Consumer Behavior Week 2: Consumer (Ir)Rationality | Quizlet

factors influencing consumer decisions

1. situational factors
2. personal factors
3. psychological factors
4. social factors

system 1

involves automatic thoughts, basic intuition and automatic behavior

system 2

slower, more effortful, deliberate processing, requires time

judgment definition

cognitive aspects of the decision making process

bounded rationality

rationality of individuals are limited by the information, time and cognitive limits they have.

heuristics definition

mental shortcuts to help people make a quick and satisfactory decision

representativeness heuristic

when A is highly representative of B, the probability that A originates from B is judged to be high
- Ex: Steve has glasses, loves books, and like to read. Do you think Steve is a librarian or a boxer?

availability heuristic

ease in which instances can be "brought to mind", events which are readily available to be retrieved.
- frequent and familiar actions are easily recalled
- however: novelty, drama and media coverage can alter preceptions.

biases from availability heuristic

- bias 1: ease of recall (based on vividness and recency)
- bias 2: retrievability (based on memory)

Availability Bias Study: K L N R V

the letter KLNRV, are they more likely to appear in the 1st or the 3rd position?
- people said 1st position is more likely when in fact it was 3rd
- better at retrieving words that fit the 1st position

accessibility heuristic

making judgements and decisions based on ease with which information comes to mind.
- people tend to rely on info that is readily available or easily recalled from memory

bandwagon effect

The tendency to do (or believe) things because many other people do (or believe) the same.

trace of others' behavior

higher preference for scarce products due to excess demand.

scarcity effect

an increase in value of good when they are scarce
- increases desire
- loss aversion -> FOMO

commodity theory

enhances thinking about positive aspects and more extensive processing.
- luxury products
- limited edition

endowment effect

the tendency of people to demand more for things they own then they would pay to acquire it.
- mere ownership of a product increases its value

i made it myself bias

tendency for people to place high value on objects they partially assembled themselves. --> IKEA

self serving bias

a readiness to perceive oneself favorably

blind spot bias

failing to recognize your own cognitive biases

context's effect on preference

our preferences are not stable, a situation might affect our choices.

framing

the way information is presented changes our preferences. highlighting positive or negative information can change the products attractiveness

prospect theory

people choose to take on risk when evaluating potential losses and avoid risks when evaluating potential gains

gain frame example

600 people in danger
- serum A: 200 people will be saved
- serum B: 2/3 chance everyone will be saved, 1/3 no one will

people pick option A

loss frame example

600 people in danger
- serum A: 400 people will die
- serum B: 1/3 everyone will die, 2/3 no one will die

people pick option B

framing: experimental procedure (Levin & Gaeth, 1988)

4 groups (2x2)
- 75% "lean" ground beef --> positive framing
- 25% "fat" ground beef --> negative framing
- info first taste later
- taste first info later

framing: results (Levin & Gaeth, 1988)

- meat tasted better when presented with + frame
- personal experience means less than framing
- regardless of condition LEAN tasted better
- effect size largest when meat not tasted before seeing package.

framing: experimental procedure (Khan & Dhar, 2010)

6 bundles ( 2 homo & 4 hetero)
3 ways of presenting (hedonic, utilitarian, total bundle)
bundle: fondue set (79$) + office chair (79$)
- 20$ discount when purchased together

hedonic purchase

desired for pleasure, fantasy, and fun. hedonic purchases are usually associated with guilt → require more justification

framing: results (Khan & Dhar, 2010)

increase purchase on the heterogenous bundle when framed as a hedonic discount

mental accounting

- money allocated to different mental budgets remains coupled with the account to which it gets assigned.
- Framing the discount on "hedonic products" is more effective than framing the discount on the whole bundle.

anchoring bias

A cognitive bias for an individual to rely too heavily on an initial piece of information offered (anchor) when making decisions.

zero price effect

phenomenon associated with an increase in the intrinsic value of goods when the price is reduced to zero. Free things are perceived as more valuable than they actually are

zero price effect: experimental procedure (Shampanier et al., 2007)

!!!!!!!

separate evaluation mode

when we see one option independently from others and have to evaluate it in isolation

joint evaluation mode

when we see two options at the same time and have to evaluate them simultaneously.

preference reversal

Our preferences can change when we evaluate separately and when we evaluate jointly.

preference reversal: experimental procedure (Hsee et al., 1999)

willingness to pay salary for job candidate
- Candidate J: written 70 KY in last 2 years, Gpa -> 3.0
- Candidate S: written 10 KY in last 2 years, Gpa -> 4.9

in separate ev.: we focus on GPA
- gpa is easily evaluated independently
in joint ev.: we focus on KY
- ky is much more difficult ti identify independently

decoy effect

the presence of an inferior option (third choice) increases the probability of choosing a superior option. The inferior option serves as an anchor to make the other option seem more attractive.

decoy effect: popcorn

Only small (3$) vs big popcorn (7$) → people preferred the small option.
Medium option (6.5$) added → people preferred the large option.
- large is more attractive than the medium option

compromise effect

The tendency to lean towards the middle option if the options are hard to compare. The middle option seems like the safest option.