Sell side bias, the "developer’s curse" … and ObamaCare.

President Obama is clearly perplexed on why the dogs aren’t eating the ObamaCare food.

He’s trying to give people a better “product” … and they just don’t get it.

What the heck is going on?

Well, shoving the roll-out snafus aside, much of the answer lies in good old behavioral economics.

Last week we talked “loss aversion” and the “endowment effect”.

image

======

Today, let’s look at the “developers curse” …

In my Advanced Marketing Strategy class, students read “Eager Sellers and Stony Buyers” by one of my favorite academics –  Harvard’s John Gourville.

The article drills down on why most new products fail.

Gourville argues that innovators often fall victim to the “developer’s curse” – far over-weighting the market benefits of their new products.

Why?:

  1. They may see a need that customers may not recognize.They see gaps and weaknesses in currently available options.
  2. They have intimate knowledge of their innovations that customers don’t have, e.g. they “know” the features, functions and benefits.
  3. They understand how the product works … down to minute operating details.
  4. They minimize the importance of any bugs or glitches …. and just work around them.
  5. They have full confidence that their product works … or can work, if the customer just tries it.

Gourville concludes that developers often overweight their innovations relevant benefits by a factor of between three or more.

======

In combination, the endowment effect – which requires that a new product be at least 3 times better than an existing product … times the developer’s curse – which says that innovators overrate their innovations by a factor of 3 …. creates the “9X Problem” – the huge gap between what a developer thinks he has to offer and what a customer requires in order to be motivated to change from a product that they’re satisfied with.

image

======

Now, put those well established behavioral biases in the ObamaCare context.

The President & Friends probably do overweight the benefits of ObamaCare (the Developer’s  Curse) … and vastly underweight consumers reluctance to change (the Endowment Effect).

Didn’t Obama see that coming?

It’s garden variety behavioral economics.

* * * * *
Follow on Twitter @KenHoma              >> Latest Posts

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s