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Consumer Psychology

A Roadmap for Strengthening the Field of Consumer Psychology

Though consumer psychology studies how people behave in the market, very little is actually known about what consumers know of and believe about markets. YCCI looks to new work from Yale SOM associate professor Jason Dana that builds a framework to fill this gap.

To state the obvious, global markets are complicated: they comprise millions of connections that crisscross the globe. They rely on the coordination of labor, resources, and manufacturing across dizzying spans of space and time.

But consumers don’t see this vast and intricate web when they walk to the store and buy a tube of toothpaste. They see a few brands, a few prices, and they make a choice in a one-off transaction. What’s more, our intuitive understanding of market exchanges has evolved from hundreds of thousands of years living in small tribal groups. Modern markets in all their complexity are a blip on the timeline of human history.

As Jason Dana, associate professor at Yale SOM, puts it in a recent article: “Ancestral life in mobile societies bore very little resemblance to the complex exchanges, extreme specialization, and division of labor on a global scale that characterizes modern market societies.”

Partnering with Amit Bhattacharjee from the University of Colorado Boulder, Dana provides a sweeping assessment of how this evolutionary history paired with the nature of consumer experience contributes to the mismatch between how individual consumers perceive markets, and how markets actually function. Documenting and mapping this difference, the researchers argue, is essential to understanding consumer psychology—why people act the way they do in market exchanges. But it has been methodically overlooked since the field of consumer psychology began.

“As marketing and consumer research scholars,” they write, “we have devoted little attention to an area of inquiry that seems to typify our stated mission: how consumers understand markets.”

The Gap Between Expert and Lay Economics
Lay consumers, Dana and Bhattacharjee note, have a radically different understanding of marketplace phenomena than do practicing economists. “In particular,” they write, “relative to expert views, we propose that lay economic reasoning tends to be intuitive, moralized, and zero-sum.”

Take pricing. At a very high level, economists see price as an emergent property of the market. Prices contain signals related to supply and demand, and they are something to which companies, in a sense, respond. Consumers instead see price as a number that companies, by design, affix to products and services, often with the intent to maximize profits. They don’t see the dynamics in the background; they don’t see the constraints within which companies are operating. And they attach a moral dimension to prices—they are designed to either benefit or take advantage of consumers.

Understanding this simplified perspective then becomes a tool of insight into consumer opinions. As the researchers write, “Knowing that consumers perceive firms as price-makers rather than price-takers, and that they perceive prices as serving little function beyond distributing wealth, makes it easier to understand both their perceptions of price fairness and their proclivity for price control measures.” How consumers experience and understand price serves as a psychological foundation from which their behavior arises.

Dana and Bhattacharjee lay out a long list of topics in which the specifics of consumer experience color their perception of the market—from interest in locally sourced food and a persistent denial of win-win transactions, to an aversion to low-wage labor and a general pessimism over economic progress. Importantly, these lay beliefs tend to contradict the opinions of economic experts while also influencing how consumers interact with the marketplace and what economic policies they prefer.

In the case of buying local, for instance, many people assume that products purchased locally are intrinsically more environmentally friendly. But as Dana and Bhattacharjee point out, the nature of competitive advantage implies this isn’t necessarily so: if something is grown or produced more efficiently somewhere far away, it may be much more environmentally sound to buy it from that place. (As an extreme example, it is more harmful to grow bananas in Connecticut than it is to ship them from where they grow easily.)

Better Marketing for Markets
A clearer understanding of how consumers perceive markets ought to be accompanied with a more direct and unreserved explanation of the benefits that markets provide, the researchers argue. Lay perceptions among consumers sum toward a belief that markets are inherently harmful. Even sentiments among the business school students that Dana and Bhattacharjee teach often fall “in line with popular perceptions that profit-seeking enterprise and global markets are fundamentally detrimental to societal welfare,” they write. “In the absence of compelling narratives that explain the benefits of market-driven welfare maximization in intuitive moral terms rather than economic terms, widespread public perceptions of the societal harms inflicted by modern markets are likely to persist.”

Though the article is more theoretical than applied, one overarching theme could prove handy for those in industry: companies, and the people who work in them, may want to consider taking a more active role educating consumers about the ways in which global markets, behind the scenes, influence a single market exchange.

For instance, consumers may consider high prices (or any prices) the product of corporate greed. But they only see the tip of the iceberg. Companies could work to pull the curtain back, educating consumers on the myriad factors contributing to a specific price at a given place and time. Similarly, companies — and government — could work harder to demonstrate the economic benefits of automation, which is increasingly salient for consumers. One minor example offered by the researchers is the self-checkout station. While consumers tend to focus on the way this eliminates jobs and shovels the task of scanning items to them, it’s also the case that having 10 self-checkout stations drastically reduces wait times.

With a strong shot of optimism, the researchers conclude their piece: “Understanding how markets are perceived by non-expert moral beings may be a necessary first step to unlocking their full potential to bring about a brighter future for all of us.”

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