Category Archives: strategy

The Classic ‘Glass Half Full or Half Empty’ Scenario Explained by Behavioural Economics

We all know the common saying, “is the glass half empty or half full?”. Normally we are talking about whether to be optimistic (half full) or pessimistic (half empty) about a certain situation. The answer we choose can reflect our mood, our outlook or even our worldview. It is a test of perception, because we all know that the same amount of liquid is in the glass no matter how we phrase it. So why does our wording or phrasing affect our outlook? Or is it our outlook that affects our word choice?

Here is an experiment:

Imagine you love really good red wine and these two options occur:

Option 1:

Someone places a glass in front of you and pours you half a glass of wine. You feel ok about this since you have some wine to drink. Maybe you even feel good about your glass of wine. The glass appears half full to you.

Option 2:

Now imagine instead the same person places a glass in front of you and pours it completely full. Just as you go to reach for it, the server grabs the glass back and pours out half of your wine and then places the half glass of wine on the table for you. Now  you feel king of upset, a few minutes ago you had a full glass of wine, now you only have half. Suddenly the glass feels half empty.

Even though both examples leave you with the same amount of wine, the emotional response is very different. In the first option you feel pretty good about the amount of wine you have and in the second option you are pretty upset that you didn’t get the full glass of wine. Suddenly you realize that there is a big difference between having a glass that’s half full and a glass that’s half empty.

This is a prime example of a behavioural trait in humans, which Behavioural Economics calls Loss Aversion

Loss Aversion is the term used to explain the theory that humans strongly dislike loosing things. One definition reads, “Loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains”.

Dan Ariely, the author of The Upside of Irrationality, puts it this way, “Loss aversion means our emotional reaction to a loss is about twice as intense as our joy at a comparable gain”. For example if you find $50 on the street versus lose $50 from your pocket, studies would suggest you would be twice as angry at loosing $50 compared to the joy you felt finding it.

This theory helps to explain why people struggle to give away old unused clothing, why people will pay $10 more to save $2, why gamblers become reckless and bid bigger and bigger hands when losing and even why people sometimes stay in unhappy relationships.

In fact it was first discovered in 1979 when psychologists Kahneman and Tversky studied the different effects of gambling on their students. The explanation for this behavioural bias lies in a specific part of our frontal lobe called the amygdala. This area of the brain is mostly associated with negative emotions and behaviors. It is the amygdala that makes us feel loss as a negative emotion.

Another explanation is the idea that humans put greater value on things which we own than things we don’t own. For instance an old tea mug might only be worth $2 on the open market but to the owner of that tea mug it is worth a substantial amount more. We become attached to things we own and the loss of them is more painful to us than gaining a similar item.


So how does loss aversion affect marketing and advertising?

Clever advertising has caught onto this human behavioural trait and uses it to better sell products or services.


Grocery shops in the District of Columbia tried to incentivize people to bring in their own reusable grocery bags by offers a 5¢ reward for each bag brought in. This incentive had little to no effect on people behaviour.

Next they tried a different incentive. The grocery store charge 5¢ for each plastic bag a customer required. Although 5¢ represents a small fee, it resulted in a major reduction of plastic bags.

This same effect has been replicated by grocery stores across North America with great success.

The success of this example lies in a simple shift from gain to loss. Again, people hate loosing something, even if it’s only a couple of cents.


Pet store everywhere have long known that the best way to entice people to get a new pet is to let them take the pet home for a weekend to ‘try it out’. Whether or not pet storeowners know the specifics of loss aversion, they definitely understand that idea that humans will become attached to the pet over the weekend and have a very hard time giving it back.

Adoption rates of new pets are definitely up with this technique.

 This technique also works, to a lesser degree, with trying on clothing at a clothing store, or putting clothing on hold to possibly buy later. Once people have picked something out, tried it on, and put it on hold they begin to feel a sense of ownership over the item and are more likely to purchase it.



You can see the similarities here. By framing a situation as loss rather than gain, greater motivation is generated and generally greater results are produced.

Here’s another example that came up during a conversation the other day.

How do we get people to drive more economic cars? Currently the Canadian government offers varying amounts of money in rebates if you buy an economic car. The way the rebates work is you first pay the full value of the car and then apply for rebates. The rebate comes in the mail months later. This incentive has yet to result in a radical shift by the Canadian population.

If we apply loss aversion theory to this problem we would conclude that a better solution is to discount all cars by the eco rebate amount, lets say $1000 and then make anyone who buys an non eco friendly car pay $1000 to the government after they purchase the car. People hate loosing money so this technique might help convince people to be more environmentally friendly with their purchase.

In the end we know it is all the same thing no matter how you frame it, the glass still has the same amount of liquid in it, the shopping bags still cost your 5 and the a car cost the same regardless of if you pay all up front or in two stages but humans are irrational beings, with complicated brain processing units and one this is for sure, we hate loosing things.


More reading and resources


There’s No Such Thing As Bad Publicity With #TechnologyNStuff

#TechnologyNStuffUnless you’re a fan, or there’s yet another scandal regarding performance enhancing drugs, baseball doesn’t tend to make a blip on most of our radars. And yet, the World Series reached 13.4M viewers in 2014 (yes, about 1/10th of the Super Bowl, but the numbers are still nothing to sneeze at).

Instead of the usual advertising song and dance, Chevy decides to do something special that will garner more attention and create great PR. At game 7 of the World Series in Kansas City, MO the Kansas City zone manager, Rikk Wilde, presented the MVP winner Madison Bumgarner of the San Francisco Giants with his very own Chevy Colorado truck.

And how does Wilde do?

He totally messes up! He stumbles right through, he looks like he’s going to have a nervous breakdown or a heart attack. The people on screen with him look nervous for him (with the exception of the guy fixing his hair). It’s a right mess. While trying to explain the virtues of the 2015 Chevy Colorado, he ditches his script and explains live on television at the championships of the World Series that this truck has “technology and stuff” such as wifi, etc. Technlogy and stuff, huh? How exciting! #TechnologyNStuff

And yet, Chevy takes it on and turns it around! The same night #TechnologyNStuff starts trending, they own it with this beautiful tweet:

Kudos on Chevy for owning it, and for their community manager for getting it together to spin it in such a positive way. Chevy was getting a bum rap online until they decided to own this hashtag.

And that, ladies and gentlemen, is how you recover from a potential PR fail.

The Human Brain is Irrational. How Behavioural Economics Explains Our Irrational Behaviour

Imagine right now you are craving chocolate and these are the offers available;


A Lindt truffle for 15¢ or a Hershey’s Kiss 1¢. Which would you choose?

My guess is you would pick the 15¢ Lindt; it’s a good deal. You probably realize a 14¢ difference in price is a lot better deal than a supermarket would offer. In your mind it’s worth an extra 14¢ for the better chocolate. Now imagine the price is reduced by 1 cent. There is still a 14¢ difference between the chocolates but now the Lindt is 14¢ and the Hersey Kiss is free. Which would you choose now?

Duh, the free one!

A study at MIT conducted just this experiment and found that people overwhelmingly chose the Lindt in the first example and the free Hershey’s Kiss in the second example. This directly contradicts what economics teaches us. There is no change in the relative cost of two examples, the difference is 14¢ in both examples and therefore people’s preference should not change. But it did.

This study was conducted as part of a larger experiment on human decision-making. For years traditional economics has been the dominant theory regarding financially decision making, informing us that humans always make logical, self-serving, and rational decisions based on carefully reviewing the cost and benefits of each option presented. As advertisers we all intuitively know that this is not true. We all know that “buy one, get one free” works a lot better than “50% off if you buy two”.

Like advertisers, the human brain doesn’t concern itself with the laws of traditional economics. In reality the human brain is irrational. So irrational that at first it is hard to understand and predict. So, as advertisers, what tools exist to help us predict actual human behaviour?

Enter Behavioural Economics. It’s a relatively new field of combining Psychology and Economics to better understand how humans actually make decisions. Part science and part art, Rory Sutherland of Ogilvy Change calls it, “…closer to weather prediction than conventional science”. Behavioral economics is not about what people want to do, or what they tell others they will do. It is about what people actually do when faced with a decision in real life. Behavioural Economics takes into account things that effect behaviour such as mood, surroundings, peer groups, and even level of arousal. Looking at the human brain from this seat one begins to understand why free is infinitely better than 1 cent.

It is no surprise that this deep understanding of human behaviour is starting to make its way into the boardrooms of some of the largest advertising agencies worldwide such as Draft FCB and Ogilvy. I believe Behavioural Economics has a lot to offer advertising, as it is a great way to inject pure strategy into a naturally creative industry.

Follow my discussion of Behavioural Economics, my unorthodox experiments and my curiosity about the human mind in this weekly blog series. We’ll delve into the world of advertising strategy with a specific interest in how it can successfully be informed by Behavioural Economics.

This is the first article of a weekly series.

Sources: Shampan’er, K. & Ariely, D. Zero as a special Price, MIT. Halonen, E. In The Wild: Rory Sutherland, 2013. Indesion.