The essay is based on the book ‘Animal Spirits’ (2010) by George A. Akerlof & Robert J. Shiller and related articles. The essay looks into the description of animal spirits, what they are and how they contribute to the development of marketing practices and to what extent they are used in marketing practices. In fact, by Animal Spirits the authors understand Behavioral Economics – an underestimated area of studies up till now. Behavioral Economics came in the limelight again in 2002 when Daniel Khaneman won the Noble Prize for Economic Sciences; in his work he reanimated animal spirits that were first mentioned by Keynes. BE challenges existing theories that state that human is influenced more by rational motives rather then irrational thinking. According to traditional theory, human is a ‘rational man’, that follows clear rules of logic when making a decision. That is a fact that is supported by all the papers used in this essay, so next step is to understand all the mechanisms and fundamental nature of different patterns of behavior in theory and integrate it in marketing theory (Gordon, 2010). The paper gives an overview of existing BE, or animal spirits, concepts from the mentioned book (confidence, fairness, corruption and antisocial behavior, money illusion, stories) and their possible implementation (in the form of assumptions made by the student). Also some heuristic concepts are provided as ways to simplify decision-making (theory of relativity/decoy, fundamental attribution error, anchoring/re-anchoring, availability bias, sensation transference, gains and losses, the price of zero, framing, priming).
Behavioral Economics (BE)
Behavioral Economics are based on the hypothesis that most of our choices we make are not deliberate and conscious. We do not act as ‘rational men’ and weight every possibility against each other in order to maximize benefits and minimize costs, like traditional theory supposes we do. Instead we follow our irrational feelings (emotions, instincts, etc.) and inherent biases that are built into our brains and that take place irrespective of our background or culture, as they are hardwired in us. That notion fo the biases being inherent is supported by more then 40 years of experiments and research. For these reasons the decisions we make are quite often imperfect and from traditional point of view simply irrational. BE suggests that a particular behavior can be encouraged if the ‘process of choice’ is known with the use of so-called ‘choice architecture’ concept by presenting a choice in a subliminally obvious way – when I customer is being presented with a choice where the choice is easy to make as the presentation itself gives an answer. That concept can be used together with the knowledge that people do not have a definite understanding what they want, and they choose from what they find available, and in their everyday routine life they retread to using ‘heuristics’ – rules of thumb. Because BE is a combination of economics and social phycology, the research went further and it was revealed, that a decision-making process is highly influenced by context (who, how, when and where). Research found that most of the time people are not even aware what drives them when they are making decision, so for these reasons, qualitative research has also moved further in theory and new points of attention are introduced (Gordon, 2011; Gordon, 2010). Previously described concepts can be considered as cornerstones of application of BE. Different process of choice, use of ‘ heuristics’
For several decades marketers employed different techniques to appeal to target audiences with an idea that customers know exactly what they want – for what purposes, what kind of product, what features, at what costs, etc. But recent research suggests that, in fact, the process of choice is exactly opposite- people first buy and only then they explain...