Behavioural Economics is a subset of economics which studies how social, cognitive, and emotional factors impact the financial decisions we make. You may think that you’re a rational, clear thinking decision maker but the chances are you’re easily swayed by factors you’ve never properly considered. Behavioural Economists study this and can therefore give us hints about how we might take advantage of other people’s irrational decision making (if that doesn’t sound too unethical…).

Understanding the ways we make decisions will help you to create better ads.  Here are 5 cognitive biases and other effects identified by Behavioural Economists which you can use to improve the click through rate and/or conversion rate of your ads.


1. The Zero Price Effect.

In his book Predictably Irrational Dan Ariely points out that we get oddly excited about things which are free. When we have to pay for something we are more considered in our decision making than we would be if it was free. This is even the case when something is almost free – a 50p cupcake requires us to way up the benefits of the cupcake but if it’s free we may consider it a “no-brainer”.

You may already be giving something away for free but without saying so – adding “free” to your Ad copy could increase your click thorough rate or inquiry rate.

How to use it.

Offer your service, download, review or consultancy call for free. Offer free shipping by either adding shipping costs to the product or simply reducing your profit per item (you can use split testing to see if this makes you more money in the long term).


2. Loss Aversion.

We all suffer from Loss Aversion or Fear of Missing Out (FOMO). Studies have shown that losses have twice as much psychological impact on us as gains. If someone is viewing your Ad you may be better off telling them what they stand to lose if they don’t act rather than what they stand to gain if they do.

How to use it.

Time limited offers are the obvious way to take advantage of loss aversion, in AdWords you can use Ad Customizers to include a countdown in your Ad. Offer a unique and limited discount via a code in remarketing ads to increase conversion rates for returning customers.


3. The Paradox of Choice.

In his book (and TED Talk) The Paradox of Choice Barry Schwartz argues that removing choices can reduce anxiety in consumers. Too much choice makes it difficult for us to make an informed decision as we must try to weigh up all the options and their relative merits.

Reducing choice may make it easier for consumers to make a decision and therefore increase sales or conversions.

How to use it.

Present the user with a few options but don’t overwhelm them with choices, for example send users to a product page rather than a category page. Split test landing pages with fewer options and see how this impacts on your conversion rate.


4. Anchoring.

Anchoring is a cognitive bias based on our tendency to rely on the first piece of information presented (for example a price) to us when making decisions. Each subsequent piece of information is considered in relation to the anchor which makes the anchor very important for decision making. We desperately want information when we’re trying to make a decision so we grab hold of the first quantifiable bit of data we’re presented with and start to base our thinking around this.

The most common use of Anchoring is the process of discounted prices – we’re much more inclined to buy a £600 sofa if we think we’re getting £1,000 worth of sofa for our money.

How to use it.

Use a full price and a discounted price in your Ad copy. Be careful that your Ad isn’t misleading (no fake full prices!), check with the ASA if you’re unsure.


5. Bandwagon Effect.

The (simplified) Bandwagon Effect says that the preference for a commodity increases as the number of people buying it increases. This is an indirect way of taking advice from other people – if it’s good enough for everyone else it’s good enough for me. You’ll notice that charity collectors will often use this technique by saying that your neighbours have all been very generous (despite the fact that they only spent 20 seconds next door!).

How to use it.

Quote sales/subscription figure (“The UK’s top selling widget”) or suggest that uptake has been very positive (“a few places remain”).


Hopefully you’ll find these tips useful- if you know of any more please let me know in the comments below or on Twitter.

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