Over how many consumers predict spending?
70%
What percentage of Americans who own a smartphone use at least one personal finance app?
63%
Asking yourself, "How much money will I spend next week?" is equivalent to saying what?
How much will I spend on average
accessibility
the ease with which information comes to mind
heuristic
cognitive shortcut or rule of thumb; an easily accessible piece of information that aids in decision making.
when faced with a difficult decision, we often answer an easier one instead consciously or unconsciously?
unconsciously
why do heuristics matter?
to aid in decision making
judgement
evaluations or estimates regarding the likelihood of events
bias
predictable, systematic deviation from objective standard
expense prediction bias
the under prediction of future expenses
why are the "average" predictions problematic?
Mode
mode
most often
mean
ave
median
the middle number when lined up greatest to least
prediction is the: mean, mode, or median?
mode
reality is the: mean, mode, or median?
mean
income prediction bias
the over production of future income
in the income prediction bias, the mean is _____ the mode
less than
in the expense prediction bias, the mean is _____ the mode
greater than
affective forecasting
consumers predictions of how they will feel in the future
WHAT will I feel
valence (good or bad) nature of feeling (specific emotion)
HOW much will I feel it
intensity
HOW LONG will I feel this way
duration
durability bias
over predicting the emotional impact of future events
focalism
overweighting one slice of information
problem recognition
the PERCEIVED difference between an ideal and an actual state.
problem recognition is the ____ step of the decision-making process
first
ideal state
the way consumers would like a situation to be
actual state
the real situation as consumers perceives it now
T/F: problem recognition occurs if consumers become aware of a discrepancy of an ideal state and an actual state
True
internal search
process of recalling stored information from memory. naturally limited by consumer's ability to store and process
T/F: recognition is far easier than recall
True
consumers recall
brands attributes e
consumer decision making is influenced by ______
accessibility
base rate information
objective truth about how often an event really occurs on average. often ignored due to biases
the "law" of small numbers
intuitive belief that small samples are accurate (ex: getting bit by a shark)
are decisions based off heuristics dumb?
no because it simplifies our decision making
survival bias
focusing on causes of success rather than causes of failure. another examples of focalism
the planning fallacy
understanding project completion times (your plan vs. reality)
why do we underestimate
we focus on the future and ignore relevant experiences in the past
system 1
fast, automatic, effortless, intuitive. this is where heuristics live
system 2
slow, deliberate, effortful, rational. this is where logical reasoning lives.
when does system 2 kick in?
when we say so...except sometimes; when the task seems difficult
T/F: we have a tendency towards focalism
true
T/F: accessibility determines our focus
true
reference point
basis or standard for evaluation
anchoring and adjustment
decisions are often anchored on a reference point, then adjusted up or down
choice overload
large selection can grab consumers' attention, but it can also result in fewer purchases when too much choice is paralyzing
solution for choice overload
categorization
maximizers
look for the best option and tend to make more money
satisficer
look for the good enough option and are happier
classical economic perspective
consumers are rational; they integrate as much information as possible and make fully informed decisions and manage to maximize their utility (ex: satisfaction). this perspective is normative and is how we should act
behavioral economic perspective
factors like heuristics, bias, framing effects, and emotions prevent us from acting like rational agents. this perspective is descriptive and captures how we actually believe
internal decisions influenced by:
accessibility heuristics biases
external decisions influenced by:
defaults compromise/ decoy effects framing effects
T/F: reference group (or individual group member) of relevance to a consumer's choices and behavior
true
factors that make up a group or reference group
propinquity group cohesiveness mere exposure
propinquity
physical and psychological proximity
group cohesiveness
degree to which members of a group are attracted to each other and value their group membership
reference group #1: the "in-group"
social group in which we belong to
reference group #2: the aspirational "out-group"
groups to which we aspire to belong, or group members who we aspire to be like
reference groups #1 and #2 are influence by ______
conformity
reference group #3: the dissociative "out-group"
groups (or individuals) that stand in contrast to self-identity
what influences reference group #3?
dissociation
social norms
a group's customs, traditions, standards, rules, values, etc.
why are social norms so powerful?
need for affiliation
need for affiliation
fundamental human desire to feel a sense of connection, association, and similarity with other people
descriptive norms
convey information about what other people commonly do
when can descriptive norms backfire?
suicide prevention programs, eating disorder awareness, parties with people who have covid-19
how do we solve descriptive norms?
injunctive norms
injunctive norm
convey information about what we should or should not do
when does social rejection increase liking?
rejection comes from an aspirational brand brand must represent the consumer's ideal self salesperson must reflect the brand image
why does social rejection increase liking?
need for affiliation
need for uniqueness
desire to differentiate oneself from others
T/F: need for uniqueness modifies need for affiliation but does not replace it
true
choice architecture
structure of a decision environment
the default effect
consumers tend to stick with pre-selected options
why are defaults so powerful?
social proof decision ease focalism
why are defaults ineffective?
when consumers have strong beliefs
the compromise effect
consumers tend to choose in the middle because most people are hardwired to avoid extremes
the decoy effect
creating a decision environment in which one option is clearly dominated
loss aversion
consumers are risk averse with respect to gains, but not losses
nudge is...
any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any option. must be easy and cheap to avoid
sludge is...
a process more difficult in order to produce an outcome that is not in a consumer's best interest (ex: cancelling subscriptions)
Studied by 28 People