Advertising should be a risky business you could lose in

We understand more about people than ever before. When they start to behave all predictably irrational, we just smile wisely and mutter something world-weary about another bad case of hyperbolic discounting. Data is unlocking new insights all the time, but behavioural economics has arguably unlocked more about our true human nature.

One of the main trunk roads in behavioural economics leads to loss and, specifically, our aversion to loss. Loss looms much, much larger than gain. In one famous experiment, people are offered a wager on the toss of a coin. If it’s heads, you lose £100, and if it’s tails, you win £X – how much would X have to be for you to take the bet? A few curious souls

say £100, or £101, but very quickly the amounts rise past £200, £300, £400 and more. Crudely put, loss is about four times as powerful as gain. Which is why we avoid it with such persistence.

This is worth thinking about in relation to how we sell our own wares. Ever since advertising was wrestled from the horny-handed coupon merchants, we’ve been selling something risky. We create and sell ideas, and inherent
in that enterprise is that they don’t all work the same. Some defend what you’ve got, some bravely take you to a new place.

At its heart, advertising is a gamble. In other words, you, Mr Client, might lose. If we learn anything from the coin toss, it’s that not only do you have to present the potential gain rather than the risk, you then need to sell the gain four times as hard as you think you need to.

There is another related topic called the endowment effect. If you own something, you value it more highly than the exact same item that you haven’t owned. The car-dealer who offers you more for your trade-in but holds the headline price of the new car does better than the car-dealer who lowballs you on the trade-in value and discounts the new one.

The endowment effect plays a big part in maintaining the status quo. Whatever has been invested in – the long-running campaign, last year’s media plan, the agency structure – has an inflated value. Our brains are tricked into thinking what has been is best. We don’t even toss the coin. Agencies succumb to boring hires and tweaked plans.

This is no way to live. Nudge has a subtitle – it is "improving decisions about health, wealth and happiness". We would be healthier, wealthier and, certainly, happier if we turned the volume of loss and status quo down a bit and took some risks.

My old man calls it the plumbers’ tap syndrome. All plumbers have leaky taps, all nurses smoke, PRs have bad reputations etc. We have all this new psychological insight and yet we struggle to apply it to our own business. Drip. Drip. Drip.

Justin Gibbons is the creative director at Arena Media

Russell Davies is away

This article was first published on campaignlive.co.uk