Selling to your brain
Posted: Monday, March 03, 2008 3:57 PM by Alan Boyle
Are you more likely to spend a tax rebate ... or a tax bonus? If you were automatically signed up for a retirement plan, would you stick with it ... or opt out? If the government sent you a filled-in tax return, would you go with Uncle Sam's figures ... or insist on doing the calculations yourself? Such are the questions that arise when economic policy intersects with the rising trend of neuromarketing, the science of selling to your brain.
Researchers are increasingly relying on neuromarketing to explain seemingly unexplainable facets of our buying behavior - for example, why the exact same wine really does taste better if it costs more, or why kids prefer even common foods that come wrapped in McDonald's packaging.
The technique also has been applied to politics, looking into how the average Republican's brain differs from a Democrat's, how this year's presidential candidates are perceived, and even who has the most effective viral videos.
Now neuromarketing may help shape economic policies as well, or at least shape the way those policies are framed.
Rebate vs. bonus
For example, take the "rebate vs. bonus" study, which was conducted by the University of Chicago's Nicholas Epley and colleagues. Their study appeared a couple of years ago in the Journal of Behavioral Decision Making, but it has come to the fore again because of the tax stimulus package that the White House and Congress recently pushed through.
Uncle Sam will be sending out billions of dollars in checks to taxpayers starting in May. For those economists who think a boost in spending is just what the nation's flagging economy needs, that's the good news. The bad news, at least based on Epley's research, is that the checks will be called "rebates."
"If the goal is to increase consumer spending, the checks should have been pitched as 'tax bonuses' instead of 'tax rebates,'" Epley said in a news release from the National Science Foundation, which funded his research.
Epley and his colleagues - Lorraine Chen Idson and Dennis Mak - conducted experiments in which participants were given money characterized either as tuition rebates or bonuses. In one experiment, the people who were given a $25 rebate spent $2.43 on items sold to them in the lab. In contrast, the ones who were given a $25 bonus spent $11.16.
The idea is that people are more likely to spend what they see as extra money or an unexpected windfall (a bonus) rather than what they regard merely as regular income that's being returned to them (a rebate).
Now, most taxpayers already understand that they're simply getting more of their money back - and so the "rebate vs. bonus" issue may not make much difference when it comes to money from the Internal Revenue Service.
Experts have long debated whether tax rebates are the most efficient way to stimulate the economy. Many say that most of the rebate goes toward debt reduction or savings, which doesn't give the economy as much of a boost as new spending. My colleague on msnbc.com's business desk, John Schoen, has pointed to research showing that the stimulus effect is significantly stronger if the money is put toward, say, extending unemployment benefits and expanding food-stamp programs.
But Epley's larger point is that the government should act more like a business, and try test-marketing its economic packages. When lawmakers consider how to design and implement major public policies, they might want to have researchers "run some small-scale pilot studies to identify which designs or descriptions might be the most effective," he said.
"Market researchers do a great deal of this, but it's not so clear that this is done as much as it could be in public policy circles," he said.
Political neuromarketing
Test marketing is likely to play a bigger role in policymaking (or at least policyselling), no matter who goes to the White House next year.
Among the Republicans, John McCain favors state-by-state experiments in health-care programs, Mike Huckabee touts Arkansas' wellness program as a pilot worth expanding, and Ron Paul is ready to open a virtual laboratory of tax policies.
On the Democratic side, Hillary Clinton has long been a supporter of small-scale pilot projects in the food-stamp program as well as global warming policy. And Barack Obama's economic advisers have a lot of neuroeconomic strategies up their sleeve, as outlined in a New Republic report titled "The Audacity of Data."
For example, one policy proposal would automatically enroll workers in their 401(k) retirement plans while allowing them to opt out. Studies show that most folks would stick with the status quo, which would significantly boost retirement savings.
In a similar vein, the University of Chicago's Austan Goolsbee - Obama's top economic adviser - has suggested drawing up an "automatic tax return." If you have no tax deductions or out-of-the-ordinary income, the Internal Revenue Service would send you a tax return that's already been filled out.
"As long as you accepted the government's accounting, you could just sign it and mail it back," The New Republic's Noam Scheiber reported. "Goolsbee estimates this small innovation could save hundreds of man-hours spent filling out tax forms, and billions of dollars in tax-preparation fees."
'Gotcha Neuroscience'?
That kind of economic shortcut often comes into play in the business world, taking advantage of the fact that our brains are basically lazy. It could be a timesaver, as Goolsbee suggests - or it could lead to the economic sleight of hand already practiced by phone companies, cable TV providers and credit-card companies (which is documented so well in my colleague Bob Sullivan's book, "Gotcha Capitalism").
Goolsbee has already stirred up a controversy, by seeming to contribute to mixed messages on Obama's trade policy. Will neuromarketing generate better economic policies or the same old marketing flimflam? Feel free to weigh in with your comments below.
If you want to keep up with the brave new world of behavioral economics, add Roger Dooley's Neuromarketing blog to your checklist. And while you're at it, check in with msnbc.com's Behavior section, where you'll learn why celebrities flock together and how shopaholics are made.
