MichaelAaron Flicker, a veteran at the intersection of business consulting, advertising, and technology, shares his expertise on the behavioral science principles that underpin consumer and investor decision-making. As the co-author of the book Hacking The Human Mind, Flicker explains how psychological forces shape markets and brands, providing a window into the motivations behind human actions.
Starting his entrepreneurial journey at age 14 in his parents' basement during a time when the internet was a burgeoning frontier, Flicker leveraged early opportunities in internet programming. This initial venture eventually expanded into multiple companies unified by a central theme: understanding why people do what they do, informed by behavioral science. His professional experience ranges from collaborations with Nike and JP Morgan to AstraZeneca and beyond.
One core observation Flicker makes is that humans tend to be more emotionally driven than rational. He references Nobel laureate Daniel Kahneman's analogy that thinking is to humans what swimming is to cats—possible but not preferred. The human brain, though only 2% of body weight, consumes about 20% of the body's energy, emphasizing a natural inclination for mental efficiency and shortcuts. This tendency leads people to favor decisions that minimize cognitive effort.
Flicker discusses how such human tendencies influence investing, particularly in the context of market cycles. He argues that emotional reframing can empower individuals to act more boldly and remain steadfast in their long-term strategies, despite short-term downturns. Recognizing that rational arguments may not always sway behavior, an understanding of underlying psychological mechanisms is essential to foster better investment discipline.
An important concept Flicker highlights is loss aversion—the stronger impact of potential losses compared to equivalent gains. Drawing upon the foundational work of Amos Tversky and Daniel Kahneman, he recounts an experiment in which participants needed a reward twice as large as the loss they risked to accept a bet. This heightened sensitivity to loss explains behaviors such as reluctance to sell losing investments or avoidance of riskier opportunities.
Flicker illustrates loss aversion in marketing through the well-known "Got Milk" ad campaign, which focused on the fear of running out of milk rather than its benefits with snacks like Oreos. In investing, such fear can lead to panic selling or inertia. Companies and advisors can assist investors by providing insights that help them understand these emotional biases and avoid counterproductive decisions.
Another behavioral phenomenon Flicker describes is the sunk cost fallacy, where individuals continue a course of action based on prior investments rather than current rational evaluation. He cites studies showing people favor more expensive ski trips they booked first, even when a cheaper, better option exists, simply because of already spent resources. This bias affects investment decisions, making investors reluctant to discontinue underperforming assets.
This principle extends into subscription models and pricing strategies. Amazon Prime, for example, benefits from customers' sunk cost fallacy, with Prime members spending significantly more than non-members. Charging monthly fees, as opposed to annual lump sums, can increase the likelihood of continued usage by maintaining payment awareness, encouraging subscribers to maximize the value of their membership.
Further research illustrates that consumers who pay full price for season tickets attend more events than those who purchase at a discount, indicating that the perceived investment heightens commitment. Brands face a balancing act between offering discounts to drive sales and preserving perceived value to promote loyalty and usage.
Flicker underscores that companies with a strong grasp of customer psychology often have individuals who instinctively understand what motivates consumers, even if they cannot articulate the behavioral science behind it. His book seeks to clarify these underlying reasons to enable more deliberate application of these insights.
One intriguing concept detailed is the "Pratfall effect," a psychological phenomenon where small mistakes increase likability. In experiments, a quiz contestant who spilled coffee on himself was rated as 55% more likeable. Brands like Guinness, Avis, and Listerine have capitalized on this by embracing perceived flaws or inconveniences to build trust and affinity.
While artificial intelligence is increasingly influencing consumer decisions, Flicker believes that human biases will continue to play a significant role for the foreseeable future. AI-powered recommendation systems are emerging, but the psychological forces shaping human behavior remain central, providing opportunities for brands to engage authentically with customers.
Overall, Flicker's insights offer valuable perspectives for investors and marketers alike, emphasizing the importance of understanding and ethically employing behavioral science to enhance decision-making, brand strategy, and customer engagement.