Decision making model

Utility theory

Consumer think rationally

Choose product that brings the most value

Explain how people make expensive purchase, used by economist for a long time

Reductionist: Lack impulse buying where customer don’t think carefully

Satisficing theory

We don’t have enough info to make completely rational choice

We are bounded rationality: Cognitive limits, time and info limit

Definition of good enough varies between individual: Aspiration level

The most realistic model

Aspirational level is hard to measure

Prospect theory

Explain why customer sometimes act irrationally

Customer weight win and loss from their reference point

We are loss aversion, we prefer certain gains over risky ones

(Business should offer certain discount when sign up or buy 2+ products, the certain gain encourage to buy)

We avoid risk

(Advertisement should state the potential losses occur from not buying a product, medical insurance, earn certain small hospital fee reduction or pay the whole fee)

(Business should give limited time discount or items to create risk of scarcity, encourage buying)

Cultural differences: Loss aversion is different in culture, lower in collectivist than individualistic

Decision making theory

Compensatory strategy

Use when: Consider few products

Weigh pros / cons of each, let positive attribute compensate for negative ones

Work out overall score and choose the best

Maximise utilitarian value of choice => online website has product comparision ( encourage using compensatory theory)

Reductionist: Too rational, ignore emotion

Non-compensatory strategy

Use when: Consider lots of product

Choose final product with least cons

Product can be eliminated right away if it has a negative attribute

Include heuristics:

1. Conjunctive heuristic: Set minimum rating criteria, choose the first product that satisfy all of the ratings

2. Elimination-by-aspects: Make a set of criteria, eliminate products that don’t meet criteria, go for one criteria at a time

3. Lexicographic heuristic: Choose product that has the most important attribute according to you. Idiographic: We set our own criteria

Quick decision when facing many choices (realistic)

Miss out good product just because it has one negative attribute

Partially compensatory strategy

Make decision in a sequence, rather than one-off

• Majority of conforming decision: First 2 products are evaluated against all relevant attributes, the best one stayed to move on compare with another product

• Frequency of good/bad feature: All products are compared at same time, the one with most good things that exceed cut-off value (minimum requirement) is chosen

Combined rationality of compensatory and heuristics of non-compensatory

Holistic approach: include personal reference

Time consuming

Mini study: Jedetski

Non-compensatory strategy used for website with no comparison + has more products

24 ppt, buy golf clubs from 2 websites, only one allows product comparison

Questionnaire about website satisfaction

Online website leads to more compensatory strategy used

Didn’t explain why comparison tool can not increase satisfaction (author just claimed because of other factors of the website)

Choice heuristics

Mental shortcut to make fast decision, lead to bias

R- ATAR

• Availability heuristic: Buy product come to our mind first (brand recognition)

• Representativeness heuristic: Perceive info in a pre-determined stereotype (Mercedes cars are only for rich people, the reputation attract customers to buy)

• Recognition heuristic: Buy products we recognize (useful when seeing products we don’t know of, like shopping in another country)

• Anchoring heuristic: Use impression we have about the first product that we see to judge later products ( introduce high price items first and then present lower one, make we believe the later one is cheaper)

• Take the best heuristic: Choose product based on the important attribute we need, ignore other factors (like non-compensatory)

Mini study: Del Campo

Choose 1 out of 5 eggs

2 groups with one group under time pressure to force ppt use heuristics

Time pressured group used take-the-best in Austria but not in Spain

Decision-making style is different in each countries (cultural factor)

Cultural differences: Only 2 countries used, heuristic might be even more different in other countries

Ppt use online survey, not actually buying product = lack ecological validity

Point of purchase

Placement of product to make us buy more

Multiple unit pricing

Discount if buy multiple products

Suggestive selling

Lure customers to buy accessories with a main product they buy

(Buying coke when getting a burger)

Mini study: Wansink

Point of porchase factors that influence how many quantities of a product we buy

2 field, 2 lab experiment

Field: Campbell soup receive discount, in one supermarket it says customers can buy as many as they want, the other supermarket say each customers only allowed to buy 4 or 12

The 4 or 12 increase sales more than no limit

Both field and lab. Both validity and realistic setting

Did not ask ppt why they buy that many quantities

System 1 and 2 thinking

System 1

Fast, unconscious, used less effort and hence used more often, involve heuristics

E.g: satisficing theory, non-compensatory

Heuristic bring bias: we miss out new product on recognition heuristic

System 2

Slower, more effort, used for expensive product

Compensatory, utility theory

System 1 and 2 can be combined throughout experience

With experience, expert can make complicated decision faster than inexperienced person

Hall - Choice blindness in taste

Choice blindness: Fail to recall our previous choice

Aim: Whether choice blindness of taste and smell happen in realistic setting of supermarket

Hypothesis: Choice blindness will not happen if:

• The 2 pairs of product are too different from each other

• Customer really like one over the other

• If they receive gift for participation

About supermarket

Field experiment in real Sweden supermarket

Researcher pretend this is a quality test for tea/jam

Area has moderate noise and neutral odor

About ppt

Opportunity, 180 Swedish shopper, mostly females, mean age 40.2

IV

1. Whether ppt receive free gift (more focus on choosing the one they like that will be the one they take home)

2. Whether flip the can or not

3. Whether 2 pairs are similar or different

DV: Detection and ppt confidence

About the can

Pretest to choose out the pairs of teas/jams that are most similar or different

All pairs matched for color and consistency

We have a cup that has a divider in middle, containing 2 different tea/jam for researcher to flip in secret

Procedure

Half ppt were told they will receive free gift (pick their favorite tea/jam)

Smell tea or taste jam, might do one or the other condition first

Choose the one they like, rate on scale of 10

(During that time, researcher secretly flip the can)

ppt try the taste of their chosen one again (but it’s actually the other taste this time) an verbally explain why they like it

Rate how difference the 2 products are and how confident they are in their choice, 10 point scale

Procedure repeat for the other pair of product

In control group the can was not flipped

After experiment:

ppt ask if they noticed anything unusual

1. ppt notice something wrong immediately after tasting = concurrent detection

2. ppt notice at the end of experiment (before or after debrief) = retrospective detection

3. ppt did not report change, but say the taste/smell was different = sensory change detection

debriefed and gave consent form

Result

Majority have choice blindness (only around 33% people detected difference in both tea+jam)

Detect better when the pairs were too different, yet choice blindness still affect more than half of ppt

Receiving gift increase choice blindness

No difference in confidence and ability to differentiate 2 pairs in all groups

Conclusion

Choice blindness affect smell, taste, vision in a realistic setting. And it’s not affected even though our actions have consequences (receive the free gift)

Valid: control group, pre test, randomly assign tea/jam group and whether the jar was flipped or not.

Realistic setting in supermarket + ppt believed this is a quality test = no demand characteristic + ecological validity

Lots of data: interview and rating

Field experiment, can’t control all variables. Noise may vary over time, some ppt get distracted by loud noise. Can’t keep certain aspect standardized = lower validity

ppt might speak to each other => reveal the study => not behave naturally. demand characteristics

Individual: ppt detect at different time, some feel unsure if they should mention the change (personality differences)

Situational: Authors realise that this was a low-risk decision with no negative consequences, and that consumers are more likely to recognise manipulation in a decision with higher stakes.

Consumer memory for advertising

Interference theory: Forgetting occur because retrieving something from long-term memory is interfered by other memory

Retroactive interference: Forgetting old memory to replace with new. (Brand info might be forgotten if customer learn info about new brand or new product)

Proactive interference: Opposite of retroactive, struggle to learn new things because the old memory is too strong (New brand info have to compete with old memory about brand info)

Mini study: Burke and Srull

Investigate retroactive and proactive effect on ads remembering

144 psy student, watch advert on computer screen (text only, no picture)

Rate how likely to buy and how interested they are in adverts

3 conditions:

• Adverts are different brand and product

• Different brand but same product type

• Same brand same product type

ppt surprise recall test of 3 target advert

ppt recall better if ads are unrelated, worsen in different brand same product and worst in same brand same product

recall better if rate likelihood of buying rather than interest value

Second experiment: the same but key ads are presented later

Study 1 proved retroactive interfere with recall

Study 2 proved that proactive interfere with recall

Control variables: same time to recall ad, random allocation of group = reliability

Conducted when computers were not popular, so survey on computer lack ecological validity for that time