Behavioral economics – what is it?

When we go for shopping, we usually go with a list of things to buy. Mostly we write down what we need, and tend to choose what we want (or potentially might want) based on how appealing products are! Do our buying patterns indicate something about us? If someone were to forecast what we would need and when, can they get it right?

Behavioral economics

Behavioral economics uses psychological, cognitive, cultural, social and economical factors & experiments to develop theories about decision making and has identified a range of biases as a result of the way people think and choose. It tries to change the way economists think about people’s perceptions of value and expressed preferences.

Carnegie Mellon Launches First-of-its-Kind Behavioral Economics, Policy and  Organizations Major - Dietrich College of Humanities and Social Sciences -  Carnegie Mellon University
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In simple terms – from retail purchases to choosing what vaccines we want to get, everything has a structured thought process that is specific to the individual (us). However, there is a broader trend that can be understood based on our individual purchasing patterns using numerous other attributes. Study of these patterns of human behavior when it comes to spending on a variety of fields is called as Behavioral Economics.

With the increase in data science, analytics, this is one field that is gaining traction!

Let us analyze some of our purchases

Milk is the first thing that comes to mind. Decades back, someone used to deliver a few packets of milk at our doorstep.

In any grocery store in US, there are at least 10+ varieties of milk

Whole milk, 2% fat, 1% fat, Skim milk, Soy milk, Lactaid, Organic whole milk, Organic 2% milk, Organic 1% milk and Almond milk.

Which ones do we buy? How much of information do we need to process to make a conscious choice to purchase something! Reading the labels, nutrition facts, searching on google, discussing with friends and making your initial choice, then based on frequency that we purchase the item, we might choose to observe what works for us, and what does not and adapt & evolve.

Now, can anyone predict what milk we will need & by when, so that the grocery store can have it stocked and ready?

Have you ever tried ordering a coffee?

Somehow, while our preferences are considered, we just need a simple coffee, and so many varieties and flavors sort of beats the purpose. You can get a headache just trying to order one in a store you have never been to before!

At home, “Mom.. need some coffee please” will get you a nice cup of coffee perfectly catered to your taste – and No questions asked 🙂

Now, look at it from Starbucks perspective – somehow they not only know you as a customer, but your preference not just about coffee, your average age, average income and what else are your buying patterns! Helps them stock those up! When they know where else their customers shop, they know where to setup their next outlets 🙂 Some parts of this infographic is pureplay analytics. Some are partner data they get from other retailers. Now, think about it, when you visit the Gap store next time, what is the probability that you will get a cup of coffee from Starbucks?

Google images


While in some countries, the choice of education and profession is purely based on what jobs it can lead to, and how much better can be the pay?

In some other countries, education is to open up our minds to possibilities. Everyone is unique, nurture your core talent and take it as far as you possibly can imagine and work towards!

Imagine having a mixed pot of such people in one classroom – perspectives are bound to change, and every single one of them would have influenced the other in some form or fashion! What is the outcome? More open mindedness and understanding the other party’s rationale & perspective before they make their choice.

Retail online stores

If you have ordered toothbrushes, toothpaste, dishwashing detergents from online retail stores, have you noticed they suggest that we would need it once a month, or once in two months etc. How can they figure it out?

The biggest item that gets sold in one of the biggest retail stores during Thanksgiving is kitchen towels. So, they get to plan much much ahead to ensure they are able to stock it up & deliver, while they do so at a low cost, nothing stops them to increase their profit margin on the single item.

Wholesale stores

Let us analyze the products at BJs & Costco (Wholesale stores). They sell high quality items in bulk. They consciously reduce the choice for customers. If you observe, there are two varieties of pasta, just three varieties of milk (whole milk, 2% and 1%). Soy & Almond will not be in the same section – those who want to buy it, go to a different section that just has these varieties. Maximum choice is one or two varieties. You buy it or leave it, choice is yours. They attract you with wholesale pricing model. Householders is the market they attract – and have a committed segment that are repeat customers YOY.

When you step into the stores, you already know

  1. You walk to buy in bulk
  2. You will be choosing items that will stay for longer duration
  3. You do not expect to have a wide variety of choices
  4. You are shopping here for your “needs”, not your “wants”
  5. You will be open to exploring anything new that they have in the store

However, anyone who has shopped at these places know very well that there would be a set of things that get added into your cart by the time you get to the counter anyway!!! So, some aspect of your want-to-have or like-to-haves also find a place!


If you are an entrepreneur, have you ever tried to analyze what makes people buy or choose-to-buy your product? What makes it stand out? Why would they consider yours compared to your competitors product? Have you validated your assumptions? How can you get that insight? Think about it! You will understand how valuable this insight would be – directly as it relates to your business!

Target audience

The retail / wholesale market flyers that get delivered to your door, how do they know what products you potentially might be interested in? Studying local and global patterns and targeting the right subset of target audience to minimize marketing spend and maximize ROI is the target. This applies to every single product we tend to purchase and need to make a choice, from houses, credit cards, loans, toothbrushes, education, retail, countries and economies, imports and exports etc.

Those who are interested in studying people and their behavioral / decision making patterns to make financial choices and data science would be interested in pursuing this as a field of choice.

Next time you go shopping, can you predict where you would shop & what you would buy – from your list and items not in your list? Someone is already doing it for you 🙂

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