The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

97. Peak-End Rule: Why Averages Don’t Always Matter (A Behavioral Economics Foundations Episode)

Apr 24, 2020

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Imagine any experience, from eating out to buying something online, and consider these questions you have probably heard a lot: “How was everything?” or “How did it go?” How do you answer these questions? More often than not you probably just say “fine” but if you were really going to think through and give the most thoughtful possible answer...how much more effort would you really put into the response and does it actually encompass any more of the truth than the quick reply?

This is where the peak-end rule comes into play. The peak-end rule is one of those concepts that is super easy to understand and get your arms around but it can be difficult to overcome and implement the logic in practice. Essentially, the peak-end rule shows us that people do not rate experiences on all of their details…instead, only two points are used to determine the overall opinion of the event: the peak (which can be either positive or negative) and the end.

The peak-end rule can have a huge impact on your business. First, start by knowing what type of experience people have with you. This can help determine what peaks you are dealing with, and where they should fall in the overall experience. The best thing to learn from this rule is that while it is important to consider everything in an experience to ensure you don’t have any big negative peaks you aren’t aware of...At the end of the day, there are only two points that really matter so you can focus on those two things and not have to worry so much about everything else. During the episode, I will talk about how the peak-end rule impacts brand engagement, personal relationships, employee reviews, medical procedures, pricing, and more.

Show Notes:

[00:43] Today I am talking about the peak-end rule, which ties into how people rate experiences.
[02:57] The peak-end rule shows us that people do not rate experiences on all their details instead only two points are used to determine the overall opinion of the event: the peak and the end.
[04:48] Your brain is probably exhausted thinking about all the thought that needs to be put into an adequate response about your experience. That is why the peak-end rule, a heuristic or rule of thumb, has been so widely adopted.
[05:15] What your brain ends up doing is forgetting about everything except for the peak point and the end point. All the other things sort of fade into the background.
[06:50] Having a little time for a negative peak to taper off and not be the final moment makes the entire experience feel better.
[08:23] When the peak is negative, you don’t want it to line up with the end because it will make the entire experience feel particularly awful. In the opposite situation, when the peak is a really good thing, ending on the peak is actually very valuable.
[10:39] So knowing what type of experience people have with you can help determine what peaks you are dealing with, and where they should fall in the overall experience.
[11:37] It is important to break this process down into its smallest pieces. The free Master Your Mindset Mini Course has a worksheet that can help a lot with this.
[14:16] Whenever possible, don’t get bogged down in what you are doing now and try to tweak little by little, instead look at what the experience would be in your ideal state and consider how you would build that out.
[15:32] The best thing to learn from this rule is that while it is important to consider everything in an experience to ensure you don’t have any big negative peaks you aren’t aware of, when there are only two points that matter you can focus on those two things and not have to worry about everything else.
[17:28] I’m not suggesting that you should lower the average across all experiences, but you don’t have to worry about every single moment and data point so much.
[17:49] Unexpected moments of delight drive loyalty and ongoing happiness with your brand.
[19:17] Even if you don’t have the opportunity to create a positive peak, putting a little effort into ensuring the last moment isn’t the worst can have seriously positive benefits on the overall perception of the experience.
[20:49] REAL LIFE EXAMPLES starting with customer service experiences.
[22:28] Businesses will always benefit from thinking about the long term experience with you.
[22:43] When you treat everyone as if they might come back someday (look on the bright side, and don’t burn bridges) it can help with overall reputation and memory of working with you.
[24:42] We are going to think outside of the box now and consider employee reviews.
[25:48] As an employee, it is important to know that most managers will look at the peaks and very recent stuff when working on your review, even though it is supposed to encompass the whole year. The brain has a hard time grabbing all that information.
[27:47] When you are tasked with giving an unbiased and holistic review of a giant span of time (like a year) it is important to not be swayed by the peak-end rule, so taking notes during the year is important. See the links below for an article I wrote on this with steps for managers to follow.
[28:18] The last place I want to touch on where the peak-end rule comes into play is pricing strategy.
[29:27] The peaks are setting anchors for your brain to help you determine value and how you ultimately feel at the end even when the final number is exactly the same. (Example using home values.)
[29:58] The stock market is a great example of this. People are really good at building big dreams around the highest value on their portfolio even though those numbers are always changing and not guaranteed.
[31:43] Experiences can be lengthy or short, and no matter how many points we could consider to evaluate them, more often than not, there are only two points considered: the peak and the end.
[32:06] Look at all your experiences. Both the ones you go through each day and for your customers to find points where you can use the peak-end rule to your advantage and increase the overall experience people have with you and your brand.

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