Behavioral Economics: The Next Frontier for Market Research

Dan Ariely, the James B. Duke Professor of Behavioral Economics at Duke University and author of Predictably Irrational, recently published an insightful article in the Harvard Business Review titled “The End of Rational Economics.”
Following the global economic crisis, it has become painfully apparent that individuals do not always make rational decisions and the invisible hand is in fact fallible. Ariely argues that we need to reject rational economics and embrace behavioral economics, which is centered around the notion that individuals are irrational and their behavior is driven by unconscious biases and motivators. After expounding on studies that highlight the seducing power of “free,” individuals’ propensity to cheat just a little (especially in a collaborative environment), and individuals’ drive for revenge if they are treated unfairly, Ariely explains that traditional economic models cannot account for these behaviors. But behavioral economics can. By approaching business from an experimental approach, we can predict irrational behaviors and put operations and policies in place that will capitalize on these behaviors and not have adverse effects. A behavioral economics mindset proves helpful in implementing pricing, product launches, and dealing with unhappy customers, in addition to many other aspects of business. Ariely contends that companies that utilize a behavioral economics approach can improve decision making and reduce risk to both the company and its consumers.
So, the questions of the day on the blog are:
How widespread is the use of behavioral economics in enterprise businesses today? Have you incorporated irrational behavioral prediction into your market research methods? Do you think you have a good sense of how to apply predictably irrational behavioral economics to your business questions? How long do you think it will be before the behavioral economic model replaces the standard economic model in market research?