Attention Economists: People Are Not Rational

Forbes profiles economist Sendhil Mullainathan in the current issue. His specialty is the growing field of behavorial economics, the combination of psychology and economics. Mullainathan did some work with a bank in South Africa in developed a direct marketing campaign for short term loans.

They varied the interest rate and also varied a number of cues designed to trigger psychological responses such as a smiling photo in a corner of the letter and table that provded more- or less-information and choice. The sample was large, more than 50,000 letters, and the study was randomized and controlled.

The impact of some the small, nonfinancial cues surprised even then study’s authors, though it probably wouldn’t have been a shock to creative types on Madison Avenue. It turned out that having a wholesome, happy female picture in a corner of the letter had as much positive impact on the response rate as dropping the interest rate by four percentage points.

As they said, I am not sure marketeers would be surprised to find people are irrational.