The Psychology Behind Decision-Making

Navigating Customer Minds: One of the central tenets of modern societies is freedom. Freedom of choice however doesn’t mean one isn’t a slave to the human condition. Good CX starts with putting yourself in the customer’s shoes, and in this case, the customer’s mind too.

From the Editor’s Desk

The CX agent of change wears many hats. A multi-disciplinary role that needs a working knowledge of psychology, behavioural economics, technology, design and storytelling to name a few.

CXM Today puts together a quick list of cognitive biases that may be worth knowing about, and that can explain why customers act the way they do.

The Paradox of Choice

Did you know that having too many choices can add to shopper anxiety?

The paradox of choice is a concept introduced by psychologist Barry Schwartz which suggests that the more options we have, the less satisfied we feel with our decision. This phenomenon occurs because having too many choices requires more cognitive effort, leading to decision fatigue and increased regret over our choices.

If we only had to choose between two options, it would be easier to know which option we prefer since we can easily weigh the pros and cons. When the number of choices increases, so does the difficulty of knowing what is best. Instead of increasing our freedom to have what we want, the paradox of choice suggests that having too many choices actually limits our freedom.

Changing how choices are presented to consumers could help reduce overwhelm, and help ease the decision-making process. Quicker decisions means better conversions.

Frequency Illusion or Baader–Meinhof Phenomenon

It refers to the cognitive bias where people tend to notice something more often after they have been recently exposed to it. This bias can lead to the mistaken belief that the frequency of the observed phenomenon has increased, even though it remains unchanged.

Frequency Illusion has been studied in psychology and behavioral economics, particularly in the context of perception, attention, and decision-making.

Nurture your audience. As a brand, your goal should be to be the first thing that pops into your customer’s mind when they’re presented with something related to what you do.

Confirmation Bias is the tendency to search for, interpret, and remember information that confirms one’s preconceptions. Frequency Illusion can enhance Confirmation Bias by making customers overly trust frequently observed information.

The Von Restorff Effect

Also known as the isolation effect, it predicts that when multiple homogeneous stimuli or similar items are presented, the stimulus that differs from the rest is more likely to be remembered. The theory was coined by German psychiatrist and pediatrician Hedwig von Restorff, who, in her 1933 study, carried out a practical test that confirmed the theory.

This effect manifests itself due to the contrast evoked between one element and the others which causes our brains to wake up and pay more attention, meaning that this different element will not only be noticed in the present moment but stick in our brains for longer.

This phenomenon is best observed in designing web pages, digital ads, or anything messaging with a visual call to action. For example, when you have a default pricing plan (the option you would prefer people to choose) then you can influence how attractive this option is by making it stand out from the others.

Hyperbolic Discounting

The core principle is that people value rewards that are available right away much more than those that are delayed, even if the delayed reward is significantly larger.

Instant gratification – the cognitive bias where consumers tend to prioritise immediate rewards, like discounts or special offers, over future benefits, even if the larger benefit is objectively better value.

Marketers leverage this by creating a sense of urgency with time-limited deals, “buy now” incentives, and other strategies to encourage immediate purchases.

A huge portion of purchase decisions are not made based on the actual discount you give, but by the way that discount is perceived. Even if the final price is the same, if your potential customers believe that your offer is better, they’re likely to choose you.

The Halo Effect

The halo effect is a cognitive bias that claims that positive impressions of people, brands, and products in one area positively influence our feelings in another area. Think of it as a mental shortcut that can help people make decisions quickly. They may not be the best decisions, but they are quick. The halo effect is unconscious and not intentional.

An unappealing visual design can cause consumers to perceive a product as unreliable, even if there’s no direct connection between the two. Similarly, when a brand partners with an influencer who has a large social media following, the influencer’s positive attributes are transferred to the brand.