A Psychologist, Behavioral Economist, and Marketing Scientist Walk into a Bar...

October 11th, 2015

Under the umbrella of behavior science sit multiple disciplines that contribute to our understanding of decision making.  In popular parlance, many of these insights get lumped together as "behavioral economics," but this is a muddled view of the complex interaction between many related but distinct disciplines.  (In fact, despite winning a Nobel Prize in Economics, Daniel Kahneman claimed that he is “innocent of economic knowledge” and used the words "economic" and "economics" fewer than five times in his entire Nobel Prize lecture.)

 

In theory and in practice, these disciplines use dissimilar methods to achieve their objectives.  The table below summarizes some of the key differences (in broad strokes) of each discipline as applied to decision making:

 

Psychology Behavioral Economics Marketing Experimental Economics Neoclassical Economics
Tries to understand How our behavior arises from mental processes How we make decisions How we buy products How we respond to economic incentives How rational economic agents interact with the market
Most influenced by Different branches of psychology (cognitive, social, personality, evolutionary, comparative, developmental), neuroscience, and behavioral economics Psychology and marketing science Psychology Economics and psychology Philosophy
Research methods
  • Controlled lab experiments, including methods from medicine and related fields (neuroimaging, psychophysical, animals, twin studies)
  • Some longitudinal and correlational studies, minimal field experiments
  • Controlled lab experiments (primarily survey-based, but with more psychological measures than marketing and economics)
  • Controlled lab experiments (primarily survey-based)
  • Some focus groups and other observational methods
  • Some field experiments
  • Controlled lab experiments (primarily economic games with a single task repeated many times)
  • Some field experiments
  • Analysis of field/market data (non-experimental)
Things they talk about
  • Cognition (attention, perception, memory, judgment, decision making, language)
  • Affect (emotions, motivation, arousal/physiology)
  • Social factors (influence, attitudes, stereotypes)
  • Context (framing, decision architecture, mental accounting)
  • State changes (prospect theory reference dependence, loss aversion, anchoring/adjustment)
  • Bounded rationality, heuristics, and biases (willpower, choice overload, judgment under risk and uncertainty)
  • Consumer behavior and applied psychological processes (product evaluation, information search, identity, goals)
  • Pricing and consumption
  • Brand and perception
  • Coordination games and social preferences (ultimatum game, dictator game, public goods, fairness/inequity aversion)
  • Markets, auctions, and incentives
  • Rationality and utility (rational choice, expected utility, defined and stable preferences, self-interest)
  • Supply and demand (price and quantity, marginality, elasticity, game theory)
Things they don't talk about
  • Most neoclassical economic constructs (utility, marginality, supply and demand)
  • Most applied marketing constructs (price elicitation, branding)
  • Some psychological constructs that don't meaningfully affect decision making (arousal, stereotypes)
  • Most experimental economic constructs (coordination, markets, auctions)
  • Some psychological constructs that don't meaningfully affect consumer behavior
  • The mental processes that lead to economic outcomes
  • Data with individual differences (demographics, response times) or subjective measures (perceptions, and anything self-reported)
  • Anything that takes place between your two ears

 

So, how do these differences play out when the professors from each of our disciplines order a drink?

 

Psychologist

The psychologist is interested in which mental processes are going to contribute to her decision.  As the experimental economist dashes into the bar after running straight from his lab, the psychologist wonders how his elevated heart rate will affect his preferences.  She's also thinking about how even her colleagues who don't really want to drink will still have one due to social norms, and she's wondering what it means to "feel like having a Cosmopolitan today."

 

Behavioral economist

The behavioral economist is focused on the multitude of factors that lead to the decisions made in the bar each day.  He recalls the psychologist's stringent diet, and wonders if her depleted willpower from eating salads all day might lead her to drink too much.  Looking at his watch, he cringes because when happy hour ends in three minutes, prospect theory tells him that people who miss it will be more upset than people who unexpectedly order during tomorrow's happy hour.

 

Marketing scientist

The marketing scientist pays attention to the immediate factors that lead his colleagues to purchase particular drinks.  He recognizes that the presence of expensive top-shelf liquor makes the cocktail specials feel slightly less pricey than they really are, and gnaws at whether the "50% off" happy hour special would be more successful if it were framed as "buy one, get one free." Needless to say, since the marketing scientist does the most work with industry, he pays for drinks.

 

Experimental economist

The experimental economist wonders if this is a one-time interaction or if future gatherings will occur, because he knows that it will affect whether his colleagues pay back the marketing scientist as they promised.  Knowing that pure altruism does not exist, he questions the motives of the bartender who tells him "the next one's on me."

 

Neoclassical economist

The neoclassical economist orders quickly, because she has a set of stable preferences.  As a perfectly rational utility maximizer, she will consume whatever product (beverage or otherwise) provides the highest utility, until the marginal utility of that option falls below the next best option.  At that point, she will depart from the bar to wherever her ordered preferences take her.