The Hidden Psychology of AI Advertising: How Companies and Cookies influence Consumer Choice

Is your phone listening to you? One moment you’re chatting about the newest trending makeup product - phone in hand. And the next time you’re online, doomscrolling TikTok’s or Instagram reels, ads for that specific cosmetic and content promoting that coveted must-have pops up everywhere. Coincidence, or is Mark Zuckerberg secretly in your walls?  

Probably not.

AI algorithms push content that you’re more likely to enjoy — carefully measured by your watch time, engagement, and rewatch frequencies — to ensure you’re hooked on the platform. These algorithms analyse and predict your preferences to keep you constantly engaged. This makes ads more personalised, allowing for companies and social media to more efficiently market products you're likely to want to buy to you. This personalization relies on a strategy known as dynamic segmentation is what keeps you endlessly scrolling on Shein, Temu or Asos. Dynamic segmentation is a marketing practice that involves dividing customers into different segments based on needs, interests, characteristics, etc. With the development of AI algorithms, the app is able to constantly update and tailor its data on you with each additional second spent on a short video on the new must-buy Stanley or the trending matcha-boba-frappuccino. These evolving data segments enable companies to deliver highly specific ads tailored to your current interests and mood, resulting in an experience that feels almost too personal. 

This constant exposure of products and services catered exactly, specifically, exclusively to you reduces hesitations you have towards these products. It reduces the likelihood of you carefully evaluating a purchase (called System 2 thinking) and instead encourages snap judgments or System 1 thinking about purchasing products. According to behavioural economic psychologist Daniel Kahneman, System 1 thinking is fast, intuitive, and often impulsive. System 2, on the other hand, is more like an older sibling — critical, rational, and ready to remind you that you already have a cute denim skirt, and dropping even more money on another might not be wise.  

Companies like Shein want you to ignore your System 2 thoughts, and to act on your System 1 thoughts. They want you to act on impulses, often primed through emotional appeals and urgency, before System 2 thoughts can even form. They accomplish this by prompting customers to act on biases such as loss aversion (fear of missing out on a deal) or scarcity (perception of limited availability) to drive quick purchases. Think about those “Sale ending in 3 hours!” or “Only 2 left in stock!” messages, or discounts like “Buy 1, get the second half off!” These tactics are crafted to bypass rational thinking and encourage you to make a quick decision based on emotion and urgency. 

What’s even more powerful is how AI reinforces this behaviour over time. By showing ads or messages during moments when you’re most likely to make impulsive choices — such as during your pre-bedtime scrolling or when you’re already buying something — algorithms can nudge you toward System 1 thinking at precisely the right time. This isn’t just banal advertising; it’s a scientifically driven strategy that leverages our inherent biases for profit. The consistent bombardment of products you like, want, and need weakens our already limited ability to make informed decisions. The bounded rationality theory suggests that our abilities in making sound judgments is limited and when faced with the endless possibilities of cute jackets, chic hair clips and couture clothing our rational behaviour becomes inhibited. The McKinsey research shows that companies that use AI for real-time marketing achieve “20% higher conversion rates and 15% lower customer acquisition costs”.  

However, AI can also reduce that sensory overload from seeing 50 different versions of the same grey fluffy blanket with differing prices and delivery costs. Using AI algorithms can be a type of simplification technique that reduces complexity and cognitive load related to these decisions. Apps like Honey that help you scrape the internet for the best deals or lowest cost of a product are AI tools that consumers can use to benefit their shopping experience. AI algorithms, if used correctly, can minimise costs and risks for consumers; helping consumers evaluate options without much cognitive overload. By showing you exactly what their databases suggest you’d like, less time and energy is spent filing through thousands of different variations of what is essentially the same product and the “best match” can be presented to you, ready to be put in your cart. 

Isn’t this a huge invasion of your privacy? The robots are getting into your head! Like all tools, that depends on how you use it. AI algorithms can be a helpful tool for you to research and find the right products. We just need to exercise critical thinking when we see a new product we want. Although it might be easy to be sucked into the constant marketing of the new must-haves and the latest trends, benefits or limitations of these tools are wholly dependent on how we use them.