Decision Technology publishes occasional briefs on the application of advances in decision science, cognitive psychology, and behavioural economics to real-world and business-relevant issues.
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Existing briefs can be downloaded by selecting the links below:
Damage by Default: The Flaw in Pensions Auto Enrolment
Workplace pension auto enrolment means more people are saving for their retirement, and upcoming increases to minimum contributions will dramatically boost the amount being saved. Since most employees do not actively engage with their pension savings, £43bn will be invested each year in default funds from 2019. But default funds cannot meet the varying needs of millions of savers, £9bn will be wasted through contribution misallocation each year. New behavioural science research can help overcome the engagement barrier and provide recommendations for Government, pension providers and employers to reduce the waste of savings.
Culture and CEO Tenure: How Culture Can Get You Feted or Fired
The average CEO's tenure is 8 years but that can differ widely depending on various factors. In this brief we review those factors and particularly the role played by corporate culture. Some CEOs fail because they migrate between sectors with very different cultures. Some cultures simply change CEO more often. Other cultures can impact financial performance which, in turn, impacts CEO survival. Specifically, firms with a 'Focused' culture, where there is a clear shared strategic vision and decisions are made and implemented quickly, grow 8% faster than their competitors and benefit from 25% better staff retention.
Pulling Rank: How to win the pricing game
Price comparison websites (PCWs) are disrupting the financial sector. In this brief we introduce our latest report which reveals the behavioural science behind the success of PCWs, and offer a new approach for retail banking firms to adopt in response. Firms that take our recommendations on board can better protect their market share, develop new opportunities and prosper. Those that continue with business as usual will soon find themselves struggling.
Learning from Experience: How Customers are Won and Lost and the Implications for Brand Management
Acquiring and retaining customers is what business is all about and many believe that good branding is crucial. But in this brief we show that brand is a consequence, rather than a cause, of sales performance. Customer experiences independently determine both revenue behaviours, like acquisition and retention, and brand perception. Accordingly, this brief calls for fundamental changes to how companies formulate their retail strategy, including how brands are measured and managed.
The Power of Rank: Behavioural Insights into Pricing
Pricing is an inevitable and vital commercial decision. So how do you establish the best price? Using a behavioural approach, called Price lab, which recreates a facsimile of a shopper’s purchasing environment, we examine this question. We show how, in a car insurance renewal task, customers are powerfully influenced by various factors, including price rank. These insights have important implications for determining the optimal pricing strategy; designing out-bound sales activity, handling in-bound enquiries, and so forth.
The Devil You Know: The Consumer Psychology of Brand Trust
Trust is central to commerce and government. Brands that lose the trust of their customers will not survive long in a competitive market. In an earlier brief we described trust as an aspect of brand personality. But what do consumers mean when they describe a brand as trustworthy? And, more importantly, what can management do to nurture and protect this valuable commercial asset? In this brief we outline the findings of our recent research into consumer trust in brands, and based on these results, we present four strategies for building and maintaining trust.
Fearing Losses: The Psychology of the Credit Crunch
The recent market turmoil is ultimately a psychological phenomenon that has had economic consequences, rather than the other way around. In this brief, we discuss the mental mechanisms that underpin the panic that has gripped investors, lenders, and consumers alike and thereby generated the current recession. In the process, we demonstrate the fundamental flaws in the risk management practices hitherto used by banks and insurers, and the risk measurement techniques used by financial advisors.
Turning Good Intentions into Actions: Experimental Results Summary
One of the key issues in the provision of financial advice is the extent to which good advice is not just given and understood, but actually acted upon. In this follow up brief, we summarise the results from our own large-scale experiment and thereby illuminate the destructive effect of delay on taking action, the importance of offering persuasion as well as advice, and the effects of ‘financial personality’ attributes on whether people take action and the quality of the action they take.
Turning Good Intentions into Actions: Challenges for the Provision of Financial Advice
Financial advisers and regulators focus on ensuring that advice is accurate and appropriate for the consumer. Although clearly important, this is only half the story. For good advice to be useful it has to be acted upon, and many people fail to act when provided with good advice. In this brief we identify some of the key psychological factors related to the successful transformation of intentions into actions.
Consumer Choice Conundrums: Lifting the Lid on How People Purchase
Gaining or losing market share is clearly a big deal. But do we understand how consumers choose between products? It's a deceptively simple question that is often poorly answered. Why? Because the rules that govern purchasing behaviour are complex and vary by segment. Moreover, most market research only focuses on the final stage of what is typically a multi-stage process. In this brief, we have successfully applied learnings from academic research to real world competitive markets.
Acting on Impulse: A Chance to Double Profits and Help Society
The human trait of impulsivity is fundamental to retail finance. Basically, impulsive customers require very different products and services to thrifty ones. Yet this segmentation currently receives little attention from the industry, even though successfully assisting impulsive people would both double savings profitability and help sort out the pension’s crisis. To design services around this segmentation, providers need to understand the cognitive causes of impulsivity and the strategies people can use to manage it.
Finding Oil, People, and Other Treasures: The Anatomy of Distributed Business Decisions
Dectech has been working on many superficially unrelated problems - lending, recruiting, oil exploration, site research – and noted what is more than a family resemblance. They are all filtering processes with multiple decision stages distributed across organisations. Multi-stage decision processes are pervasive in business and making the right decisions is hard. This brief describes the key characteristics of such processes and what actions managers can take to improve them.
Corporate Personality: What Are You Like?
Dectech has been applying psychological research to the investigation of whether companies, like people, have personalities. We find that they do and that the two main components of corporate personality are honesty and creativity. The corporate personalities of various British companies are reported, and we also show that corporate personality predicts some important financial performance indicators, including profitability, growth and share performance.