behavior and he re5ard3 5hich is considered in erms of he

disco&nin, of f&&re val&e of he re5ard H&ot'sc'i$d 2001 p! 10I"

onsumers ma*e decisions >ased on a trade+off >et=een >enefit and cost! Let us consider

t'is varia>$e from 'ea$t' aspect! )ndividua$s ='o c'oose to eDercise regu$ar$< are ma*ing

a c'oice t'at inc$udes s'ort term costs over $ong term >enefits ='i$e t'ose t'at do not

indu$ge in t'e >e'avior of eDercising are opting for s'ort term >enefit over $ong term

costs! )ndividua$s intuitive$< discount t'e future >ased on t'eir Cudgment as to its

attaina>i$it

>enefit! W'en peop$e canNt see muc' future cost or >enefit of an action t'e< discount

t'ese va$ues to a 'ig'er degree and c'oose >ased on immediate >enefits and costsK t'ose

='o perceive t'em actua$$< =i$$ receive future va$ue =i$$ discount $ess! H&ot'sc'i$d

2001 p! 10I

'" The alernaive choices available a he ime of he behavior H&ot'sc'i$d 2001 p! 10I"

)ndividua$s a$=aso$utes over t'eir c'oices =e must consider

everCect A

over o>Cect /! )n fact t'e on$< parameter =e active$< consider ='i$e c'oosing >et=een

t=o o>Cects are t'eir advantages over one anot'er!

We compare app$es =it' app$es and oranges =it' oranges! T'e rationa$it< eDpected of us

'o$ds true ='en =e compare t=o o>Cects ='ic' 'ave no re$ation ='atsoever! )f =e

compare a car and a p'one depending on our needs =e =i$$ eit'er c'oose t'e car or t'e p'one! .o=ever s'ou$d t'e t=o o>Cects >e t'e same =e re$ate t'em to one anot'er muc'

$i*e =e re$ate our Co>s to t'at of our co$$eagueBs or our 'o$ida< p$an to someone e$seBs

'o$ida< p$an!

)n an< scenario a$ternative c'oices ma< or ma< not $ead to t'e desired >e'avior andFor to

reduced eDterna$ities! H&ot'sc'i$d 2001 p! 10I! Socia$ >ac*ground emotions fee$ings

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and ps< initia$ eDposure to a num>er serves as a reference point and inf$uences

su>se@uent Cudgments a>out va$ue HSamson 2015 p! 2-I! onsumers are >om>arded =it'

prices and mar*eters are often tra$ance >et=een overpricing and

underpricing an artic$e!

W'en =e contemp$ate >uenc'mar*ing! T'is

>e'avior is ca$$ed anc'oring and >< anc'oring =eBre setting a >enc'mar* =it'in ='ic'

=e esta>$is' a range of prices accepta>$e to us!

Let us ta*e t'e eDamp$e of App$e + ='en App$e re$eased t'e iP'one t'e< introduced it at

700 a piece >ut $ater t'e< reduced it to :00! /< imp$anting t'e price of 700 in

consumerBs minds and t'en >< reducing t'e price >< 200 App$e =as a>$e to ma*e

consumers t'in* t'at :00 =as a rea$ >argain! )tBs not t'e :00 or 700 t'at is re$evant in

t'e eDamp$e of App$e! &at'er from App$eBs perspective it =as important to note 'o=

consumers =ere =i$$ing to arrive at a decision to >u< t'eir product using simp$e

>e'aviora$ economics too$s! /< setting up a price App$e cou$d determine 'o= prices

inf$uence consumersB perception of va$ue HArie$e su>Cected to manipu$ation and our o=n

response to t'e eDterna$ stimu$i 'as a price ='ic' oug't to >e considered in terms of time

monetar< eDpenses and 'ea$t'! W'et'er a consumer is satisfied =it' 'isF'er purc'ase is a

persona$ matter >ut for ever< c'oice t'ere is a price to >e paid and t'e price cou$d var<from monetar< va$ue to 'ea$t' depending upon t'e item =eBre =i$$ing to consume!

." The income3 or reso&rces3 of he individ&al H&ot'sc'i$d 2001 p! 10I

onsumption and spending are t'e conse@uents of processing and c'oice ma*ing! 4sing

scarce resources to maDimi%e s'ort+run >enefit is rationa$ ='en t'e future is 'ig'$<

discounted in favor of t'e present! T'is discounting resu$ts from >ot' accurate and

eDaggerated assessments of t'e environment >ut is rationa$ =it'in t'e >ounds of imperfect

decision+ma*ing! H&ot'sc'i$d 2001 p! 10I

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W'en a product is advertised as O3reeB consumers perceive it as intrinsica$$< more

va$ua>$e! A free c'oco$ate is disproportionate$< more attractive re$ative to a c'oco$ate

priced at 0!1: t'an a 0!01 c'oco$ate is compared to one priced at 0!15! Price is often

ta*en as an indicator of @ua$itet=een restaurants! "epending on t'e menu and t'e prices

c'arged =e =ou$d s=itc' to a service provider ='o cou$d give us more tangi>$e >enefits for

t'e mone< spent! Li*e=ise consumers s=itc' te$ep'one p$ans moving to=ard t'e >est tariff

option as t'e< gain eDperience HMiravete 200 p! 2;9I! T'ese eDamp$es a$$ i$$ustrate t'at

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“ever

in c'oices invo$ving sure gains and to ris* see*ing in c'oices invo$ving sure $osses! )n

addition peop$e genera$$< discard components t'at are s'ared >< a$$ prospects under

consideration Ha'neman J Tvers*e'avior 'as massive imp$ications for mar*et

economies and it discourages investment causes recessions and depressions and

unemp$o


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$ess from e as*ed to Coin a group and do it

in t'e compan< of t'eir friends! T'ere are too$s ='ic' =e can uti$i%e to 'e$p us >ecome t'e

person =e =ant to >e!

3rom t'e perspective of present >iased preferences a sop'isticated person does t'e activit<

sooner t'an a naQve person =it' t'e same preferences irrespective of ='et'er re=ards or

costs are immediate H"onog'ue J &a>in 1;;; p! 10:I!

/INCILE .% The rice of O5nershi#

Although we mostly care about our own material payoffs, we also care about the actions,

intentions, and payoffs of others, even people outside our family " HLai>son J List 2015 p!

-9I

)n economics t'e most important metric for an< demandFsa$es ca$cu$ation is t'at everecause consumers can >e manipu$ated into >uased

on t'e product positioning!

/INCILE 0: Cone6 of o&r characer

ometimes mar!et e"change ma!es psychological factors cease to matter, but many

psychological factors matter even in mar!ets. HLai>son J List 2015 pp! -9 + --I

/e'aviora$ >iases are *no=n to affect mar*ets and t'e most prominent eDamp$es for t'is are

t'e dot+com >u>>$e >ust in 2000 fo$$o=ed >< t'e 4S 'ousing mar*et co$$apse and t'e

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eventua$ financia$ me$tdo=n of 200-! )n eac' case investors =it' >iases comprised t'e

maCorit< of traders on =a$$ street and outran*ed t'e rationa$ traders >< a 'uge margin!

#ust >efore t'e 4S dot+com >u>>$e >urst some tec'no$og< companies 'ad t'eir stoc*s trading

on =a$$ street at an eDor>itant rate due to t'e actions of fe= irrationa$ traders! Wit' irrationa$

traders s'ort+sa$e constraints can cause some stoc*s to >ecome overpriced! Wit' s'ort+sa$e

constraints rationa$ ar>itrageurs can refrain on$< from >ue overpriced HLamont J T'a$er 200 p! 2:;I!

Le'mann /rot'ers is anot'er prime eDamp$e of 'o= traders and compan< directors can

uti$i%e >e'aviora$ economics princip$es to psenefit!

/INCILE % aernalism is ,ood and bad

#n theory, limiting people’s choices could partially protect them from their behavioral

biases, but in practice, heavy-handed paternalism has a mi"ed trac! record and is often

unpopular ! HLai>son J List 2015 pp! -9 + --I

Pu>$ic po$icies >< t'e 8ovt! are usua$$< graded as eit'er successfu$ or fai$ures depending on

t'e >e'aviora$ insig'ts gat'ered t'roug' suc' po$icies! Some po$icies are successfu$ suc' as

t'e Socia$ Securit< programs in Europe or t'e 4nited States ='ereas ot'er eDamp$es ='ere

8overnments often over estimate t'e effects of t'eir paterna$istic po$icies are regressive taD

codes suc' as re$igion taD soda taD or in some eDtreme cases ? a$co'o$ pro'i>ition in 4S

during t'e 1;90s!

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Cha#er *% !##l+in, Behavioral Economics heories o Social

Media

3or mar*eters >e'aviora$ economics offers a too$ to c'ange t'e perception of t'eir products

so t'e va$ue of t'eir pac*age eDceeds far more in terms of >enefits compared to its

competitors!

Advertising on socia$ media page 'as >ui$t ne= consumerBs >e'avior! onsumers tend to

ma*e purc'ases or conduct >usiness on socia$ media! 8iven 'o= integrated consumer

>e'avior is =it' socia$ media >e'aviora$ economics cou$d ana$est options avai$a>$e

in front of t'em! )n rea$itase t'eir decisions on a su>+conscious $eve$ and in t'e

case of socia$ media t'is o>servation 'o$ds true!

)n t'is c'apter =e =i$$ discuss t'e princip$es of /e'aviora$ Economics + 3raming Anc'oring

Socia$ 'erding 'un*ing Loss Aversion and t'e Po=er of 3ree from a socia$ media

perspective! T'e o>Cective is to out$ine 'o= t'ese princip$es =i$$ 'e$p a mar*eter ma*e a

meaningfu$ connection =it' t'e customer inf$uence t'eir socia$ media >e'avior and generate

t'e rig't engagement ? >e it t'roug' t=eets $i*es s'ares or an< ot'er socia$ media metric

$i*e site visits purc'ases and registrations!

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$" Social herdin,

Peop$e >e$ieve somet'ing is good or >ad depending on ot'ers opinions! )n our societe'avior instead of investing t'eir time in a tria$ and error scenario ='ere>< t'e< eDp$ore a$$

possi>$e outcomes of t'eir actions and t'e< c'oose t'e >est ones!

.erding can >e defined as t'e p'enomenon of individua$s deciding to fo$$o= ot'ers and

imitating group >e'aviors rat'er t'an deciding independent$< and atomistica$$< on t'e >asis

of t'eir o=n private information! H/adde$e< c'a$$enging eac' ot'er to fu$fi$ a tas*

and promote a=areness of t'e disease + !m+oro#hic Laeral Sclerosis as =e$$ as

encouraging donations to researc'!

.erding can a$so >e destructive in mar*et conteDts >ecause >$ind$< fo$$o=ing mar*et trends

in s=arms can $ead to 'uge >u>>$es and cause a financia$ me$tdo=n! "uring t'e 2000s t'einternet dot com >u>>$e in 4S drove t'e stoc* price of an< companies re$ated to internet

up=ards and conse@uent$< an< )nformation Tec'no$og< firm >eing traded on Wa$$ Street =as

gross$< overva$ued! Eventua$$ed in different =aute framing in ='ic' some

c'aracteristic of an o>Cect or event serves as t'e focus of t'e framing manipu$ation!

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EDamp$e for t'is is 'aving to c'oose >et=een >uue'avior

is framed! EDamp$e for t'is cou$d >e ? motivating peop$e to @uit smo*ing in pu>$ic ><

offering 10 re=ard or imposing 5 pena$t

T'roug' framing it is possi>$e to c'ange peop$eBs >e'avior for t'e >etter >< simp$<

modife$o= eDamp$e Hamenica 2012 p! I

WeBve a$$ stood >e'ind someone at a p'otocopier and =anted to pus' in! >vious$ecauseB fo$$o=ed >< a reason forces t'e decision

t'roug' a different frame Hat $east for some peop$eI!

&esu$t )n frame 1 a>out 'a$f H70R of peop$eI said o*a< initia$ eDposure to a num>er serves as a reference point and inf$uences

su>se@uent Cudgments a>out va$ue HSamson 2015 p! 2-I! onsumers are >om>arded =it'

prices and mar*eters are often tra$ance >et=een overpricing and

underpricing an artic$e!

)n order to understand Anc'oring itBs a$so important to note t'e fo$$o=ing

• EDpectations modif< eDperience

• W'at peop$e eDperience to a $arge eDtent is determined >< ='at t'e< eDpect

)magine


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and ;00 pm on t'e same da< ma*ing t'e >est a$ternative seem more accepta>$e! T'is tec'ni@ue

of eDperience engineering is an eDamp$e of anc'oring H"iDon J Toman 2010I

." 9ariable sched&le of reinforcemen

&andom re=ards engender t'ose =it' greater $o


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Cha#er .% Concl&sion

T'e imp$ications of /e'aviora$ Economics are far+reac'ing and its concepts can >e app$ied

in an< sp'ere of activit< suc' as finance 'ea$t' mar*eting pu>$ic po$icies! /ecause of its

mu$ti+discip$inare app$ied most nota>$< in socia$ media net=or*s ='ic' =i$$

dominate t'e economic paradigms in future as more and more consumers interact =it' eac'

ot'er over t'ese c'anne$s! T'ere is su>stantia$ researc' ? @ua$itative and @uantitative to

suggest incorporating socia$ net=or*s into economics =i$$ >ecome increasing$< necessar

/e'aviora$ Economics is not a rep$acement for traditiona$ economics >ut an additiona$ too$

='ic' app$ies pse'avior to tac*$e

practica$ issues and cu$tivate a cu$ture of pse as*ed

are

1! .o= can a >e'aviora$ scientist steer consumer to=ards a particu$ar direction =it'out

affecting t'eir sense of free =i$$

2! 3urt'ermore =i$$ peop$e 'ave sufficient contro$ over t'eir c'oices and >e a>$e to

arrive at a decision =it'out conceding t'eir se$f+interest in a consumer environment

/e'aviora$ Economics is a radica$ ne= concept for mar*eters in ='ic' it eDpands t'eir

eDisting mar*eting too$ *it ='i$e a$$o=ing t'em to understand 'uman >e'avior more

seconomics and consumerism at a $o= cost!

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/eferences

Arie$e'aviora

3a>ri%i M! H2015 3e>ruar< 5I! Mc"ona$dNs /e'aviora$ Economics &andom &e=ards Wor*/etter! &etrieved ,ovem>er 1- 2015 from 'ttpFFadage!comFartic$eFspecia$+report+super+>o=$Fmcdona$d+s+>e'aviora$+economics+random+re=ards+=or*F2;7;7;F

.o T! Lim ,! J amerer ! Hn!d!I! .o= “Ps'd!1;;-!2-0:

14

http://doi.org/10.1098/rstb.2009.0169https://hbr.org/2010/07/how-call-centers-use-behaviorahttps://hbr.org/2010/07/how-call-centers-use-behaviorahttps://hbr.org/2010/07/how-call-centers-use-behaviorahttp://dx.doi.org/10.1509/jmkr.43.3.341http://doi.org/10.2307/1914185http://dx.doi.org/10.1146/annurev-economics-080511-110909http://dx.doi.org/10.1146/annurev-economics-080511-110909http://dx.doi.org/10.1006/obhd.1998.2804https://hbr.org/2010/07/how-call-centers-use-behaviorahttps://hbr.org/2010/07/how-call-centers-use-behaviorahttp://dx.doi.org/10.1509/jmkr.43.3.341http://doi.org/10.2307/1914185http://dx.doi.org/10.1146/annurev-economics-080511-110909http://dx.doi.org/10.1146/annurev-economics-080511-110909http://dx.doi.org/10.1006/obhd.1998.2804http://doi.org/10.1098/rstb.2009.0169


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Miravete Eugenio#! 200! 'oosing t'e Wrong a$$ing P$an )gnorance andLearning! +merican Economic $evie* 6'H1I 2;9+10! 'ttpFFdD!doi!orgF10!1259F0002-2-021:550:

N"onog'ue T! J &a>in M!! H1;;;I! "oing )t ,o= or Later! #he +merican Economic $evie* 76H1I 10?12:! &etrieved from 'ttpFF===!Cstor!orgFsta>$eF117;-1

&ot'sc'i$d M! Hn!d!I! A fe= >e'aviora$ economics insig'ts for socia$ mar*eters! %ocia Marketing 8uartery, 0 HI -+1! doi10!10-0F152:500:!2001!;;71159

Samson A! HEd!IH2015I! T'e /e'aviora$ Economics 8uide 2015 H=it' an introduction ><"an Arie$er 12 2015 from'ttpFF===!>e'aviora$economics!com

T'a$er &! H2015I! Misbehaving: #he making of behaviora economics! ,e= or* it15

http://www.behavioraleconomics.com/http://www.behavioraleconomics.com/


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!ffidavi

) 'ere=it' dec$are t'at t'e fo$$o=ing =or* ) 'ave prepared is m< o=n =it'out t'e useof materia$s ot'er t'an t'ose cited!

P$ace o$ogne 8erman<

"ate 27!11!2015

Signature

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behavioral economics and social media

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