barnum-effect

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:

Production recommendations and curated lists

Think Amazon and its recommendations found on Kindle, Prime Video, and on its e-commerce site.

Promotional banner advertisements on product websites

Often seasonal in nature or targeted toward specific genders, enthusiasts, or upcoming events.

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

Heuristics

heuristic
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.

Bounded Rationality

bounded-rationality
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Second-Order Thinking

second-order-thinking
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

lateral-thinking
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

moonshot-thinking
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.

Biases

biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 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.

Dunning-Kruger Effect

dunning-kruger-effect
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

occams-razor
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

crowding-out-effect
The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

bandwagon-effect
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What is marketing can be associated with social proof.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger

Read Next: HeuristicsBiases.

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