Book Exam - Consumer Behavior

what are the main differences between System 1 and System 2?

System 1 is fast, automatic, and intuitive, while System 2 is slow, deliberate, and analytical.

What are some examples of tasks managed by each system (1 and 2)?

System 1 handles quick decisions like recognizing faces and driving on familiar routes, while System 2 is used for complex calculations and planning.

What is Priming Effect?

when exposed to one stimulus (word or image) unconsciously influences how you respond to a later stimulus, without you realizing the connection between them.

How is associative memory influenced by the priming effect?

by making certain associations more accessible, thereby enhancing the likelihood of recalling related information.

making it easier to recall related concepts or information when previously exposed stimulus activates associated pathways in the brain

What is Cognitive Ease?

the mental state where information is processed easily and effortlessly, often leading to positive feelings and quicker decision-making.

the ease with which our processes information

What factors positively influence cognitive ease?

Factors such as familiarity with the information, simplicity in presentation, visual aids, positive mood, and positive emotional associations

how can the concept of Cognitive Ease be used to create a persuasive message?

by presenting information in a clear, simple manner that is easy for the audience to process, thus enhancing their receptiveness to the message.

What is the Law of Small Numbers?

The tendency to make inferences about a large population based on a small sample size, often leading to inaccurate conclusions.

relying on intuition

What is the “Bias of Confidence over Doubt”?

a cognitive bias where people tend to overestimate their own knowledge and abilities, placing more emphasis on their confidence in a situation rather than considering potential uncertainties or doubts, leading to a perception of greater certainty than is actually warranted

What is the Anchoring Effect?

The cognitive bias where individuals rely too heavily on the first piece of information encountered when making decisions, which can skew their judgment.

anchoring effect on system 1

quick, intuitive judgments based on initial information

What is the Conjunction Fallacy?

cognitive bias where people mistakenly believe that the proabability of two events happening together is higher than the probability of either event happening alone

What is Regression to the Mean Effect? Provide examples

if one sample of a random variable is extreme, the next sampling of the same random variable is likely to be closer to the mean

What is the Illusion of Understanding?

a cognitive bias that causes people to overestimate their understanding of a topic

What is the idea behind WYSIATI?

“what you see is all there is”

What is Illusion of Inevitability?

cognitive bias where someone believes an event or outcome was always going to happen, even when presented with evidence that suggests otherwise because we construct narratives around past events, making it seem like its the only possible path forward

What is the Illusion of Certainty?

the pyschological tendancy for people to believe they have a complete understanding or knowledge about something, even when there is significant uncertainty involved

What is the illusion of validity?

cognitive bias where people overestimate the accuracy of their judgements or predictions based on subjective confidence rather than objective accuracy

What is the illusion of Skill?

overestimating your ability to perform a task or make a decision in a particular area, often based on false perception of their own competence

What is the illusion of Stock-Picking Skill?

the cognitive bias where investors overestimate their ability to select winning stocks consistently, often believing their past successes in stock selection are due to skill rather than chance.

Which one is more reliable, human judgment and intuition or equations and formulas? Why?

equations and formulas because they are considered more reliable because there are less errors whereas intuition thinking is fast and uses a gut feeling

What is the Endowment Effect?

cognitive bias where people tend to value items they already own significantly higher than they would if they did not own them

Why does it exist (what are the psychological underpinning of Endowment Effect)?

“loss aversion”, people tend to feel the pain of losing something they own more strongly than the pleasure of gaining something of equal value

How do rare events impact people’s judgments?

people tend to overesitmate the liklihood of these events occuring because they capture our attention more readily than common events, leading to biased judgements

What is Mental Accounting?

the tendancy for people to categorize and treat money differently based on its source or intended use

the different values a person places on the same amount of money based on subjective criteria

What is the Framing Effect?

a cognitive bias where people make decisions based on how information is presented rather than on the underlying facts themselves, often choosing options that are presented with a positive connotation even if the underlying outcome is the same

what is experience self?

what a person feels when experiencing something in the present moment (emotions, memories associated with an event)

example of peak-end events

if you have a great vacation with mostly pleasant moments but end with a stressful flight delay, you are more likely to remember the vacation negatively due to the impactful ending

System 1

relies on heuristics and emotions

system 2

involves conscious thought and reasoning.

what is associative memory?

cognitive process where ideas or concepts are linked together, allowing one to trigger the recall of another.

anchoring effect on system 2

engage in more deliberate thinking but can still be swayed by the anchor.

example of anchoring effect

When shopping for a shirt, you might see a shirt priced at $100 and then another one for $40. You might consider the second shirt to be a bargain because of the initial price of $100

priming effect

when you see the word doctor and then also think of nurse this is an example of __ because your brain is now thinking about medical professions.

conjunction fallacy example

The "Linda problem" - Imagine Linda is described as a feminist, active in politics, and concerned about social issues. People often rate the probability of "Linda is a bank teller and a feminist" as higher than "Linda is a bank teller" alone, even though the latter is statistically more likely

example of regression to the mean

a student getting a high grade on the first test but on the next test, their score is likely to be closer to the mean due to the first test including lucky guesses or favorable circumstances, meaning the next test score will likely regress back towards typical performance

example of illusion of validity

seeing a muscular guy and thinking he is a body builder based on your first look and prediction but in reality he is an accountant

prospect theory

a pyschological model that explains how people make decisions when faced with uncertain outcomes

example of illusion of inevitability

believing that a particular candidate will win an election because they are currently polling high, without considering potential shifts in public opinion.

loss aversion

people tend to avoid risk when choosing between options even if it means giving up a chance at a higher potential gain

what is the meaning behind “what you see is all there is”

making decisions based on information that is readily available and assuming it represents the whole picture even if crucial details are missing

example of endowment effect

if you are asked to sell a coffee mug you've had for a while, you might price it much higher than what you would be willing to pay to buy an identical mug at the store

example of illusion of understanding

believing you fully understand a concept after reading a few sentences or headlines without diving deep into the complexities involved

example of illusion of certainty

if someone is certain that they know something they are less likely to do more research to confirm they are correct

illusion of skill example

believing you can dance well after watching many dance videos or thinking you can fix a car after watching a mechanic do it

prospect theory example

supose that you have a choice between being given $50, and a 50% chance of winning $100. Most people will take the $50 even though the expected value of the two options is exactly the same

example of rare events

someone might be excessively worried about a plane crash after hearing about a recent accident, even though flying is extremly safe

example of mental accounting

someone might be more likely to spend a $20 giftcard on a relatively expensive item than spend $20 from thier regular checking account, even though the money is essentially the same

what are heuristics?

mental shortcuts or rules of thumb that people use to make quick decisions by relying on readily available information

what is rememebering self?

the part that reflects on past experiences and creates a narrative of those events, acting as a storyteller about your own life

example of heuristics

assuming someone is trustworthy because they are wearing a professional suit, relying on system 1 based on appearence rather a deeper evaluation

what are peak-end events?

cognitive bias where people primarily remember an experience based on its most intense moment and how it ended rather then considering the entire duration or average intensity of the experience

how does it influence consumer decisions making processes?

it causes consumers to choose options based on how information is presented rather than the objective fact themselves

example of framing effect

90% lean beef vs 10% fat beef - even though both descriptions refer to the same product, most people would percieve 90% lean beed as a healthier choice due to the positive framing of ‘lean’

what is ego depletion?

the state where a persons ability to exert self-control is diminished after using up mental energy on a previous task

example of ego depletion

having to resist a tempting dessert after a stressful day at work, or a judge being more likely to deny parole requests towards the end of the day

What is the law of least effort?

the human tendancy to choose the option that requires the least mental exertion

what is halo effect?

cognitive bias where a positive impression of someone in one area leads to the assumption that they are positive in other areas as well

What is the idea behind brain as an Associative Machine?

our minds naturally connect related ideas and concepts together based on past experiences, forming quick associations without concious effort

What is Affect Heuristic?

a cognitive shortcut where people make decisions primarily based on their immediate emotional response to a situation, going with their gut feeling rather than carefully weighing the pros and cons of a choice

What is Representativeness heuristic?

a mental shortcut where people judge the liklihood of an event based on how similar it appears to a prototype or stereotype they already have in mind

What is Availability Heuristic?

a mental shortcut where people judge the liklihood of an event based on how easily they can recall examples of similar events

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