J500 midterm :|
CHAPTER 1:(truth about relatively) Example of 3 choices:
**Say we are trying to decide on a vacation between two choices: a Paris trip with free breakfast and a Rome trip with free breakfast. We cannot decide between the two because we love Paris and Rome equally. o Simply adding a third option - an "A minus" version of one of the options, will cause us to pick the A version, over the equally atractive B version. •Thus, the simple addition of a third "A-" option, "Paris without a free breakfast", will cause us to choose "Paris with a free breakfast", the "A" option, over "Rome with a free breakfast", the equally attractive "B" option. •Similarly, had the third option added been "B minus" - "Rome without a free breakfast", we would have selected that "B" option - "Rome with a free breakfast".
CHAPTER 6 (The Problem of Procrastination and Self control) Why we cant make ourselves do what we want • Ariely conducted an experiment on his class. Students were required to write three papers. oAriely asked the 1st group to commit to dates by which they would turn in each paper. Late papers would be penalized 1% per day. There was no penalty for turning papers in early. The logical response is to commit to turning all three papers in on the last day of class. oThe 2nd group was given no deadlines; all three papers were due in the last day of class. oThe 3rd group was directed to turn their papers in on the 4th, 8th, and 12th weeks.
-Group 3 (exact deadlines) got the best grades. -Group 2 (no deadlines) got the worst grades -Group 1 (self-selected deadlines) finished in the middle. •Allowing students to pre-commit to deadlines improved performance
CHAPTER 13 )beer and free lunches what is behavioral economics and where are the free lunches? Experiment 1: Beer ordering. A group of 4 is offered a choice of 4 different beers. -•When people order out loud, and in sequence, .... •Those who made their choices out loud were not as happy with their selections than those .. -EXCEPT that the first person to order was just as happy as private choosers (since his situation was logically equivalent) WHY DOES THIS OCCUR?
-they order more types of beer (variety) -who made their choices privately ****"People are sometimes willing to sacrifice the pleasure they get from an experience in order to project a certain image to others...People, particularly those with a high need for uniqueness, may sacrifice personal utility in order to gain reputational utility."
Social proof (rule 3) Rule - We view a behavior as more correct in a given situation to the degree that we see others performing it. EX:
1. Canned laughter (laughing track) causes viewers to laugh longer and more often. It is more effective on poor jokes.
"INFLUENCE: THE PSYCHOLOGY OF PERSUASION" BY CHALDINI KEY POINTS: (5)
1. Reciprocity - Give something of value to get something of value 2. Consistency and Commitment - Will be consistent with a path or approach 3. Likability - Are more likely to purchase from someone they know, trust and like. AND, more impotantly, someone who knows, likes and trusts THEM. 4 Authority - Purchase from an authority 5. Social proof - Purchase based on the recommendations of others 6. Scarcity - Purchase if quantities are perceived to be scarce.
Contrast principle Humans perceive things which are presented one after the other differently than those presented in isolation ex:
1. Showing an inexpensive product before an expensive one causes the latter to look even more expensive. Cloth sellers will try to make the buyer buy the most expensive item on their list first.
Clark, Mills, and Fiske theorize that we live in two worlds; and example
1. Social norms; such as reciprocity are warm and fuzzy, with no explicit quid pro quo 2. Market norms: are explicit and hard--you get what you pay for Example: You can't mix social and market norms where sex is involved. You can't wine and dine a woman and then say, "You know, this relationship is costing me a lot of money." As Woody Allen said, "The most expensive sex is free sex." Conclusion: Market norms drive out social norms.
There are three fundamental quirks of human nature:
1. We fall in love with what we already have. 2. We focus on what we might lose, rather than what we might gain. (When thinking about selling something, you think about all the things you'll miss, rather than the hassles of ownership) 3. We assume that other people will see the transaction from the same perspective as we do.
CHAPTER 1: (truth about relatively) Ariel did an experiment to test the "choices" theory and _____ % of his research subjects chose A over B
75%
CHAPTER 1:(truth about relatively) Given 3 choices A, B (very distinct, but equally as attractive as A, and A- (similar to A, but inferior, we will almost always choose......
A; because its clearly superior to A-
Starbucks itself is producing a new:
Anchor -Schultz made starbucks as different as possible from other coffee shops to establish a new anchor. rather then saying "this is a fancy expensive Dunkin Donuts"
Herding: & example
Assuming that something is good (or bad) on the basis of other people's previous behavior -People wanting to go to a restaurant where people are waiting outside -going back to starbucks because you recall enjoying yourself on previous visit *at this point, you don't ask yourself if you would be better off with cheaper coffee
Price "memory" can also have a major impact.
Doubling the price of milk and halving the price of wine would have a major short-term impact, but it's unlikely to have a long-term impact on consumption patterns.
Ariely, Prelec, and Loewenstein conducted an experiment in "arbitrary coherence" at the Sloan School. Students were asked to write down the last two digits of their SSN and consider whether or not they would pay that amount for certain items. Then they bid on those items.
For every product, those with a 80-99 SSN were willing to pay more than those with a 00-19 SSN...by nearly 3X.
Knowing the impact of anchoring, you should train yourself to question your repeated behaviors. You should also pay particular attention to the first decision in a long stream of decisions. .
It may seem like it is just one decision, but that first decision may have impact on future decisions for years to come.
Stereotypes
Not only do we react differently based on stereotypes of others, we react differently based on stereotypes about ourselves.
CHAPTER 2 (The Fallacy of Supply and Demand): Anchoring has a major long term effect on....
Our willingness to pay
• Simonsohn and Loewenstein found that people who move to a new city remain anchored to the prices they paid in their previous city. Examples:
People who move from Lubbock to Pittsburgh squeeze their families into smaller houses to pay the same amount. People who move from LA to Pittsburgh don't save money, they just move into mansions
"Tom Sawyer" effect:.
Quote Twain: "There are wealthy gentlemen in England who drive four-horse passenger coaches 20 or 30 miles in the summer because the privilege costs them considerable money, but if they were offered wages for the service, that would turn it into work, and then they would resign."
Reciprocation (rule 1)
Rule - we should try to repay in kind, what another person has provided us. *There is a general distaste for those who make no effort to reciprocate. We will often go to great lengths to avoid being seen as one of them.
• Vohs, Mead, and Goode: Participants were asked to unscramble sentences that were either neutral ("It's cold outside") or related to money ("High-paying salary"). Then they were asked to solve a puzzle. The experimenter left the room, and the subjects were allowed to go to him for help. Conclusion?
The conclusion is that thinking about money puts one in a market frame of mind. Subjects were: • More selfish and self-reliant • Wanted to spend more time alone • Were more likely to select individual tasks rather than those that required teamwork • Chose to sit farther away from others
Social norms are more ...
effective and cheaper
Weapons of influence consist of identifying fixed action patterns and exploiting them ex:?
ex: For example, with humans, just adding the word "because" to a request increases the chance of the request being accepted (source) ex: Two brothers were running a tailor shop, one would say higher price (42$) while the other would pretend to mishear it (22$) and the customer would rush to buy it for 24$ before the second brother would realize the apparent mistake. (source)
When a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once a social norm is trumped by a market norm, it will rarely return." EX:
ex: Imposing a fine inadvertently replaced social norms with market norms. Parents decided to since they were being fined, they could decide whether or not to be late, and frequently chose to be late. oA few weeks later, the day care center removed the fine, but the situation worsened. Rather than reverting to social norms, parents now concluded that there was no penalty for tardiness.
The bigger picture is that supply and demand are NOT:
independent
And if you induced amnesia about the previous prices:.....
it might have nearly no impact at all.
Social norms provide:
loyalty, to be flexible, concerned, and willing to pitch in. That's what a social relationship delivers."
• How can these principles be used to improve health care?
o Charge a $100 deposit, refundable when the patient shows up on time rather than procrastinating
CHAPTER 11 (the context of our character) why we are dishonest and what we can do about it? • Conclusions about honesty
o Given the opportunity, many honest people will cheat (similar experiments were conducted at MIT, Princeton, UCLA, and Yale with similar results, so it's not just that Harvard students are crooks). o Once tempted to cheat, students didn't seem to be influenced by the risk of getting caught; even when we have no chance of getting caught, we still don't become wildly dishonest. o "We care about honesty and want to be honest. The problem is that our internal honesty monitor is active only when we contemplate big transgressions, like grabbing an entire box of pens. For little transgressions like taking a single pen, we don't even consider how these actions would reflect on our honesty."
CHAPTER 8 (keeping doors Open) why options distract us from our main objective
o When we focus on the similarities and minor differences between two things, we fail to take into account the consequences of not deciding. Flip a coin and move on.
• In the real world, this effect was demonstrated by Amazon's free shipping and the effect was...
their sales increased
The placebo effect is well-known and real. It's not just a matter of fooling oneself; placebos can actually .....
trigger endorphins and opiates and other biological reactions that actually change body and experience. What is interesting, however, is that price has an impact on efficacy.
Ariely's theory is that for normal transactions, we consider both upside and downside. But when something is free.....
we forget about the downside. -"Free" makes us perceive what is being offered as immensely more valuable than it really is
CHAPTER 7 (The high price of ownership) why we overvalue what we have endowment effect-
when we own something, we begin to value it more than other people do.
How can you use this knowledge?
• Caterers can use exotic descriptions to improve the perceived taste of their food.
CHAPTER 12 (the context of our character part 2) why dealing with cash makes us more honest Ariely conducted an experiment on MIT's communal refrigerators. pen vs. the money? and money vs. coke
• When he slipped in a 6-pack of Coke, all the Cokes had vanished within 72 hours • When he left a plate containing 6 $1 bills, no one *ever* took any of the money • Would you feel bad about taking a pen for you child? How about taking $0.10 from petty cash to pay for a pen for your child? The two are economically identical, but get very different reactions. • "Cheating is a lot easier when it's a step removed from money."
CHAPTER 9 (The effect of expectations) why the mind gets what it expects Previously held expectations can cloud our point of view. Ariely, Lee, and Frederick conducted yet another experiment on MIT students. They let students taste two different beers, and then choose to get a free pint of one of the brews. Brew A was Budweiser. Brew B was Budweiser, plus 2 drops of balsamic vinegar per ounce. RESULTS
• When students were not told about the nature of the beers, they overwhelmingly chose the balsamic beer. • When students were told about the true nature of the beers, they overwhelmingly chose the Budweiser. ***If you tell people up front that something might be distasteful, the odds are good they'll end up agreeing with you--because of their expectations.
CHAPTER 5: (The Influence Of Arousal) Ariely and Loewenstein conducted an experiment on Berkeley undergrads -they asked them a series of questions when people were sober vs. aroused. what were the results?
•Can you imagine having sex with a 60-year-old woman • Sober: 7% • Aroused: 23% -people answer yes to sexual questions more when they're aroused
We have no idea how dishonest we are •Students predicted that they would be no more likely to cheat with tokens than cash...they were completely wrong....... • • Overall, cheating is not limited by risk; it is limited by our ability to rationalize the cheating to ourselves.
•People who have their assistants turn in their expense reports (rather than turning them in personally) are much more likely to cheat. • Businesspeople are more likely to claim dubious expenses when they are traveling across the country than when they are in their home city, or even just returning from the airport. *Overall, cheating is not limited by risk; it is limited by our ability to rationalize the cheating to ourselves.
Peculiarities of ownership:
•The more work you put into something, the more ownership you begin to feel for it (The "IKEA effect") •We can begin to feel ownership even before we own something (The "eBay effect"). (This is why trials and money-back guarantees work so well! People hate to downgrade). *These ownership quirks apply to ideas as well as things...which is why we end up with ideologies that no longer seem rational.
CHAPTER 10 (the power of price) Ariely, Waber, Shiv, and Carmon made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours. RESULTS??
•When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief. •When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief. • The more pain a person experienced, the more pronounced the effect.
