The Behavioural Economics of Managing Experiences

“If you ever get close to a human / And human behavior / Be ready, be ready to get confused”

– “Human Behaviour”, Björk/Nellee Hooper, 1993

https://www.youtube.com/watch?v=KDbPYoaAiyc

OK, just to be clear, I have ZERO academic qualifications in Economics. I possess nothing more than a layman’s enthuasism for the topic and my own experience of how relevant behavioural economics (PDF) is to my profession of designing and managing customer experience.

Behavioural economics attempts to explain the impact of psychological, social, cognitive, and emotional factors on economic decisions and systems. It all might sound a bit dry, so why do more and more people find it so fascinating?

Duke University’s Professor of Psychology and Behavioural Economics Dan Ariely puts it this way:

“I became engrossed with the idea that we repeatedly and predictably make the wrong decisions in many aspects of our lives and that research could help change some of these patterns.”

Speaking for myself, I’m a fairly rational person, yet I also “repeatedly and predictably” make poor decisions. Worse, many times I don’t even notice. Worse still, when things go very wrong, I often manage to rationalize the poor decision to myself as “the best thing I could have done.”

“There’s definitely, definitely, definitely no logic
To human behavior
But yet so, yet so irresistible”

Thanks, Björk. Couldn’t have put it any better.

Irrationality at Scale

The important concept in behavioural economics is that we are often irrational in our dealings with others, which creates market inefficiencies.

Behavioural economics applies cognitive psychology at scale. If you can understand how people will think and behave in individual transactions, you can start to tweak, manage or create entire economic systems.

Similarly, Customer Experience Management (CX or CEM) seeks to orchestrate the ensemble of individual transactions that constitute a relationship between an organization and its customers.

If you believe your firm has perfect employees, perfect customers and perfect information systems bringing them together, then you probably don’t think you need CX/CEM.

The reality is that no firm has this perfect, frictionless setup. Employees and customers may make poor decisions based on limited information, emotional reactions, skewed perceptions and cognitive biases. Engineers may deliver high-performance websites, marketing, CRM and ERP systems, but in use, they may become misinformed, misaligned, or misguided, throwing even more inefficiency and chaos into the system.

From empathy to economics

Classical CX/CEM and design thinking unabashedly focus on empathy for real people. We try to understand their needs and how and why they behave, in order to design better-orchestrated experiences and improve and strengthen relationships.

In that effort,

• Cognitive Psychology gives us a useful research framework to understand the way customers think and feel, which is why many top UX and Service Design researchers come from a psychology or sociology background.
• Behavioural Economics gives us an equally useful framework to understand transactional decision-making and behaviour – and how to nudge employees and customers towards mutual beneficially outcomes.

Although it sounds very academic, the whole point of having frameworks is to allow CX/CEM teams to put their insights into a scientific reference that others can understand and trust.

After all, CX/CEM research is meant to drive change. To human behaviour.