More Important Than Price: Cognitive Attractiveness

Yale economists experiment with typical and customary unsolicited offers of loans to South Africans at varying interest rates, to test such "psychological features" as excessive information, the picture of an attractive woman, etc., in the text of the offer letter.

These "features" mattered up to one-half of an interest point, and showed more impact in the less attractive (higher rate of interest) offers.

Our core finding is the sheer magnitude of the psychological effects....

...On average, any one psychological manipulation has the same effect as a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers. Moreover, the psychological features do not appear to draw in marginally worse clients, nor does the magnitude of the psychological effects vary systematically with income or education. In short, even in a market setting with large stakes and experienced customers, subtle psychological features that normatively ought to have no impact appear to be extremely powerful drivers of behavior....

We believe that many of the insights gained in this paper are also relevant for the design of socially oriented programs. Greater care in recognizing human cognitive limitations (such as a tendency to forget or to postpone decisions in the face of richer option sets) may have first-order effects on program participation decisions. For example, such cognitive proclivities may have to be more fully taken into account in the design of health care or retirement savings plan choices....

The incorporation of these drivers into our models will not be a simple task. Instead, it will require a much deeper understanding of the specific contexts in which a particular psychological driver is likely to be relevant and the specific contexts in which it is not. The economic magnitude of our findings, however, suggests that the development of richer models may be necessary in order to reach a more accurate description of economic behavior.

Design matters.

Via Stuart Buck