Money Hacks: social proof can lead to a quicker decision, but it may not lead to a better one

Money Hacks is a series exploring behavioural economics concepts and illustrates how unconscious biases can influence the decisions we make with money. By understanding these biases and learning to watch for them, we can avoid these biases to spend smarter, save more money, and make better financial decisions overall.

Imagine, in a post-pandemic world, you’re on vacation in a foreign city. After a day of sightseeing, you find yourself in a busy tourist area looking for somewhere to have dinner. You come across two restaurants, side-by-side. They appear similar in most respects. Both offer an appealing menu. The prices are similar. Both look clean and well-maintained. There is one difference, though: The restaurant on the left has a lineup out the door - and you’re told it will take 15 minutes to get a table. The restaurant on the right has lots of empty tables.

Which restaurant would you choose?

If you’re like most people, you’d choose the busy restaurant. After all, the people in the busy restaurant must know something you don’t.

But is this a good decision? In the less-busy restaurant, you’d be seated immediately. You’d probably be served more quickly too. Your server may even be more attentive since they’re looking after fewer tables. And remember, you’re in a tourist area. There’s a good chance that many of those eating in the busy restaurant are tourists too. In other words – they may have also chosen the busy restaurant simply because it was busy!

Why do we follow the crowd in this type of situation? You and your fellow tourists are using a mental shortcut called social proof.

What is social proof?

Social proof is the idea that we assume other people know what they’re doing, and we copy them.

Why do we do this? To make an informed decision, we have to do research, weigh various factors and evaluate different options. But that can take time and energy we may not have. So instead, we use a shortcut - we do what everyone else is doing. We rely on social proof to make our decisions easier.

Social proof can certainly lead to quicker decisions. But it doesn’t necessarily lead to better decisions.

Everybody uses social proof to make decisions. And marketers know it.

Social proof is one of the most common mental shortcuts we use to make decisions. And this isn’t surprising. We’re called on to make hundreds of decisions every day – some big, some small. If we took the time to carefully evaluate our choices each time, we’d never get anything done. Plus, there are lots of situations where social proof does lead to a good decision, and over time we’ve learned to trust it. Unfortunately, marketers know this too.

Take a moment to Google social proof.

Most of the top results are articles about how to use social proof to sell more stuff. Marketers use social proof all the time to trigger a decision-making shortcut. This is a problem for us, as decision makers, since it means social proof isn’t always reliable. It doesn’t mean you can never rely on social proof. But it does mean you need to watch for situations where social proof is being used to try to sell you something.

5 types of social proof and what to watch for

There are several kinds of social proof we rely on when making decisions. These five are among the most common:

1. Friends & family

When we need to make a buying decision, we often ask friends and family for advice, or we may just notice what products they’re using. Family members and friends can be one of the most reliable forms of social proof. Their needs are often similar to ours. They’re not trying to sell us something. And they tend to look out for our best interests.

How do marketers use this?

Marketers try to make the use of their product more observable. For example, they may:

  • Place signs on lawns following a renovation, yard work or a home sale.
  • Add prominent branding and logos to products such as cars and clothing.
  • Encourage people to follow them on social media.

What to watch for

Don’t rely on observation alone. Just because you see a friend or family member use a product doesn’t mean they’re happy with it. Ask them about their experience and whether they’d make the same choice again.

2. Experts

An expert opinion or endorsement can be valuable when you’re buying something complex, or that you don’t know much about. An expert can give you confidence that the product will work as expected.

How do marketers use this?

There are a few common ways that expert opinions are used in advertising:

  • Individual experts may appear in, or be quoted in, advertising.
  • A collective expert opinion may be cited – as when we learn that 3 out of 4 dentists recommend toothpaste X.
  • An implied expert may be used, such as when someone in a commercial is dressed as a doctor but is actually an actor.

What to watch for

Before basing a decision on expert opinion, ask yourself a few questions:

  • What are their qualifications? “Expert” can mean a lot of things – so understand what makes someone an expert.
  • Is their area of expertise directly relevant to your buying decision? An expert in one area may not be an expert in another.
  • Is an endorsement clear and unambiguous? In the toothpaste example: How many dentists were surveyed? Did they also recommend other brands?
  • If it appears the expert was paid to endorse the product, do some online research to see if their opinion is shared by unpaid experts.

If an expert endorsement ends up being less impressive than it seemed at first, it doesn’t mean the product isn’t good. It just means you shouldn’t base your decision solely on it.

3. Testimonials

A testimonial is a public statement from someone who has used a product. It usually includes a description of their experience and a recommendation (or warning). The most common place you’ll encounter testimonials is in online reviews.

How do marketers use this?

Marketers actively seek out and promote testimonials from satisfied customers. They may share these stories on their websites, through their social media channels, or in ads.

What to watch for

Testimonials can be helpful because they often speak to specific features, benefits, and problems with a product. However, it’s always good to ask yourself a few questions:

  • Are the reviews uniformly positive? This may be a sign that you’re looking at a filtered list. It doesn’t mean the testimonials aren’t legitimate – but you may want to seek out other sources as well.
  • Are the reasons people give for their positive or negative reviews relevant to you? If someone’s focused on a feature that you don’t care about – it shouldn’t affect your decision.
  • Has the customer reviewed other products as well? Unfortunately, it’s relatively easy to post fake reviews. You can generally feel more comfortable trusting a review from someone who has reviewed multiple products or services.

4. Crowds

We may use the social proof shortcut when we see a large number of people doing something – either all at once or over time. In addition to our busy restaurant example, we can be influenced by crowds when we see lots of people wearing the same brand of clothing, driving the same kind of car, or using the same kind of smartphone.

How do marketers use this?

Marketers try to create the impression that lots of people are already using their product. For example, restaurants try to fill their window seats first to make it appear busy. Ads will tell you how a book has sold millions of copies, or a car is the best-selling in its class.

What to watch for.

It can be difficult to distinguish between actual crowds and the appearance of crowds. When you encounter advertising that implies popularity, dig a bit further to understand what’s behind the numbers being cited. When you see a prominent brand everywhere, see if you can notice similar but less prominent brands as well. In short, before making a decision based on “crowds”, do a bit more digging to be sure it’s actually a crowd.

5. Celebrity endorsement

Whether we’re aware of it or not, we’ve likely all bought something because we saw a celebrity using it. Unfortunately, relying on celebrity endorsements is among the least reliable of the “social proof” mental shortcuts.

How do marketers use this?

Marketers leverage celebrity endorsements heavily, either by explicitly paying a celebrity for their endorsement or by giving them the product in hopes they’ll be seen using it. The goal is to connect their brand with the positive feelings you have about that celebrity.

What to watch for

A celebrity endorsement is relatively easy to spot. When you see it, ask yourself a few questions:

  • Is the celebrity being paid? If they’re endorsing a for-profit brand, the answer is almost certainly “yes”. If so, try to ignore the endorsement in your buying decision.
  • Does the celebrity have special expertise in the product they’re endorsing?
  • Would you consider the product without the celebrity endorsement?
  • Check the celebrity’s social posts to see if they’ve included the hashtag “#ad”, which indicates they were paid to promote the product or company.

Social proof: use with caution

Social proof is among the most common of the decision-making shortcuts. And observing the choices of others can help us make good decisions more quickly. However, if we rely on social proof too extensively or don’t step back to get the full picture, it can lead us to make poor decisions.

For low-risk decisions, such as which restaurant to eat at or which movie to see – the use of social-proof is usually just fine. For larger decisions – such as which car to buy or what company to hire for your home reno, you might want to do a bit more research.