Neuroeconomics: examples of how to apply it in your company

The discipline that combines the branches of economics, psychology and neuroscience is known as neuroeconomics. Examples The most common examples of this can be found in marketing plans based on people's behaviour or in the decision-making process, to cite some of the best-known cases.

In this post we are going to talk about neuroeconomics and look at examples for its practical application in the business environment.

Neuroeconomics: examples related to perception

The way information is presented can completely change the final outcome. Neuroeconomics and its examples demonstrate this from a 2006 study by De Martino, Kumaran, Seymour and Dolan. This experiment presented a situation similar to the following.

Imagine we give you €100. Now you have to make a decision:

1. Or you keep 40 of those euros in your wallet.
2. Or you bet, with a 60% chance of losing it all and a 40% chance of winning the full €100.

In this situation, 57% of the study subjects opted to keep €40 and return the other €60.

However, what was really surprising was the following. Another group of people with the same profile were presented with the same situation in a different way:

1. Or you return 60 of those €.
2. Or you bet, with a 60% chance of losing it all and a 40% chance of winning the full €100.

That is, the second option remained exactly the same, while the first option was expressed differently, although the result was the same. In this case, 48.4% people opted for the first option. And it was all due to the way in which the terms of gain and loss were phrased. In other words: with a prospect of profit, there is a greater fear of risk and loss.

This is known to many companies and many marketers who use behavioural psychology to their advantage. In reality, it is not about manipulation, but about the way you present information, which everyone does in a way that is most favourable to their company.

Prospective theory

Put forward by Kahneman and Tversky in 1979 as an alternative to expected utility theory, prospect theory shows us yet another case of neuroeconomics and examples of how to use it in business.

Prospective theory states that if a person earns, for example, €1,200 per month and receives a wage increase to €1,500 per month, the emotions that will be aroused will be pleasant and positive. On the other hand, if a person earns €1,800 per month and, due to a cut, starts earning €1,500 per month, the emotions generated will be painful and negative. Even though they both earn the same, one is happy and the other is upset and will probably end up leaving the company.

From this, we find different forms of application in the business environment:

• When setting a wage increase, we must be sure that we can maintain it over time, otherwise the employee who later returns to his or her initial wage after an increase will feel a very detrimental rejection by the company.
• In the same way, if we choose to give our employees gifts such as, for example, an Gift vouchers at Christmas time, we should strive to give the same gift in the future.

The importance of emotions

To conclude this post on neuroeconomics, examples and utilities, we highlight the importance of emotions and mood when making economic decisions:

1. When we experience pleasurable emotions we tend to think more optimistically and to take more risks.
2. When we experience painful emotions, we tend to postpone making decisions.

It is important to strike a balance between the two extremes. Emotional intelligence is vital in this regard. Knowing how to suppress impulsive decision-making and learning not to procrastinate on urgent decisions have their secret in allowing time for reflection.

As always, emotions are the key.