Neuromarketing, behavioral economics, EEGs, OH MY! Are you befuddled by all the terms in the field of neuromarketing? Does a search on Wikipedia still leave you scratching your head? Don’t worry. I’m going to explain it all to you in laymen’s terms. This ongoing glossary will cover the best, the latest, the most important terms in the fields of neuromarketing, neuroeconomics, behavioral economics, and other related fields. Check back every now and then to learn something new. If you want to know how often it will be updated, chances are pretty good that when I introduce a new term on my blog it will end up here.
Neuromarketing – Neuromarketing is the study of brain response to marketing stimuli. The field is relatively new, unregulated, and currently without any industry standards. However, it is common across all the public neuromarketing firms that three key measures are studied: attention (how much is the subject’s brain sitting up and paying attention), retention (are areas of the brain associated with memory and recall lighting up?), and emotional engagement (is the marketing message making the subject “feel” something). Marketing stimuli is introduced while the subject’s brain activity is monitored through EEG or fMRI in real time. In laymen’s terms? You watch an ad while they watch your brain.
Behavioral Economics – The use of cognitive and psychological studies to determine how people make economic decisions. Behavioral economists paved the way for neuromarketing when they discovered that economic decision making was largely irrational and ruled by unconscious cognitive biases and emotion.
Anchoring – Common cognitive bias that causes people to rely too heavily on one piece of information to make decisions. For example, for those who find the BP oil spill fiasco to be highly negative, those people will base their gas/oil buying decisions in the future based on that negative anchor from the past, EVEN if BP was under different management or other circumstances within the company had changed. A positive example would be people’s preference for Coke vs. Pepsi because of positive feel-good anchors with Coke.
Choice Architecture – Coined by Thaler and Sunstein in their 2008 book, Nudge: Improving Decisions About Health, Wealth, and Happiness, and is the practice of understanding cognitive bias and designing environments, messages, products, ads, websites — anything that is designed — to help “nudge” the decision making process. For example, people will choose healthier foods in a cafeteria if they are presented first and in an eye pleasing way.
Cognitive Bias – First introduced as a concept in 1972 by Amos Tversky and Daniel Kahneman (behavioral economist), it is the tendency to make errors in judgement and decision making because of mental shortcuts, rules of thumb, emotions, etc even when factual and rational evidence should lead to a different judgement or decision. Cognitive biases are the obstacles that marketers need to get around because even if the product is better in every way from the competition, cognitive biases can prevent potential customers from coming to that conclusion (just ask Pepsi!). (Many of the terms on this page are individual and identified cognitive biases.)
Cognitive Fluency – The human brain likes to take short cuts, and prefers things that are easy to think about. Therefore, people prefer, for example, websites with easy to read font, bullets, and clear navigation. Another example is that stocks perform better if their names are easy to pronounce and their ticker symbols are pronouncable.
EEG – Maybe it’s only neuro-geeks like me that have seen a thousand EEG caps (not necessarily in person). EEG stands for electroencephalography. When your brain’s neurons fire they produce electrical activity, and this can be measured by EEG. Multiple electrodes are placed on the scalp to record electrical activity in the brain allowing the researcher to be able to see in real time which areas of the brain are activated. For an example of what this looks like to the neuromarketing researcher, check out this video (Mr. and Mrs. Potato Head are in it!). There are more video examples like that one here.
Endowment Effect – A Behavioral Economics hypothesis that people place more value on things they own versus things they don’t own, even if the ownership is only perceived. This human bias is reinforced by “loss aversion”, so that generally the concept of losing what we have, think we have, or can imagine we have is much more powerful than the desire to attain something we don’t have, don’t think we have, or don’t imagine we have.
Mirror Neurons – These special little neurons deemed responsible for human empathy sure get a lot of press even though their very existence in humans is still in question and hotly debated. First discovered, quite by accident, in the Macaque monkey, mirror neurons have been given high praise and high hopes, from the cause to the cure of autism, to absolute proof that we were born to be empathic. Mirror neurons (if they exist), fire in the brain when merely observing another’s actions. In other words, if I see you stub your toe, my mirror neurons will fire in a similar pattern to yours, allowing me to “feel” your pain — the very definition of empathy.
Social Proof – The human tendency to believe that others around them might know more than they do, and thereby making decisions based on what others are doing, particularly as more people lean toward one behavior/decision/purchase. Also referred to as “informational social influence” by some. For example, seeing a line outside an establishment suddenly makes that business more desirable to passers by. Social proof can come about through a few social influencers (individuals trusted and looked up to) or by mass. It is another cognitive bias since as we all know, just because a lot of people are doing something doesn’t make it a good idea. Need I remind you of bell-bottoms or the Beehive?