From Theory
to Practice:
Applying
Behavioral
Economics to
the Arts
SARA BILLMANN
Director of Marketing &
Communications
University Musical Society
(UMS)
About UMS
UMS (founded 1879)
• Multidisciplinary performing
arts presenter
• University of Michigan campus
in Ann Arbor
• Presents classical music, jazz,
world music, dance, and
theater
• Up to 10 different venues
annually
• Robust series of over 100
educational events each year
The UMS Loss Aversion Experiment
What is Loss Aversion?
Loss Aversion is the tendency for
individuals to prefer avoiding losses
rather than accruing gains.
According to traditional economic theory, we
should put the same amount of effort into
gaining $100 and saving $100.
The value is equivalent.
But people put more effort into preventing a loss
than into making a gain.
UMS Experiment: The Hypothesis
Those who receive an offer with a
voucher worth a certain amount of
money will be more apt to redeem the
offer than those who receive a discount
code worth the same amount of money.
Experiment Logistics
• Sent to lapsed ticketbuyers (purchased two
seasons prior, but not most recent season)
• Each person receives the same basic letter,
but three different offers (randomized)
• Control Group: Just the letter, no offer
• Discount Group (COMEBACK): $20 discount per
ticket for any event that fall with promo code
COMEBACK
• Voucher Group (FREEGIFT): Receive “UMS Cash”
worth $20 per ticket for any event that fall
Some restrictions on all offers (selected
events, minimum spend of $30 per ticket
before offer, limited time offer)
Response Rates
Control
Discount performed 64%
better than the control.
1.14%
Discount
“UMS Cash” voucher
performed 70% better
than discount, and 179%
better than control.
1.87%
UMS Cash
0.0%
3.18%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
$$ Results
Control
$1,905
Discount
$3,997
UMS Cash
$5,399
$0
$1,000 $2,000 $3,000 $4,000 $5,000 $6,000
Average Tickets per Household
Control
1.93
Discount
3.25
UMS Cash
2.74
0
1
2
3
4
Average Ticket Price
Control
$36.63
Discount
$27.95
UMS Cash
$0.00
$26.60
$10.00
$20.00
$30.00
$40.00
Applying Principles of Loss Aversion to
Combat Churn
65% of ticketbuyer
accounts purchased
only 30% of all tickets
4.3% of HH purchased
26% of all tickets
Ongoing
Experimentation
with Principles of
Loss Aversion
What is Behavioral Economics?
Two Types of Decisionmaking
Reflective System
Automatic System
(“Thinking Slow”)
(“Thinking Fast”)
•
•
•
•
•
•
Controlled / Deliberate
Effortful
Deductive
Self-aware
Follows the rules
Compares multiple
attributes
•
•
•
•
•
Uncontrolled
Effortless
Associative
Unconscious
Detects and uses simple
relationships (e.g., one is
bigger)
Reflective System
“Homo Economicus”
Automatic System
“Homer Economicus”
Ask the Easier Question:
The Law of Least Effort
When faced with a difficult question, we often
answer an easier one instead, usually without
noticing the substitution.
Difficult: Should I invest in Apple?
Easier: Do I like Apple?
More people were denied parole right before lunch
when parole boards were cognitively tired.
When faced with a difficult question, we inherently
try to answer an easier one instead, usually without
noticing the substitution.
Can we provide people with easier
questions to answer?
Difficult:
Would you like to subscribe to the
theater?
Easier:
Do you enjoy going to the theater?
The Paradox of Choice
In traditional economics, people are
expected to rationally make the “best”
choices given their preferences.
Therefore, more information and choice
is always considered good.
The Paradox of Choice
But in behavioral economics, more
choice and information can be
overwhelming.
 24 jams: 4% of people purchased
 6 jams: more people stopped, and 30% of them
purchased
The Paradox of Choice, redux
Stanford Business School Study (Sept 2012)
Arranged marriage vs. “love marriage” and
happiness levels: are you happier when your
choices are presented sequentially, or
simultaneously?
Seeing all of your options at the same time makes
you happier with the choice that you make.
How can we structure subscription
offerings and our sales cycles with
this in mind?
The Primacy Error & Anchor Pricing
Primacy Error = people are more heavily
influenced by the first information they receive
Intelligent, industrious, impulsive, critical, stubborn, envious
Envious, stubborn, critical, impulsive, industrious, intelligent
The Primacy Error & Anchor Pricing
• We can use this relativity in presenting
prices by using appropriate anchors
• $10,$26, $42, $56, $58, $80
• $80, $68, $56, $42, $26, $10
• List from most expensive to least
Anchor Pricing
One Final Example
A study by two Stanford professors asked consumers
to choose between a cheap camera and a pricier one
with more features. The consumers were evenly
divided.
BUT…as soon as a third option was added – a fancy,
ultra-expensive camera – more people went for what
was now the mid-range camera.
You can construct other alternatives to
drive people to make different choices.
Solitaire Diamond
Rings, Left to Right:
$80, $175, $690
Tiffany ad from 1942
Questions?