What Is The Barnum Effect And Why It Matters In Business

The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

Understanding the Barnum effect

The classic example of the Barnum effect at work lies in daily horoscopes, where vague and very general statements provide advice for individuals of a particular star sign. The advice is of course equally applicable for individuals in the other 11 signs.

In modern business, the Barnum effect can be seen in digital companies such as Facebook, Spotify, and Netflix. Each incorporates “recommended for you” type features to give the illusion of a tailored product, but these features are based on broader demographic and behavioral data.

Psychologist Bertram R. Forer called the Barnum effect the “fallacy of personal validation” because consumers love to be complimented. Importantly, they trust compliments as being truthful – even if they are false in the sense that they apply to a large number of people.

Ultimately, businesses that flatter their consumers in some way tend to reap the highest rewards. This is because consumers who experience validation are easily influenced and this can be exploited to drive sales.

Benefits of the Barnum effect in business and marketing

The Barnum effect has implications for how a business engages with its consumers and creates a lasting relationship. Primarily, this is achieved by making consumers feel as if they are personally interacting with a brand. In turn, this increases brand loyalty and increases customer retention.

In marketing, the effect will be almost invisible to most people. But it is very often found in:

  1. Production recommendations and curated lists – think Amazon and its recommendations found on Kindle, Prime Video, and on its e-commerce site.
  2. Promotional banner advertisements on product websites – often seasonal in nature or targeted toward specific genders, enthusiasts, or upcoming events.
  3. Persuasive sales copy that speaks to the specific pain points a consumer is experiencing.

The Barnum effect and exploiting cognitive biases

It’s important to note that businesses using the Barnum effect are not preying on people for monetary gain.

Instead, they are simply tapping into a tendency for consumers to filter the extraordinary amount of information they are bombarded with daily. Cognitive biases help this filtering because invariably, consumers only respond to personally meaningful information. Or, in the case of the Barnum effect, information that flatters or validates.

Businesses should always remember that these biases occur with or without the presence of marketing. There is nothing to be lost by marketing agencies telling consumers what they want to hear, which makes them feel more valued as a result.

Key takeaways:

  • The Barnum effect occurs when an individual believes that generic information applicable to a wide audience only applies to themselves.
  • Businesses can use the Barnum effect to connect with their customers on a personal level. This increases brand loyalty and customer retention.
  • The Barnum effect can be used in virtually any marketing campaign where consumers need to feel valued. In their search for this validation, they use cognitive biases to filter out impersonal information – and this can be exploited with clever marketing.

Connected Business Concepts

As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman since 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
The CATWOE analysis is a problem-solving strategy that asks businesses to look at an issue from six different perspectives. The CATWOE analysis is an in-depth and holistic approach to problem-solving because it enables businesses to consider all perspectives. This often forces management out of habitual ways of thinking that would otherwise hinder growth and profitability. Most importantly, the CATWOE analysis allows businesses to combine multiple perspectives into a single, unifying solution.

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