The TV series ‘The Apprentice’ may or may not be your sort of thing but Sunday’s final was a must-see for anyone with an interest in behavioural economics.
Consider, for example, Nick Holzherr – one of Lord Sugar’s three finalists. He proposed a software app that would do away with the need for the family cook to work out the ingredients they need for the weekly supermarket shop. They would just select the recipes they intended cooking and the number of people they were cooking for and the app would do the rest, ordering up the ingredients and delivering them to your door. In short, the chore of writing up a weekly shopping list would be done away with.
“The first factor in creating (market) domination is the role of convenience,” notes the behavioural economist Neale Martin in his book Habit. “Starbucks is willing to open a store across the street from an existing Starbucks if traffic justifies it. The typical logic of not wanting to cannibalize existing store sales is replaced by the knowledge that you sell a lot more coffee if you don’t make customers cross the street to get it.”
This is re-enforced in the findings of a study by Johnson & Goldstein, which showed how in countries where we have to ‘opt in’ to be organ donors around 20% of people are registered, but in countries where we have to ‘opt out’ of being organ donors around 80% are signed up. Principle or rational thought has little to do with it; people will always take the easy option.
Holzherr’s “recipe idea” plays to this human tendency perfectly. Personally I’d take it a step further, adding a pop-up reminder for the start of cooking time and loading the recipe to my calendar.
But Lord Sugar didn’t go for it. Maybe he doesn’t do the shopping and cooking in his house and so wouldn’t have the detailed knowledge of current behaviour to see how Holzherr’s idea could make life easier. Or maybe he had concerns over how to monetise it in the long term. But I suspect if he conducted detailed observational research to understand the “bumps” in the online shopping journey he would see what an opportunity this could be.
Lord Sugar certainly displayed his own behavioral tendencies in the final decision, which was between the “safe option” of a tried-and-tested recruitment agency and a “dangerous gamble” – a fine wine hedge fund.
A behavioural economist would have known instantly who would win. Just like the vast majority of humans, Lord Sugar’s decision was determined by an in-built and overwhelming desire to avoid risk. The recruitment agency triumphed.