Behavioral economics People are complex, and their behavior and decisions don’t always follow the predictions of classical economic models. Behavioral economics couples the scientific research on the psychology of decision making with economic theory to better understand what motivates people to make economic decisions. Psychological research has shown that people are influenced by social pressure, loss aversion and emotions. Understanding people’s behavior and their deep rooted emotions concerning money will help us connect with them through our business. There is a certain kind of pain associated with loss of money, people do not want to lose or spend their money. A lot of factors influence how people value money and how much pain they feel upon spending it. The travel tourism industry can use this understanding of people value money and their emotions to make better business. It is an industry which dwells upon people’s aspirations of seeing the world and yet staying safe and comfortable with proper arrangements for food and accommodation made, especially in the Indian context. But all of this comes with a price and that too a huge one. Behavioral economics at play: Defaults: What travel companies can do here is that, first, make the itinerary better represented to be a default with maximum inclusive features Prospect theory: frame loss, project discounts as an opportunity more as a loss to the customer as in missing out an opportunity on a bargain Anchoring heuristics: People anchor on the first information that they receive. Provide discounts as a figure rather than a percentage. Numerical figures are better retained and understood by people. Framing: For short medium priced tours, frame amount as x+y together as a single sum of amount, instead of x, y separately for e.g. airport transfers and other such details Choice overload: tunnel choices so as to make the customer choose the specific one 1. 2. 3.
Airport transfers included amount x Entrances to places covered amount y (greater than x) Entrances to places and airport transfers amount y Most people will choose option 3 These are just few examples how understanding people’s behavior and behavioral economics will help in making a business more successful and help garner more benefits GunakshiKamble SDM 14