Exam 2

search stage of decision making process (what leads to search?)

(graph of product knowledge and amt of search is a parabola that opens down) 1. Moderate product knowledge (leads to most search) •Novice and experts search less. Bc don't know where to start or know what they need And the type of search differs according to expertise Experts: more efficient, selective search Novices: more likely to rely on others' opinions 2.Risk: large purchases; purchases that require commitments; or have large social consequences. Examples? 3.# of options --> ease of searching, difficulty of choosing 4. these types of people search more: • Young people •Educated people •Women • ppl w/ favorable attitude towards shopping[

What topic did Dan Ariely's Ted Talk cover?

- default -- organ donation rates by country- higher donation rates when the default is check to opt-out rather than check in -asymmetric dominance/decoy effect (a reason why our decisions are not always consistent/rational) --examples he mentioned: Ex the economist subscription: could get online sub for 60 dollars, print one for 125 dollars, or both for 125 dollars -when removed the print only sub option, 68% ppl wanted online only and only 32% wanted print & web (useless middle option... The decoy... made the "both" option look like a better deal than it was) ALSO tom and jerry study ALSO rome vs paris ex: : when it was all-inclusive rome, rome but no coffee included, or paris, more ppl selected rome

non-compensatory decision rules (what are they and when are they used)

-"one strike and you're out" -used by consumers to narrow down choices to a manageable consideration set and/or in certain contexts definition: involve habitual or emotional decisions. If an option does not suit us on one dimension, we reject it and move on to something else rather than think about how it might meet our needs in other ways

separate vs combined choice halloween candy study

-Choices made were only separated by less than 1 minute, as the two houses were next to each otherCondition 1: sequential (separate) choice •Kids visited House #1 and then •Kids visited House #2 •Told "take one bar" (at each house) --> 2 candy bars total Condition 2: simultaneous (combined) choice •visited only 1 house •told at that house to "take two bars" --> 2 candy bars total Prediction: less variety seeking in separate choice ( less variety when they get one candy bar at two houses than when they get two candy bars at one house.) RESULTS: Condition 1 (separate choice @ 2 houses): •50% of the kids chose •50% chose the same candy bar at each house (i.e. two 3 Musketeers or two Milky Way --> whichever was their preferred candy bar) Results: Condition 2 (combined choice @ 1 house): •ALL of the kids chose two different candy bars (drastically different outcomes)

anchoring effects in grocery shopping

-Supermarket consumers are exposed to potential quantity anchors whenever multiple-unit prices are presented instead of single-unit prices (e.g., "On sale-6 cans for $3" versus "On sale-50?"). When involvement is low, an anchoring perspective suggests that a multiple-unit price promotion could stimulate more sales by making salient a higher than normal purchase quantity --field study was designed using end-aisle displays to advertise a variety of Campbell's soups for 79 cents (a modest discount of 12 cents) 3 different signs displayed for 1 hour from 8-9 PM:: -no limit per person -Limit of 4 per person -Limit of 12 per person Conditions were counterbalanced, i.e.: •rotating the sign across stores (reduced type-of-store effects) and rotating the sign each evening Mon-Wed (reduced day-of-the-week effects results: -Overall, the "Limit 4 or 12" increased the number of cans bought per person ("Limit 12" increased sales by 112% over the "No Limit") -In the "Limit 4" condition, 4 cans was the most frequently purchased amount à served as a strong anchor -In the "Limit 12" condition, not as many purchased 12, but it did serve as an anchor, skewing sales to higher # of cans

What is the covariation market belief?

-When we have incomplete product information, we often base our judgments on our beliefs about ______ -Our associations among events that may or may not actually influence one another Example: potential buyers of used cars often judge Vehicles mechanical condition by its appearance, even though this means they may drive away in a clean and shiny car that clunks

When Words Decide article

-framing has a large effect on choices we make. -fictional disease outbreak study by kahneman and tversky: both identical scenarios but loss frame vs gain frame -- frame 1: program A, 200 people will be saved. Under B, there is a one-third probability that 600 people will be saved and a two-thirds probability that nobody will. Confronted by this choice, 72 percent of people choose A, preferring to save 200 people for certain rather than risking saving no one... gain frame --frame 2: program C, 400 people will die; under program D, there is a one-third probability that nobody will die and a two-thirds probability that all 600 people will perish. loss frame. Faced with this pair of scenarios, 78 percent of people choose D --people respond to choices involving losses, such as deaths, differently from those relating to gains, such as survivors. When choosing between positive outcomes, people tend to be risk averse and want the sure thing (saving 200 people) but are far more willing to take risks when weighing losses --also found that people can be moved en masse to opt for one alternative when it is positioned as the default—an unstated option that people get if they do not make a selection. But pick a different default and a crowd moves the other way, as if magnetically motivated to follow the unmarked road. People's deci- sions can be subtly influenced by context as well. Pitting one selection against a costlier or more frivolous alternative can make that choice seem more attractive than if it had been matched against a more favorable option --research on language choice suggests that people do not always strictly possess preferences and values but rather construct them when they are asked a question or given a choice. descriptions may influence not only what we choose but also how we enjoy or appreciate that choice—a circular way of making that option the "right" one for us -- how framing can help gov: phrasing of public service announcements to best motivate people to, say, conserve energy or take care of their health. In other situations, officials might employ the power of defaults to lead people toward options they are likely to prefer, even if they tend not to choose them out of laziness, hurriedness or misunderstanding. And finally, an awareness of contextual wording traps may en- able all of us to reconsider our reactions toward surveys, political campaigns and clever advertisements --prospect theory graph: x-axis shows objective state of affairs and y-axis is ppl's subjective responses to objective states (how good or bad they make ppl feel)... ppl unwilling to take risk if phrasing emphasizes positive outcomes but flip to riskier option if words express darker side. loss portion of the graph's curve is 2x as step as the gain portion, so ppl more motivated to avoid loss than secure gains --person's subjective state improves at an increasingly slower rate until an objective improvement in a situation hardly changes a person's satisfaction at all— something economists call "diminishing marginal utility" saving 600 lives will not feel three times as good as saving 200 lives—so taking a risk to save all 600 people feels like a bad psychological bet. comes to negative occurrences, such as deaths, changes in a person's emotional state similarly diminish as the situation worsens rather than continuing to worsen at a rate proportional to the circumstances. Thus, losing 600 lives will not hurt three times as much as losing 200 would, so taking the risk to lose no one feels like a good psychological bet. This principle causes people to seek risk when it comes to losses. -- ppl actually feel worse about a loss of a given amount than they would feel good about a gain of a similar magnitude. That means getting people to focus on avoiding losses when they make decisions will be more motivational than getting them to focus on securing gains. This fact can be exploited. Appeals to women to do breast self- exams that emphasize the benefits of early cancer detection (gains) are less effective than those that emphasize the costs of late detection (losses). Pleas to homeowners to conserve energy that focus on savings (gains) in utility bills are less powerful than efforts that focus on the added costs of using energy profligately (losses). --more organ donors in europe vs america bc the default is opt out vs opt in --when switching voluntary 401k participation procedures to opt out, initial enrollments go from 49 to 86% --new jersey no-fault insurance default: require companies to pay regardless of who is at fault in an accident, 80% ended up w/ this default -why defaults are powerful: laziness and inattention. also most ppl infer the default is the most recommended option... can use to nudge ppl toward direction that will help w/ well-being -3rd major influence of framing on choice: context. the attractiveness of options often depends on what it is compared w/. ex: williams-sonoma bread maker perceived as better deal and increased sales once the store released a more expensive model --Slovic asked a group of people how much they would pay in taxes for an airport safety measure that would save 98 percent of 150 people at risk a year. Then he asked a second group how much they would pay to save 150 people a year. The first group would pay more for the measure than the second group would. Why? After all, saving 100 percent of 150 people is more beneficial than saving 98 percent of 150 people. But when the number 150 has no context, people will consider a broad variety of ways to spend money, many of them affecting thousands or mil- lions of people. On the other hand, giving the 98 percent success rate restricts the context of the question and seems impressive, so people see intervention as quite cost-effective -Kahneman, Sunstein and their colleagues questioned a group of people about how much they would be willing to donate to a fund to reverse or prevent ecological disasters such as the loss of coral reefs and the endangerment of dolphins. Another group was asked how much they would be willing to pay to a program preventing skin cancer among farm workers. people were willing to pay the same amount to save dolphins as to prevent skin cancer! But when they pitted dolphins and skin cancer directly against each When people weigh saving dolphins against other ecological problems, dolphins rate high so people will spend lots of money to save them. In contrast, skin cancer ranks low in priority on a list of serious health problems, so people choose to allocate relatively little money for it. But when dolphins and skin cancer appear on the same mental screen, people see skin cancer as much more worthy of resources. This change in public opinion occurs because when the options are framed narrowly, people decide within that limited context, comparing dolphin conservation only with other ecological issues and skin cancer only to other health issues. They lack a broad mental framework that could be used to contrast and evaluate divergent types of policies. Thus, a more narrowly constructed question can raise a lower-priority project to greater prominence in people's minds, whereas if a public policy choice provides a more expansive framework, individuals can be subtly coaxed to reprioritize. Controlling the frame in a public policy debate can therefore sway the tide of public opinion in whatever direction the framers might prefer. -death tax vs inheritance tax: The same tax seems much more attractive and fair under label of inheritance tax bc living person never paid tax on that money whereas a dead person has

apple iphone decoy effect

-iphone 13 pro = decoy bc if removed then much more substantial price difference of the 13 and the 13 pro max. when you add the 13 pro, more likely to draw your attention to the 13 pro max -however when reset for iphone 14 models pricing, now changed

case study of changing behavior: healthy eating/reducing diabetes (why incentives strat is not the best/fails)

-lawmakers and health advocates around the country have proposed soda/sugar taxes in recent years. None has succeeded, however, in part because of heavy campaigning and lobbying from the beverage industry. --the stick: Higher insurance contributions for smokers (a penalty), was associated with an even higher median participation in wellness programs (73%) vs incentives like a better value plan (40%) --forced wellness programs/incentives on employees can be controversial --> lawsuits and shift costs to employees w/ poorest health -- incentives associated w/ higher participation rates in wellness programs by about 20% points --larger incentives do not work better, and penalties are more powerful than rewards! --Most employers offer wellness programs, but participation rates are low. w/ right incentives, participation can get up to 40%.

redesigning lunch line

-put veggies at front, increases amount purchased by 10-15%, rename food to be more appealing (corn vs creamy corn), offer a choice (ex: choice btwn carrots/celery offered, more likely to eat one vs when only one option given) Behavioral Insight #7: It's easier to change your eating environment than to change your mind

cognitive decision making strategy

-seek out a credible source (trustworthy, objective) and use a brand heuristic (relying on a brand you know/like even if it is a different category) ex: for umbrella find rec for Samsonite (luggage company) one through a credible website and you like that brand

tyranny of choice

-the idea that although some choice is better than none, psychologically speaking, more choice is not always better than less choice (shown by studies and is consistent w/ large-scale social trends) --well-being assessment studies: increased choice and increased affluence have been accompanied by decreased well-being in the U.S. and most other affluent societies. ---proportion of the population describing itself as "very happy" declined by about 5 percent, or by some 14 million people - study of maximizers vs satisficers: made a maximization scale to see ppl's desire to maximize and rate selves from 1-7 and evaluated sense of satisfaction w/ choices. about one third scored higher than 4.75 and a third lower than 3.25. Roughly 10 percent of subjects were extreme maximizers (averaging greater than 5.5), and 10 percent were extreme satisficers (averaging lower than 2.5.) --People who score highest on the test—the greatest maximizers— engage in more product comparisons than the lowest scorers, both before and after they make purchasing decisions, and they take longer to decide what to buy. When satisficers find an item that meets their standards, they stop looking. But maximizers exert enormous effort reading labels, checking out consumer magazines and trying new products. They also spend more time comparing their purchasing decisions with those of others. after making a selection, they are nagged by the alternatives they have not had time to investigate. In the end, they are more likely to make better objective choices than satisficers but get less satisfaction from them. When reality requires maximizers to compromise—to end a search and decide on something— apprehension about what might have been takes over. more prone to experiencing regret after a purchase, and if their acquisition disappoints them, their sense of well-being takes longer to recover. They also tend to brood or ruminate more than satisficers do --individuals with high maximization scores experienced less satisfaction with life and were less happy, less optimistic and more depressed than people with low maximization scores. Indeed, those with extreme maximization ratings had depression scores that placed them in the borderline clinical range --reasons why more choice is not better than fewer: opportunity costs (quality of any given option cannot be assessed in isolation from its alternatives. One of the "costs" of making a selection is losing the opportunities that a different option would have afforded). If we assume that opportunity costs reduce the overall desirability of the most preferred choice, then the more alternatives there are, the deeper our sense of loss will be and the less satisfaction we will derive from our ultimate decision. ---opportunity costs study by brenner: when they had subjects put a dollar value on subscriptions to magazines or flights from San Francisco to attractive locations. Some attached prices to a single magazine subscription or a single destination. Others attached prices to the same magazine or destination when it was part of a group containing three others. Prices were consistently lower when a given alternative was evaluated as part of a group than when it was evaluated in isolation. When you assign a value to one as part of a group that also other types of mags, your tendency will be to compare the various magazines. Each comparison that one wins will be a gain, but each comparison that it loses will be a loss, an opportunity cost. Any particular magazine will both benefit and suffer from comparison with others. ----opportunity costs may create enough conflict to produce paralysis. For example, participants in one study were offered $1.50 for filling out some questionnaires. After they finished, they were offered a fancy metal pen instead of the $1.50 and told that the pen usually costs about $2. 75% chose the pen. In a second condition, subjects were offered the $1.50 or a choice between that same metal pen and a pair of less expensive felt-tipped pens (also worth about $2 together). Now fewer than 50 percent chose any pen -----opportunity cost problem is worse for maximizers.... satisficers will do less searching and inspection of alts --> fewer opp costs -other reason why ppl may be loss averse: people with high sensitivity to regret are less happy, less satisfied with life, less optimistic and more depressed than those with low sensitivity. found that people with high regret sensitivity tend to be maximizers. worry over future regret is a major reason that individuals become maximizers. The only way to be sure you will not regret a decision is by making the best possible one. --sunk costs study: people were offered season subscriptions to a local theater at full price and others at a discount. researchers kept track of how often the ticket purchasers actually attended the plays over the course of the season. Full-price payers were more likely to show up at performances than discount payers. full-price payers would experience more regret if they did not use the tickets because not using the more costly tickets would constitute a bigger loss. -studies have shown that two of the factors affecting regret are how much one feels personal responsibility for the result and how easy it is to imagine a better alternative. The availability of choice obviously exacerbates both these factors --adaptation: enthusiasm abt positive experiences does not sustain self. people consistently mispredict how long good experiences will make them feel good and how long bad experiences will make them feel bad. opportunity costs associated with a decision and the time and effort that go into making it are "fixed costs" that we "pay" up front, and those costs then get "amortized" over the life of the decision. The more we invest in a decision, the more satisfaction we expect to realize from our investment. If the decision provides substantial satisfaction for a long time after it is made, the costs of making it recede into in- significance. But if the decision provides pleasure for only a short time, costs loom large. --- 3rd way that too many choices causes distress: too high expectations -->all our evaluations of the things we do and buy depend on comparison—to past experiences, to what we were hoping for, and to what we expected. When we say that some experience was good, what we mean, in part, is that it was better than we expected it to be. So high expectations almost guarantee that experiences will fall short, especially for maximizers and especially when regret, opportunity costs, and adaptation do not factor into our expectations. when decisions do not live up to expectations, we blame selves "Disappointing outcomes constitute a personal failure that could and should have been avoided if only we had made a better choice." -- STRONG CORRELATION BTWN MAXIMIZING AND LEVELS OF DEPRESSION

features of a nudge

1.A nudge does not limit the choice set, i.e. the available options to the decision maker. 2.A nudge increases the decision maker's utility/welfare from the perspective of a rational agent 3.A nudge is useful when: Behavior is affected by cognitive influences and individuals struggle with turning intentions into action Economic incentives or penalties are not appropriate

summary of behavioral insights

1.Mirror reflects actual self/ideal self (constant reminder) 2.Vivid, obvious feedback (dividing line in the cart) helps make better decisions 3.Information about social norms/others' behavior is highly effective 4.Hot-cold empathy gap 5.Eating is often mindless à Partitioning effect (smaller packs) & visual illusions (plate size, glass height) 6.Insert small transaction costs to interrupt consumption 7.Redesign the eating environment 8.Attractively organized/arranged food is more enticing 9."In sight, in stomach": convenience principle 10.Cognitive misers: make useful information available at point of purchase 11.Speaking vs. motor movement

Behavioral Insight #8: We are influenced by how attractive the food looks. and ... by how easy it is to eat.

Appearance/arrangement of food may make it look more palatable --Making fresh veggies attractively organized makes you more likely to eat them. à You're more likely then to grab the chopped veggies than the empanada. --put healthier items w/in reach or high-traffic areas, add signs, colorful containers, etc to get attention

compassion fade

As the number of needy persons increases, affective feelings and action may begin to diminish "When you're made aware of others who you cannot help, this creates negative feelings that come in and mix in with the good feelings and dampen the good feeling you have about what you can do" - Paul Slovic (shifts focus to all ppl you are not helping)

evaluative criteria

Dimensions used to judge the merits of competing options. range from functional attributes to emotional or experiential ones the criteria on which products differ from one another carry more weight in decision process than those do where the alternatives are similar...If brands a person considers rate equally well on one attribute, we need to find other reasons to choose one over the other

how evian water marketers control references and framing

Evian water costs 3 cents per ounce Evian Facial spray - the same Evian water - costs $2.50 / ounce --> costs 83x more Evian "reframed the categorical identity of its water for its customers seeking skin hydration", using a neighboring "category reference framing". Example: Hampton Mist Hydrating Aloe for $28 / 5-ounce bottle

nudging "under the influence" podcast w/ terry o'reilly examples

Ex 1: in England, gov tried to use nudging/behavioral architecture to get ppl to insulate attics to bring down energy costs/heat usage... Behavioral insight: ppl did not want to lose their attics as a storage space/did not want to clear them out, so teamed up w/ attic clearing service to help ppl clear out attics for small fee (did not have to organize it yourself or plan)... The attic cleaning was the nudge to get ppl to do the bigger thing- aka insulate attics... the insight: help ppl to remove small obstacles so that they will do the bigger thing Ex 2 nudging in England: sending a handwritten note to ppl behind on taxes was much more effective at getting them to pay late taxes/comply than sending a computer-generated note to them... Ex 3: w/ speed ticketing, sending a letter w/ a picture of the violator's car was more effective at getting them to pay late road taxes Britain adopted a nudge unit, and now even the US has its own nudge squad bc so effective El paso grocery store mirror experiment: put mirror at front of grocery carts, so when ppl reached for unhealthy food, they could see how unhealthy they looked in the mirror--> dramatic increase in sales of fruit/veg at the store.. --insight 1 mirror reflecting your actual self (double chins) and causing you to reflect on your ideal self (fit, healthy)... May only work one time... In condition w/ just mirror at front of store, notion of ideal self not activated compared to when it is in the cart --insight 2: vivid/obvious feedback about how much of their cart was (NOT) filled w/ fruits/veg... Normally habitual and mindless, so makes us aware --Retailer impact: the produce aisle is one of the most profitable parts of a grocery store, with large volumes and higher-than-average markups from the wholesale cost. So even if sales of frozen pizza and potato chip dip, the grocer's net profit will rise if zucchini gains. Mutually beneficial situation Virigina grocery store exp: yellow tape in cart separating the two halves- asked ppl to put fruit/veg in front half of cart and everything else in back half... When saw how few fruits/veg had in front half compared to junk in back, were influenced to change the way they shopped (produce sales up 102%)... Visual dividing line = nudge Grocery store exp 3 and 4: put big green arrows on store floor that directed consumers to the produce aisle, and 9/10 consumers followed those arrows. why green arrows: ppl normally turn to the right, but in a lot of stores, the produce is in the back or left, so helpful. Also obvious association of green and produce influential. -Other one: Glossy card given to shoppers that told them what produce other shoppers were buying and which 5 were the biggest sellers (ppl social and like to conform)--> produce sales up 10% by week 2... Total sales remained the same even though produce sales up... However if use both the card and the green arrows, produce sales fell so cannot nudge too much at a time ---in English and Spanish, the signs told shoppers how much produce the average customer was buying (5 items / visit), and which fruits and vegetables were the biggest sellers (bananas, limes and avocados). Behavioral Insight #3: information that conveys social norms or acceptable behavior - is HIGHLY effective (like to know what other ppl are doing, so just telling them can cause behavior change. Produce sales ↑10% (and ↑90% among participants in the Women, Infants and Children (WIC) government low-income nutrition program)

how to use the identifiable victim effect

Focusing on helping one child or one animal promotes a warm glow, helping to cancel out the feelings of 1) psychic numbing (to large "statistics") and 2) helplessness of not helping "millions" -helpful to include a photo, name and age -Common marketing tactic employed by charitable organizations, nonprofits, etc

Because of diminishing sensitivity to losses:aggregate losses

In the insurance industry: people hate paying out-of-pocket fees for medical care You've paid all this money in monthly premiums and now you have to pull out your wallet again at the time of service?!? People experience loss aversion at the time of payment --> Many people are willing to pay higher monthly premiums so they can pay less (or nothing at all) at the doctor's office - even if it costs them more overall

dilip soman choice overload restaurant field study

Italian Restaurant A had 6 entrée options Italian Restaurant B had 15 Choices were spread approximately equally across Restaurant A's 6 entrées But orders at Restaurant B! --> "When faced with a larger menu, diners tended to be conservative and stick to familiar options (choice overload causes you to be overwhelmed) *same thing happens at other places w/ large menus, like cheesecake factory*

national geographic magazine cover "last of its kind" shows what things we learned about?

Last of its Kind came through the door Loss vs Gain Framing Identifiable victim effect pictures also generate our sympathetic affect

higher prices market belief

Many people assume that a higher price alternative is better quality than a lower price option, which is often correct because you tend to get what you pay for price-quality relationship is not always justified though

stage 3 decision making: evaluate alternatives

Much of the effort in a purchase decision occurs when we have to choose from alternatives Consumers typically have a few brands they like and a few don't like on the top of mind Evoked set: the alternatives that a consumer already knows that they could buy Consideration set: the alternatives that a consumer seriously considers purchasing Consumers often consider a very small number of Alternatives even with all the choices available to us cross-national study found that people generally include just a few products and consideration set but this amount varies by product category and across countries... Example: USB or consumers on average considered only three brands whereas Canadians considered seven brands; and Norwegian Auto Buyers studied two Alternatives while us consumers on average looked at over 8 before deciding A marketer who finds the brand not in the Target market's evoked set should worry because do not get a second chance off on to make a good first impression; consumer is not likely to place a product in a book set after they've already considered it and rejected it more likely to add a new brand to evoked set then one we previously considered but passed over even after a marketers provided additional positive information about it

reference point example

Olympic bronze medalists are happier than silver medalists b/c being one of best in world can mean little if coded not as triumph over many but as a loss to one i.e. different reference points •Silver medalists compare selves to gold medalist For silver medal: immediate reaction is not super happy (4.7), then drops to 4.4, whereas silver goes from 7.1 to 5.7 on podium (still happier overall)

study of servers and mental accounting

Servers spend their monthly salary, tips and annual bonus differently Salaries were used to: pay bills Tips were used to: eat out Bonuses were used to: buy something nice Important implication: if the server's income goes up by $1000 a year, the resulting changes in consumption would depend on the source of the income.

Behavioral insight #11: Speaking evokes more emotion than motor movement (button-pressing or writing) à speaking results in more indulgent choices

Study examples: diners offered a healthy dessert (fruit skewer) vs indulgent dessert (chocolate skewer); Twix versus banana (62% chose the Twix when speaking, only 35% when button-pressing)Boundary condition: they did not find this effect w/ foreign languages (i.e. Germans stating choice in English). Only limited to speaking in your native language

Determinant attributes:

The features we actually use to differentiate among our choices marketers often try to educate consumers about which criteria they should use as determinant attributes Ex: Church and Dwight said use of natural ingredients as determinant attribute so promoted toothpaste made from baking soda Product authenticity becoming a determinate attribute. composed of heritage, sincerity, commitment to Quality

neuromarketing definition and studies

Using fmri to track blood flow as we perform mental tasks to take a close-up look at how our brains respond to marketing messages and product design features Findings: Regions in the brain, like the amygdala, hippocampus, and hypothalamus, are dynamics which boards that blend memory, emotions and biochemical triggers; interconnected neurons shape the ways in which fear, panic, acceleration, and social pressure influence our choices Scientists know that specific regions of the brain light up in these scans to show increase blood flow when a person recognizes the face, here's a song, makes a decision, or senses deception, and they are trying to use this technology to measure consumers reactions to products, brand loyalty, and ads Sports car fMRI Study: DaimlerChrysler took brain scans of men as they looked at photos of cars and confirm that sports car is activated reward centers; the most popular vehicles-- porsche and ferrari style sports cars-- triggered activity in a section of the brain called the fusiform face area, which governs facial recognition... They were reminded of faces when they looked at the cars because the lights look like eyes Soft drink fMRI study: took brain scans of people as they drank competing soft drink brands to see how brand loyalty affects our reactions, even at a basic, physiological level. Blind taste test Results: Her brain scans of 67 people who did a blind taste test of coke and pepsi, each soft drink light up the brains reward system, and participants were evenly split for which drink they preferred Even though three out of four participants said they preferred Coke... when told they were drinking coke, regions of the brain that control memory lit up in this activation drowned at the area that simply reacts to Taste cues: Coke's strong brand identity trumped Sensations coming from taste receptors Frito lay EEG study: Measured fluctuations in electrical activity directly below the scalp to test subjects to learn how they respond to Cheetos cheese puffs. people had a powerful reaction to the orange residue of cheese dust on the hands (enjoyed subversion of messiness of product) → Led to an ad campaign called the Orange underground in which Chester Cheetah encouraged people to commit subversive acts with the product A product's visual design is often 1st piece of product info perceived by consumers and is key in creating initial impressions/sustaining interest/signaling owner identity to others Kitchen toaster study: Investments and Superior visual product designs generally are good strategies but weaker or newer brands should be careful not to overreach and need to proceed with caution to take advantage of design investments or otherwise risk backfiring effect on perceptions of quality and performance

asymmetric dominance (decoy effect)

When a sub-optimal third choice is added to a decision and increases the probability of choosing the option that dominated the third choice because it has similar qualities to one of the choices but is not better.

step 5 decison making: postpurchase evaluation

When we experience the product or service we selected and decide whether it meets or exceeds our expectations

how to market to maximizers

When your target customers believe there are large differences across products and want the best •Advertise heavily to convey the product's superiority •Highlight the economic and social costs of a bad choice -Price at point to suggest quality (price-quality heuristic ex: pureology pro shampoo

how we categorize time

While time passes continuously, most people think about time categorically •For example: •we organize our calendars by the week •we categorize a project as being due this week or next week •student may categorize time by semesters fashion designers/buyers by season People also tend to use important "landmarks" to slice up time (birthdays, festivals, holidays, Christmas)... may increase sense of urgency as landmark gets closer /transfers from the future to now

Home country bias:

a favorable disposition towards products from one's own country found in many studies (used in country of origin heuristic strats)

psychological reactance

a strong emotional reaction that leads people to resist pressures to conform (don't like being told what to do so more likely to do opposite)

how do consumers respond in reality to reductions in choices at the store?

better! --ex: P&G: 26 kinds of Head & Shoulders to 15... sales increased by 10% ex 2: Costco reduced its # of choices across the board --> saw sales go up

3 buckets of consumer decision making

cognitive (deliberate, rational, sequential), habitual (behavioral, unconscious, automatic), affective (emotional, instantaneous)

what is required for the decoy effect/asymmetric dominance to work?

decoy must be inferior to another option on (nearly) all the dimensions. In other words, it is asymmetrically dominated by another option -ex at a movie theater, placing a medium priced popcorn (at 6.50) in btwn a 7 dollar large popcorn and a 3 dollar small popcorn makes people are more likely to select the large rather than the small bc it now looks like a better deal

do sunk costs in general disappear or stay over time?

disapear

Behavioral Insight #10: People are cognitive misers.People tend to think and solve problems in simpler and less effortful ways rather than in more sophisticated and more effortful ways, regardless of intelligence.

even though we know the 5 food groups à make information 1)useful and easily digestible and available to them at the point of purchase. --ex: my plate makes visually easy to understand. -and make info available at time of purchase/decision

how tobacco advertising manipulates affect and perception of risk

evidence suggesting that cigarette advertising designed to increase the positive affect associated with smoking (favorable perceptions) will quite likely depress perceptions of risk (and increase risk taking)

soman compromise effect example

experiment with that coffee shop: sizes were originally 8 / 10 / 12 oz. One month later they increased to 10 / 12 / 14 oz. --people still ordered the medium one, bc "just right"

psychic numbing

feeling indifferent to the suffering of large numbers of people

mental budget

helps us to estimate what we will consume over time so that we can regulate what we do in the present

marketers tailoring ads for emotional or cognitive purchase decisions (examples)

john deere cognitive lawn mower: emphasizes favorable price, documents product's superiority, provides instructions for learning more honda civic domino effect cognitive commercial: Honda ad that essentially shows all the individual features work/are connected through a domino effect bc a utilitarian vehicle calvin klein emotional ad: uses evocative imagery, symbols, situations --> happiness, fear, sexual desire, etc. ex: for underwear, clothes, perfume airpods ex 2 of emotional ad: conveys feeling/excitement when you use these. does not talk about features

brand loyalty

pattern of repeat purchasing behavior that involves a conscious decision to continue buying the same brand Harder to achieve than inertia, but much more valuable bc represents true commitment by consumer

Daniel Kahneman & Amos Tversky's Prospect Theory/risky gambles

present 2 scenarios to ppl. In both-- Keep 20 pounds or gamble for 50 In scenario 1: gives person 20 pounds and says they can walk away w/ it or gamble to get 30 more (gain frame) Scenario 2: gives person 50 pounds, takes away 30 and says they will have to gamble to earn the other 30 back (loss frame) -- ppl presented w/ loss scenario more likely to gamble to win the money back --> loss frame encourages risk taking Those who thought they were losing out were more likely to gamble to win their money "back"

sunk costs

prior investments of time, money, or effort. That investment / money paid is gone and can never be recovered.

psychology of choice has revealed that we often do not strictly possess preferences

sometimes construct them on the spot, in response to the questions or options posed to us at that time and our preferences are malleable.

trust others decision making strategy (strat 4)

sort by "average customer review" ( called social proof) good WOM)

affective feelings

the "goodness" or "badness" of an item / event / issue is often quickly elicited when we are exposed to it

what kind of exercising infographics would be more motivating to consumers (prospect theory)

the dangers one would be more influential bc focusing on more negative elements

transaction utility

the evaluation of the "deal", i.e. an assessment of the price paid relative to some reference price. ex: internally derived reference price: "think the last pair I bought cost $72.00." ex: externally derived reference price: these shoes cost this much on a website

consideration set

the set of offerings that meet their initial buying criteria and which they want to investigate in more detail

Inertia

when it involves less effort to throw a familiar package into the cart Explains some actions that can look like but are not brand loyalty

Framing example: high-tech manufacturing field experiments in china

•All workers were offered a weekly bonus for reaching a pre-set productivity target •done for 4 weeks in a row •One group: presented with the bonus as a reward, e.g. extra 80 renminbi (~25% of weekly income) for reaching the target for each of the 4 weeks (i.e. 320 RMB total)... Gain frame •Second group: promised 320 renminbi at the end of the 4 weeks, and that 80 RMB would be deducted for each week that they failed to reach the target. Loss frame •Both bonus schemes increased productivity but who do you think performed better? •Workers operating under loss frame performed better

the compromise effect in marketing

•As long as there is a bigger/more expensive option and a smaller/cheaper option, one in the middle is more likely to be picked •And products generally in the middle of a 3-item choice set on multiple attributes (like price, quality, flavor, etc) - are considered to be the optimal choice - they are looked upon more favorable than the "extreme" options •Examples: •a brand of beer that is in the middle on quality and price •a supermarket that is in the middle in terms of distance, price and variety of products, i.e. Attributes A, B, and C, then the middle "compromise" option will be most chosen. Implies that marketers who wish to promote high margin products (typically higher-priced options) may be able to do so by introducing another alternative that is even more expensive. ex: for dollar shave club, their middle of the road option (aka the 7 dollar 4 blade razor) this picked the most

why the endowment effect occurs

•When you own something that you plan to use or consume, you think about the pain of losing it if you were to sell. •When you don't own it, you think about the pleasure of getting it. -current baseline (or status quo) is taken as a reference (starting) point, and any change from that point is perceived as a loss.

examples of mental accounting

#1: Mr. and Mrs. Li and Mr. and Mrs. Hugh went on a fishing trip in the northwest and caught some salmon. They packed the fish and sent it home on an airline, but the fish were lost in transit. They received $400 from the airline. The couples take the money, go out to dinner and spend the $400. They had never spent that much at a restaurant before. (windfall/bonus causes them to spend in a way they never have before) #2: At a casino, gamblers who win money early in the night take some money and put it into one pocket, while keeping the money s/he brought to the casino in another pocket. What are they doing? -research shows people are more willing to gamble w/ house money #3: Jamie has $12,000 in a savings account for his 8-year-old daughter's college education. It is earning 3% interest. After the pipes in his beach house burst and flood the house (he didn't have insurance), he takes out a loan at 8% to pay for the repairs. He wouldn't dare take his daughter's college fund money - it's too "sacred." - technically has this money available, but thinking of it as separate and untouchable

problem recognition (stage 1 in decision making process)

(a trigger for decision making) Problem recognition: result of discrepancy btwn desired state and actual state that is sufficient to arouse and activate the decision process 1. Perceived current state has or may get worse = need recognition -May run out of product -Product may deteriorate -Product breaks down (your car, for example) -Product may not meet needs after all 2. Perceived ideal state may improve and move further from current = "opportunity recognition": New circumstances (life changes), for example: Graduate college, new job, married, etc. new social groups (kids at new school, new neighborhood) New desires, for example: desire higher quality spouse or neighbor gets a new car Upper funnel: potential buyers down the road To get potential buyers to have desire where it does not yet exist, Ford created a special website to enter to win a trip and a new Ford Fusion: Sweepstakes publicized on social media and almost 70,000 people requested more information about the car -How a problem may arise: Decline in quality of actual state (need recognition) or Ideal State (opportunity recognition) moved upward Either way a problem btwn need state and ideal state

Elimination-by-aspects rule

(non-compensatory decision rule) you rank attributes by importance and impose cut-offs for each attribute. Start with importance #1 and eliminate brands not meeting the cut-off •All brands are first considered on the most important criterion. •Those that do not surpass the cutoff point are dropped from consideration. •If more than one brand passes the cutoff point, the process is repeated on those brands for the second most important criterion. •This continues until only one brand remains ...**If small manageable set, could continue w/ strategy and add another cut-off or look at each bag and weigh pros and cons (switch to compensatory decision)***

nudge examples of mental accounting

-- consumers use various mental accounts to keep track of different purchases. When the price in one mental account increases, consumers don't ease the pain of that loss by shifting purchases across a variety of other budgets. Instead they make more dramatic changes in their purchasing choices in the category with the price increase - hence, they switch gas grades --When the price of gas goes up, people switch from premium to regular. They don't switch from Tropicana to private label orange juice

when do people use heuristics

-Problem is hard (replace hard question w/ easily answered substitute) -Mental capacity is limited -Not highly involved

examples of using brand heuristics

-buying an expensive apple mouse vs a logitech mouse only based on belief that apple makes a better product (if it's from this brand, it must be good) - for peanut butter (familiar brand vs unfamiliar brand) it affects perceptions of taste, which one you deem highest quality, and which one you choose -- study of ppl who never bought PB before: sample either 1 known brand and 2 unknown brands of P.B. OR 2) 3 unknown brands of P.B. -- pb in jars were randomly distributed ("known" brand jar did not always contain that actual P.B. -- results: brand awareness affected: (1)Brand sampling: Ps who were aware of one brand in a choice set tended to sample fewer brands across trials (2)Choice: a) Almost all chose the known, national brand (94%) and •60% of them said it was because of brand awareness b) EVEN WHEN it contained the lower quality P.B. à i.e. the brand mattered more than the quality of the product c) Ps in the "3 unknown brands" condition often preferred the higher quality P.B. --also fashion (blogger recommends a clothing item) -- medication: do you choose cortizone or store brand hydrocortizone (Placebo effects of brands or higher priced items too)

lexicographic rule

-non-compensatory decision rule that can simplify decision-making by identifying my most important attribute and then choosing the item that performs best on that one attribute. -cut-offs for each attribute are not imposed - the consumer simply ranks attributes and then chooses the brand performing the BEST on each of those -Consumer considers each attribute one at a time starting with importance #1 and chooses the brand that performs best on that criterion -Customer moves to the 2nd most-important criterion, etc., if necessary (esp if you have more than one result in your sorting) -seeks maximum performance = choose the brand performing the BEST at each stage -ex: northface ad for waterproof jacket for extreme sports AKA choose jacket that is the MOST waterproof (that's all that matters)

affect heuristic outcomes summary

1) if we like something: 1.we are more likely to favor it, buy it and take action to protect it (e.g. insurance) 2.we perceive its benefits to be high 3.And perceive its risks to be low 2) And if we don't like something, we perceive the opposite 3) When affect is strongly positive, we are more willing to help others •Affect is strongest, and therefore donations/help the highest, when it's a single individual (or entity)

3 key points of prospect theory

1)The shape of the "S-curve" shows a diminishing sensitivity to gains & losses (as they increase). Example: Winning $100 will make you feel better than winning $50, but not twice as much. 2) The loss side of the reference point is steeper than the gain side. We experience the pain of a loss ($50) much more severely than we experience the joy of an equivalent gain ($50). Often 2-3x more 3) The judgment is made relative to a reference point.

summary how and why use heuristics

1. Effort reduction: it's a type of cognitive laziness -- heuristics reduce the mental effort required to make choices and decisions We are more likely to use heuristics when the motivation or ability to engage in effortful evaluation is low, e.g. physiologically aroused (excited, stressed) or cognitively depleted (tired, hungry, overworked, too many decisions) 2. Attribute substitution: people substitute simpler but related questions in place of more complex and difficult questions. 3. Fast and frugal: heuristics often provide us with the correct answer, so they are a useful judgment/problem solving tool.

4 strategies for changing behavior

1. Eliminate or Ban the undesired behavior Government / Lawyer •get rid of A from the market entirely or make A illegal 2. Incentivize (carrots or sticks) Economist •subsidies for B and/or taxes on A •BOGO offers or loyalty rewards for B •to encourage ppl to do a behavior or discourage ppl from doing something 3. Inform and persuade (Educator, Marketer) •Assumption: consumers must not know about B or don't understand its value à advertise it so they know the info/benefits through adv, speeches, etc. 4. Implement Nudge ( Behavioral Scientist ) use wording, understanding of human behavior to choices that are better for them/in particular direction... Sometimes w/out them even being aware) •The first three strategies can be effective... but they are costly and can trigger reactance

case study of changing behavior: healthy eating/reducing diabetes (why elimination/ban strat fails)

1. eliminate or ban unhealthy things (like when NY tried to ban sale of 16+ oz sodas) -but loopholes were that did not apply to drug stores/convenience stores/grocery, could add your own sugar to drink, Also sugary bevs that contain more than 50% of milk/milk alt by volume would not be impacted. --Potential downside 1: ppl can strategically change their behaviors to align w/ the new law or rule (like a couple of smaller drinks rather than one big 1) Potential downside 2: Psychological reactance: an emotional reaction to pressure or persuasion (we do not like others telling us what to do) that results in an increased desire for forbidden objects. Can cause reversal of behavior (i.e. ppl place more value on larger sugary drinks or seek more often)... actually increases this undesired action Potential downside 3: the industry fights back-- soft drink industry, restaurants, etc sued to block this so court reversed ban

what do research studies show about choice over time?

1.People are myopic: they are overly-focused on the present (ex: ppl make decisions based on current self and like to act like future self is a whole different person) 2.People are inconsistent: choices change as they get closer to one of the options (in time to the experience) 3.Future outcomes are discounted, i.e. if I offer you $500 now and then asked you "How many dollars would I need to give you in 3 months from now to make you indifferent to getting $500 now?" --> the answer would be > $500 4.People consistently believe they will have more time in the future than they do now •Yes-Damn moments 5.People plan to act on their good intentions --> but only in the future ("I will do it/the good thing later")

steps in cognitive decision-making process

1: Problem recognition 2: information search 3: evaluation of alternatives 4: product choice 5: Outcomes -after we make a decision, its outcome affects the final step in the process, in which learning occurs based on how well the choice worked out... this learning process influences the likelihood that we will make the same choice the next time the need for a similar decision occurs

environmental cues/soup experiment

4 strangers seated together 2 at the table had a refillable bowl (connected to vat of soup that kept consistent leve); 2 did not Students were randomly assigned to EITHER have the regular OR the refillable bowl Stopped participants after 20 minutes and asked lunch-goers to estimate # calories, how many ounces of soup, how full they were (self-report DVs) & weighed soup (behavioral DV) Results: Normal bowls: 9 oz eaten; estimated had eaten 123 Cal but was 155 Cal Bottomless: 15 oz (ate 73% more) Ps estimated had eaten 127 Cal but had eaten 268 Cal AND didn't rated selves as being more full than other participants --Mindless and getting to know other participants... Did not realize how much they had eaten Served tomato soup bc thick/opaque and comfort food

how to reduce identifiable victim effect (study by slovic)

5 Conditions: how much would you be willing to contribute (WTC) to: 1.One child 2.Two children 3.Eight children 4.A family of two children 5. A family of eight children --The children were in 2 (or 8) separate photos... The 2 (or 8) children appeared in the same photo and were described as "a family" of 2 children (or a "family" of 8 children) results: Children were perceptually (appearing in the same photograph) and psychologically (described as "a family") grouped into a single unit --> donations were now comparable to those for a single child.... if described as family unit/siblings, donations were higher bc like giving to a single kid recall the Gestalt principle of similarity and grouping

corporate event field study w/ buffet

54% of people made a second trip to the buffet lunch line. Intervention: When a queuing stand with ropes was put between the tables and the buffet, repeat visitors dropped to 23%. This small "transaction cost" discouraged people from making a dash for second-helpings. Behavioral Insight #6: insert small transaction costs to interrupt consumption

simple additive decision rule

A compensatory decision rule in which customers -Choose the one with the largest number of positive attributes, i.e. choose the brand with the largest ratio of pros to cons (specific to the consumer) •May not be the best solution IF a brand boasts a huge list of attributes, even though most aren't determinant attributes... (aka SA rule can be manipulated) ex: Samsung galaxy ad vs apple 5 that it "has more positive attributes" but if you look closer some of the listed items are sketchy

environmental cues popcorn experiment

Afternoon movie: "Payback" with Mel Gibson just after lunch --> given free drinks and 5-day old, stale popcorn but not told it was stale. IV = medium container vs large container (bucket) DVs = survey questions ("I ate too much popcorn") and weighed popcorn after Debrief: do you think you ate more because you had the large size? --> ppl said they did not believe so Results: large size bag = consumed 173 more calories, i.e. 21 more dips into the bag Why?!? ... size of the bag in front of them environmental cues: •watching a movie (distractedà habitual mode) • size of bucket • sounds of crunching • eating scripts ("eat until movie at theater is over") behavioral insight: eating can be mindless

Behavioral Insight #9:"In sight, in stomach" = a convenience principle, i.e. we buy & eat what we see, not what we don't

Alternatively, you could keep mostly fresh, plant-based food in your fridge and eliminate temptation entirely. Have Kids? Put Fruits & Veggies on Lower Shelves (recall importance of position) This tactic can work to encourage kids to have healthy eating habits, too. Make sure to place fruit and veggie on lower shelves where kids will see them/at their eye level (and can reach for them) and place "sometimes" foods higher up out of reach or just plain out of sight.

anchoring and adjustment heuristic

Anchoring = the tendency to rely too heavily on the first piece of information received with subsequent judgments adjusting around the first data point People often make estimates or decisions starting from an initial value - the anchor - and then adjust from there. BUT •Adjustment is often insufficient; and •Anchors are often irrelevant --> So different starting points yield different estimates and decisions... ex: survey Are there more or less than 50 marketing majors? How many? -Your mean answer: 1,256 Survey 2: Are there more or less than 5000 marketing majors? How many? -Your mean answer: 4,344 --> anchors are often irrelevant and adjustment is often insufficient ex 2 sunscreen w/ given starting value: Will you pay more or less than $5 to buy it? Q2: What is the price you are willing to pay for it? Average = $10.26 Q1: Will you pay more or less than $50 to buy it? Q2: What is the price you are willing to pay for it? Average = $20.27

anchors and experts

Anchors even influence experts' judgments... Real-Estate Study (Northcraft & Neale, 1987) 47 experienced real estate agents shown identical house. Given packet of information about house & chance to examine the house & area Independent Variable: only 1 number in the packet was manipulated: = The Listing Price: which varied from $119,900 to $149,900 DV: Asked real estate agents to estimate the appropriate advertised selling price when anchor listing price higher, appropriate listing price also higher

sunk costs: ski trip survey study

Assume that you have spent $100 on a ticket for a weekend ski trip to Michigan. Several weeks later you buy a $50 ticket for a weekend ski trip to Wisconsin. but then you realize they are the same weekend, so which one do you pick? should pick the one that will make you objectively happier ( said in survey that Wisconsin trip would be more fun), but less than half picked Wisconsin bc they spent more money on Michigan (larger sunk cost of Michigan trip is influencing many participants' choices)

the endowment effect mug experiment

Coffee mugs were distributed randomly for free to 1/2 of the participants = Sellers Remaining participants = the BuyersThe Sellers had their mugs placed in front of them and the Buyers were invited to look at their mugs. Next: Sellers were asked if they would sell it for a price range between $0 and $9.25 and to name a price. Buyers were asked to indicate at which price which they would be willing to buy the mug -Sellers valued mug at much higher than the buyers (who did not have a mug)... Pain associated w/ loss of mug is bigger than pleasure of getting the mug --In another study, ½ students were given mugs and the other ½ were given a chocolate bar. Then they were asked if they wanted to switch. Results: - most not very likely to exchange even if items worth the same Whichever object they were endowed with (given originally), they formed a greater preference for. Even though there was no great attachment to the object - they'd only possessed it for a few minutes! The current baseline (or status quo) is taken as a reference point, and any change from that point is perceived as a loss

adaptive decision making

Consumers have two divergent motivations in making choices: accuracy and effort: -Consumers first determine the level of effort required/desired, and then choose a decision strategy -Higher cognitive effort -- examples: •Maximizing Decision-making •Weighted Additive Decision Rule (WADD) -Low-Medium cognitive effort -- examples: •Satisficing •Non-compensatory Decision-making •Emotional Decision-making •Habitual Decision-making: choices made with little to no conscious effort •Heuristics (mental short-cuts) - discussed more in the next 2 classes

why we did the partitioning effect w/ food

Consumers: 1) have a tendency to complete: --> so small packaging is beneficial 2) Avoid effort: --> so increase the effort needed for continued consumption 3) need an interruption: •to pause and think before opening (moment to reflect) •to be reminded of how much has been consumed (think whole package of oreos vs single packs) --smaller portions, bigger profit: Pepsi is commanding higher prices because consumers are moving to smaller pack sizes and to healthier, higher-value foods that tend to cost more, and consumers ok w/ it.

sunk costs theater field experiment

Customers are randomly assigned into one of three groups (for theater season tix): 1/3 bought tickets for $15 each 1/3 given a surprise $2 discount on each ticket - so it costs $13 1/3 given a surprise $7 discount on each ticket - so it costs $8 DV: Able to track attendance by ticket stubs (over the first 5 plays) Amount paid shouldn't impact willingness to attend... Results: Full-price ticket holders used more tickets (4/5) during the first half of the season than discounted ticket holders (3/5) Why? Amount paid was very impactful on whether you choose to go

Why do companies keep adding features to products?

Feature creep: Companies overwhelm us with more and more features that spiral and complexity proliferation of extra features is counterproductive because Philips Electronics found that half of products buyers return are only returned because consumers can't understand how to use them... also it's been only 20 minutes trying to figure out how to use it before giving up Companies don't avoid feature creep because we often assume the more features the better, and it's only when the problem comes home we realize that it's complex Study of feature creep: Consumers chose among three models of a digital device that varied in terms of complexity, over 60% chose the one with the most features; when participants got chance to choose from up to 25 features to customize the product the average person chose 20 add-ons, but when actually use the devices the larger number of options only frustrated them and they ended up being much happier with the simpler product

the jam study of choice

Field study: a display table of "exotic jams" with free samplesAll "Wilkin & Sons" jams ($5-$6)Common flavors of strawberry & raspberry eliminatedSubset of 6 chosen from the 24 as 2 highly-, 2 moderately-, and 2 least-preferred IV: table with 6 jams vs 24 jamsrotated each hour throughout the day on 2 consecutive Saturdays -40% of passersby stopped at the 6-jam display (104 of 260) -60% of passersby stopped at the 24-jam display (145 of 242) given a coupon and had to go to jam aisle and encounter all of them RESULTS: More likely to purchase if initially selected from 6 jams than from 24 jams (30% vs only 3%) --> 10 times more likely to buy after being at the smaller display! 2) People showed more interest in the table with more choice, but then consumers experience choice overload and do not choose at all after visiting that table No differences in # of jams sampled in each condition--having more options doesn't always lead to better or happier decisions

behavioral economics

Focuses on the effects of psychological and social factors on the economic decisions we make, and many of these choices are anything but rational Most emerging work in this field focuses on priming very possible to modify the choices of individuals and groups merely by tinkering with why we present information to them-- massive implications for Public Policy issues because the way organizations frame their messages can exert a big influence on the number of consumers who will act in a certain way and ethical issues

how coupling affects sunk cost effect

For the Sunk Cost Effect to work: the amount paid ($) must be linked with consumption of product/service Consequently, price bundling leads to a "decoupling" (severing) of transaction costs and benefits --> Bundling reduces attention paid to sunk costs and --> bundling decreases a consumer's likelihood of consuming a paid-for service (e.g., a theater performance) For example: In one lab study, they had 2 conditions (Soman and Gourville): 1.Bundled Pass: subjects were told they had pre-purchased a single four-day ski pass for $160 2.Unbundled Tickets: subjects were told they had pre-purchased four one-day ski tickets for $40 each It is now the morning of the last day of your vacation. You have had three excellent days of skiing with perfect conditions. Unfortunately, last night a warm rain hit the area. friend suggests nice lunch instead of skiing, how likely are you to ski on that last day? --Results: Subjects were significantly less likely to go skiing that last day if they held a bundled pass than if they held an unbundled, one-day ski ticket (mean ratings = 3.6 vs 5.2 out of 10)... direct monetary link in unbundled pass WHY this happens: Transaction decoupling In the unbundled, 4 ski ticket scenario: there is an explicit coupling between the $40 you paid and the day of skiing you would forego In the bundled pass scenario: you could easily convince yourself that you got $160 worth of good skiing over the past 3 days

behavioral insight 4: people have hot and cold states of decision making, and how it applies to grocery shopping

Hot state: high level of arousal •emotions (e.g. anger, excitement) •drives (e.g. hungry, tired) Cold state: lower level of arousal •Calm •Centered •Satisfied Well-rested • hot-cold empathy gap (cognitive bias in which people underestimate the influences of visceral drives on their own attitudes, preferences, and behaviors) --In a hot state, we are overly influenced by our current desires/level of arousal, and don't grasp how much our decisions and preferences are being driven by it •In a cold state, we have difficulty picturing ourselves in a hot state à often then leads to unpreparedness in later situations when we are aroused (hungry, angry, excited). --> human understanding is "state-dependent."

framing

How we pose the question to people or what exactly we ask them to do Loss aversion : a type of framing. People hate losing things more than they like getting things Study: Teachers who had the opportunity to improve student performance didn't make the grade in terms of improved test scores, but those who got extra money at the beginning of the year and were told they would lose it if students did not show sufficient progress managed to bring up scores

how stopping eating differs across countries

If I'm French, I stop eating when... I feel full = internal cue If I'm American, I'm more likely to stop eating when... When the plate/package is empty, when others are done eating, the show/movie is over, etc. = external cues

marketing in problem recognition stage

If actual state close to or equal to ideal state = no problem (happy and no search needed) 1)Help consumers realize that current state < ideal state OR 2) raise the ideal state how to do this: 1. marketing communications can remind consumers of existing needs ex: fast food billboard reminding you to eat something) ex 2: nescafe gold coffee -Emphasize current state is less than ideal state ex: calcium deficiency pamphlet 2. help identify new "problems" Marketers make consumers aware of a new ideal state (opportunity recognition) Example: Latisse eyelash treatment...

How does the sunk cost fallacy affect consumption?

If we've paid for something, we are more reluctant to waste it

sequential vs simultaneous choice

In combined choice with sequential consumption: The consumers buys several items on one shopping trip and consumes the items over several consumption occasions (like the yogurt). = pretty typical scenario for consumer shopping Simonson (1990) found that students in his study were happier if they eat the same candy (their favorite) repeatedly on consecutive days than if they selected different candies on the first day and then ate those on consecutive days. -Will eat the favorite varieties and then only not good flavors left (combined purchase and then sequential consumption) -Most students in Simonson's study accurately predicted what would make them happiest, i.e. the same-candy diet, but when asked to make candy choices in advance, most students chose different candies for different days! consequence: Seeking variety for sequential consumption experiences leads to less happiness. -- same thing about frito lay chip assortment mix (variety feels fun until you do it)

Prospect theory in marketing:prices as reference Points

In purchase decisions, the reference point = the standard of comparison against which an observed price is compared •Internally derived (prices you bring upon your own): •The "fair" price •The price often / most often charged •The last price you paid •The price of brand usually bought •Externally derived (prices presented to you by a retailer/marketer): •"Regular retail price" •What the item is placed near •How other items in the line are priced Other brands the brand claims to be similar to When encountering a sticker price, consumers will judge it with respect to the reference price they are using. When actual price is above reference price, people will code it as a loss And when the actual price is below the reference price, they will code it as a gain This is transaction utility = the evaluation of the "deal", i.e. an assessment of the price paid relative to some reference price.

Pre order lunch experiment

In two upstate New York elementary schools, students use an electronic pre-ordering system to order lunch in the morning. What did the sales records report? A. significant number of healthier choices were made when students pre-ordered lunch (in a cold state). When preordering was available (cold state): •29.4% of students ordered the healthier lunch entrée vs •15.3% when no pre-ordering took place When ordering in the lunch line, hunger (hot state) mixed with the tempting aromas and the sight of food à unhealthy foods won out

implications of mental accounting

Money is technically fungible (any money could theoretically be used for any purpose). But people don't treat money as fungible. But people don't, in fact, treat a dollar as a dollar. Mental accounting has implications: 1.People are sensitive to the source of money 2.People set up mental sub-accounts and budgets, and allocate spending based on those sub-accounts: Entertainment account, food account, travel account, clothing account, etc. 3.And, importantly, the way that we label money affects how we spend it.

what is a nudge

Not a mandate... Gentle steering. any aspect of the choice architecture that alters behavior in a predictable way without forbidding any options or significantly changing their economic incentives. A nudge must be easy and cheap to avoid. Nudges are not mandates. Putting food at eye level to attract attention, and hence to increase the likelihood of getting chosen, counts as a nudge. The banning of junk food does not." --easiest way to get ppl to make a choice is to reverse a choice (opt in vs opt out defaults) --small tweak to framing of choice can help us to change behavior --uses research from psychology, anthropology, behavioral economics

Tu and Soman's project starting time categorization study

One way to nudge people to start is by making a task's deadline seem part of the present rather than the future (make them start now) •a project started in April with a deadline of 2 weeks is more likely to be considered "now" if : • its due date is in the same month (i.e. April) than •Than if the 2-week deadline makes the project due next month (i.e. May) bc seen as farther away --> resulting in people being more likely to start the project...busy people were more likely to start work on a task when its deadline was perceived to be in the 'now' than when it was perceived to be in the 'later --when given a task on Wednesday, with a due date of Sunday: Participants were more likely to start a task when the full week was shown in one color than when the week was divided into 2 colors (weekday vs weekend)

summary: pros and cons of large assortments

PROS: 1.greater likelihood that consumers can find a close match to their purchase goals 2.allows consumers to maintain flexibility in light of uncertainty about future tastes accommodate consumers' future variety-seeking behavior CONS: 1) Behavioral consequences: 1.Choice deferral (decide to deal w/ something later rather than now) 2. Stick with familiar items 3. Switching likelihood: chance of reversing a choice already made increases 2) Consequences for the consumer's internal state: if a choice is made, it leads to the following: 1. Lower satisfaction with choice made 2. Lower confidence about choice made 3. Decision regret 4. Over-reliance on defaults, the status quo & suggestions

rational perspective

People calmly and carefully integrate as much information as possible with what they already know about a product, painstakingly weigh the pluses and minuses of each alternative, and arrive at a satisfactory decision... especially relevant to activities that call for a lot of attention to detail in many choices that impact to Consumers quality of life -When marketing managers think that consumers will undergo this kind of planning they should study steps and decision-making to understand how consumers way information call a form beliefs about options, truth criteria they're used to select one option over others; they can develop products and promotional strategies to supply the specific information people look for in the most effective formats Consumer researchers traditionally approached decision-making from this perspective

implications for prospect theory

People: •judge costs and benefits of various actions and •experience varying degrees of regret about choices not with respect to the final outcomes but: •with respect to the comparison presented to them and •whether the options are framed as losses or gains. our decision, choice or judgment will be sensitive to whether things seem like: •a gain OR •a loss AND it will depend on how the options are framed. AND where the reference point is set.

libertarian paternalism

Thaler and Sunstein's movement: Libertarian: i.e. liberty-preserving •People should be free to do what they like •People should be free to choose what they like Paternalism: caring about the outcomes for people, making them better off •It is legitimate for choice architects to try toinfluence people's behavior in order to maketheir lives longer, better, healthier "Libertarian paternalism is ... nonintrusive because choices are not blocked, fenced off or significantly burdened"

case study of changing behavior: healthy eating/reducing diabetes (why inform/persuade strat fails)

The bad publicity and government advertising about dangers of sugar and HFCS has helped lead to a steady decline in US soda sales for nearly a decade, but still a prob -But the popularity of other sugary drinks such as sports drinks, teas, and energy drinks have been growing... (shift to other sugary drinks)... so then we need more campaigns targeting these other drinks --ex: ad that says "are you pouring on the pounds?" w/ a visual that shows stream of soda but fat coming out

country-of-origin heuristic

The country-of-origin effect is created in the minds of consumers through an individual's: 1.knowledge 2.experience 3.exposure and 4.inclination towards a particular country (or countries). It helps in reducing cognitive load in consumer decision-making by becoming a proxy for quality, reliability and acceptability of products originating from a specific country. --Consumers are exposed to many products over time, and we naturally associate certain geographies with quality brands and products France with wine, fine soaps, linen and cosmetics Switzerland with watches and chocolate Italy with ... cars and food Germany with ... beer and leather --also US for leather And marketers often go out of their way to capitalize on those associations with a specific country-of-origin (even if product is not actually from that area... think Haagen DAzs).

consumer hyperchoice

The profusion of options in the modern Marketplace that forces us to make repeated decisions that may drain psychological energy while decreasing our abilities to make smart choices --grocery store study: having too much can handicap our thought processes: Shoppers tried samples of fruit jams in a limited Choice condition picking from six flavors or an extensive Choice group with 24 flavors; 30% of consumers in limited group actually bought a jar as a result but only 3% of those in the extensive group did

prospect theory summary

The shape of the "S-curve" shows a diminishing sensitivity to gains and losses. Losing $100 will feel worse than losing $50, but not twice as bad. Saving 1,000 turtles will feel better than saving 50, but not twenty times as good. 2) The loss side of the reference point is steeper than the gain side. This means losses hurt us more than the joy of an equivalent win. Therefore, framing a decision / outcome as a loss is more motivating (e.g. the dangers of sitting vs benefits of exercise) 3) The judgment is made relative to a reference point. We make decisions and choices and judgments continually based on the context / on the reference point set for us. So winning second place, i.e. 1st losers - which is objectively better than 3rd - feels worse because of what we are comparing ourselves to.

solution 2 to mindless eating: plate size

Use smaller plates!! Bc ppl appear more full and satisfied when plate looks fuller -Utilize perceptual biases to trick ourselves into feeling satisfied -As long as consumers aren't shown these two options together, i.e. it's a separate evaluation and not a joint evaluation, they are willing to pay more for the ice cream on the right than the one of the left (Hsee, 1998) even though the are getting less ice cream. (Willingness-to-pay (WTP) was 36% more in this experiment) -Ebbinghaus Illusion: optical illusion of relative size (smaller plate looks filled vs bigger one) -glass height: We pour & consume more in a short, wide glass... more satisfied if drink more height-wise and ignore the width... ex: children drank 74% more juice in a study when using short/wide glass vs tall/skinny --Even experienced bartenders asked to pour a standard shot poured 27% more into: •short, wide glasses than tall, thin ones Top Hat Illusion: a horizontal-vertical illusion -Tall, narrower glasses: • pour less •Drink less • be more satisfied w/ the drink

tom and jerry asymmetric dominance/decoy effect example

When no ugly middle version, it's a 50/50 split, but when ugly middle version/decoy added, the clearly different one stands out more as more attractive and is selected. So ppl who normally might have gone for tom then go for jerry and vice-versa... condition A go for Jerry bc ugly version of tom and then in condition B Tom is preferred bc ugly version of Jerry

purchase momentum

When our initial impulse purchases actually increase the likelihood that we will buy even more (instead of less as we satisfy our needs); it's like we get rubbed up and go into a spending spree

401k plan choice study

With 2 funds --> 75 % participate With 59 funds -->60 % participate So as # funds go up, participation rates DROP --> giving up free $$ (employer-matching) bc too much involvement w/ something not really experienced in

the endowment effect

a bias when an object comes into possession, the owner will typically think that it is worth more than it did before they owned the item... tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it

the compromise effect

a consumer is more likely to choose the middle option of a selection set (the medium usually... bc just right, but does not have to be called medium) rather than the extreme options (decision varies w/ context) ex: medium sized coffee accounts for 74% coffee sold --no matter how many ounces in a small, med, large drink, they pick medium

framing effects

a decision bias influenced by the way in which a problem or decision alternative is phrased or presented. affects not only choices but how ppl experience the choice ex: ppl perceive a frozen yogurt that's 80% fat free as healthier than a 20% fat froyo (even though they are the same amount) - same thing for 75% lean meat vs 25% fat (perceived as less greasy and higher quality/healthfulness) --> Response depends on what is currently accessible in memory... So the 25% fat label think of negative associations (fat, greasy, gross) vs the 75% lean options (tasty, juicy, yummy)

mental accounting

a series of cognitive processes that people use to track, organize, evaluate and monitor their financial and economic transactions, i.e. their home budget (make mental sub-accounts for items and cap it for a certain period of time) Basically: we act like accountants in a corporation, but with our own money we treat and spend money differently based on where it comes from -esearchers found that people are more likely to risk their personal safety in a storm if they paid for a football ticket than if it's a freebie: only the most Die Hard fan would fail to recognize that this is an international choice because the risk is the same regardless of whether you got a good deal on the ticket (sunk-cost fallacy)

low-involvement decision making

buyer NOT fully engaged how to get consumer more involved in a low-involvement product (ex method cleaning product): don't use typical problem-solution marketing. - way 1: method focused on talking about the aspirational end state of cleaning, and found that, to many people, cleaning is an important part of life. It's the ritual of connecting to their homes and families by putting life back in order (also how they show they care/protect loved ones). used message that cleaning could be cool -way 2: Shopping online: Example: compare buying an umbrella or alarm clock at Target vs Amazon •In store: fewer options, influenced by marketing info (brand, discount, eye level) •Online: WAY more options and more reviews -way 3: Access more diagnostic information can increase involvement •Example: fast food is typically low-involvement •But apps like FastFoodFit allow us to search calorie and nutritional info of restaurants --> increasingly involvement for some customer segments at the pre-purchase search stage

high-involvement decision making

buyer is fully engaged •Longer timeframe: search is conducted over several weeks/months, e.g. new Smart TV •Risky (consequences of a bad choice are visible/significant. Financial or social risk) •High expense •Emotion involved (e.g. prom dress, wedding dress) •Uncertainty over best alternative to choose

hot-cold empathy gap

cognitive bias in which people underestimate the influences of visceral drives on their own attitudes, preferences, and behaviors

weighted additive decision rule (WADD)

compensatory decision rule in which customers -Assign weights to the attributes and sum across attributes to choose the overall best option in their consideration set. i.e. multiply brand ratings by importance weights.

compensatory decision rules versus non-compensatory decision rules

compensatory: •product's shortcomings on attribute can be made up by strength in other attribute •Example: the high price and low battery life of the early Apple iPhones were compensated for by the sleek design and ease of use and novelty•More likely to choose this strategy if the consideration set is smaller •As a marketer: emphasize total package in promotional efforts non-compensatory •Consumers may consider some but not all of a product's attributes - ignoring potential trade-offs •Thresholds are set that MUST be met or it's struck from the list •More likely to be used if the consideration set is large (think picking an apartment on Airbnb) •Example: choice of a flight - you may consider only a non-stop flight or rule out all red-eye flights, even if it saves you money •As a marketer: emphasize 1 or 2 key attributes that matter most to consumers •Online sites often encourage non-compensatory through their filters

why the compromise effect occurs

compromise choice: 1. Reduces the conflict associated with giving up one attribute for another 2. Can be justified by arguing that it combines both attributes •This is especially true if a person expects to have to justify their choice to others (seems the rational thing to do). •Think-aloud protocols with study participants show exactly this - decision makers do use the compromise rationale to explain the selection of a middle alternative. 3. The middle choice just seems like a good compromise to many consumers à especially to consumers who are uncertain about their preferences Le creuset example: 5 and ½ qt round dutch oven and 6 and ¾ qt oval dutch oven are best sellers bc sweet spot for most home cooks. Offered recall sizes to reinforce point -also used other persuasive elements on site like "best-selling dutch oven size" which is social proof

partitioning effect

consumption is accelerated when there are no cues in the environment to stop, but separating food to be consumed into smaller units provides a cue to stop

priming, a prime, and priming studies

definition: cues in the environment make us more likely to react in a certain way even though we are unaware of these influences. Prime: Stimulus that encourages people to focus on some specific aspect of their lives such as Financial well-being or the environment -When respondents were exposed to a brief flash of an apple or IBM logo on a screen, their behavior changed even though they weren't aware that they seen the logo: those who saw the Apple logo provided more creative and Innovative responses on a task than those who saw the IBM logo (these traits are associated w/ apple) Many factors that bias our decisions are beneath the level of conscious awareness Physical movement typically links to liking; even our own body movements or other physiological reactions can influence what goes on in our minds Ex: in a study, attitudes toward an undesirable product (grasshoppers) improved when asked to approach it - Study: Group of undergraduates prime to think about money through phrases like spending money liberally or pictures making them think of money; this group and the control group answered questions about moral choices they would make, and students have been Primed to think of money consistently exhibited weaker ethics... more likely to say they would steal something and would lie for financial gain Example: When people see pictures of cute products they're more likely to engage in indulgent Behavior, such as eating larger portions of ice cream Priming study 2: Researchers played French or German music on Alternate days in a wine store, and when French music was in the background people bought more French versus German wine in the reverse happened on German music days, but consumers were not aware

compensatory decision rules (what are they and when are they used?)

definition: under conditions of high cognitive involvement, people tend to think carefully about pros and cons of different options -"give a product a chance to make up for its shortcomings" -having a good value on one attribute can OFFSET bad values on another attribute -consumers combine across features to decide "which is best?" This strategy is used: 1. When consumers are more involved in the purchase à effort (time intensive/more research)OR 2. After the consumer has narrowed the search down through non-compensatory decision strategies -How do you search and decide? (start looking at other details that you did not before when filtered)

habitual decision making

describes the choices we make w/ little to no conscious effort Many purchase decisions are so routine... very efficient in many cases Snap judgments that occur in the blink of an eye can be surprisingly accurate

purpose of compensatory and non-compensatory decision rules

enhance our understanding of how consumers make decisions in attribute-based choice situations

brand name heuristic decision making strategy

filter based on brand name. i.e. using familiar brands and associated quality as a shortcut to make a decision

heavy choice restriction study w/ DVD players (Daniel Mochon)

found that consumers are reluctant to pick an option—even one they like—when no other options are being considered. In this study, each DVD player was presented with a picture and a list of its features. 3 conditions: Participants saw either: 1. the Sony DVD player OR 2. the Philips DVD player OR 3. both the Sony & Philips DVD players together DV = given the choice to either: 1.buy now or 2. defer the choice to look for more options numerical results for sony and philips: (going from single option to multi-option condition ) -Sony: 9% --> 32% -Philips: 10% --> 34% --Participants exhibited single-option aversion (strongly) they were reluctant to pick an option—even one they liked—when no other options were being considered. They were much more likely to indicate they'd buy in the 2-option condition. (actually made a choice) Consumers seem averse to a choosing lone option. This effect is driven by the uncertainty consumers face when only one option is available AND their increased desire to search for more options the choice share of both options increased when presented together. (This suggests that single-option aversion is distinct from the asymmetric dominance effect, in which one option benefits from its dominant relationship over the added decoy.)

framing example (US disease outbreak)

gain frame (lives saved). ppl less likely to take a risk. think about saving the 200 lives FOR SURE and do not take the risk. -we are risk-averse for gains (less likely to take a gamble and go for sure think--Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimate of the consequences of the programs are as follows: (72% selected) If Program A is adopted, 200 people will be saved. (28% selected) If Program B is adopted, there is a 1/3 probability that 600 people will be saved, and 2/3 probability that no people will be saved) loss frame (deaths) people are more likely to take a risk If Program A is adopted, 400 people will die. (22% in the original 1981 study) If Program B is adopted, there is a 1/3 probability that nobody will die, and a 2/3 probability that 600 people will die. (78% in the original 1981 study) -This is the SAME CHOICE (200/600 saved vs 400/600 will die) but choices almost completely reversed btwn descriptions of scenarios

cognitive decision making

many purchases like this. 1. Product type: serves a utilitarian purpose = purchased for their practical uses Examples: lawnmowers, garbage disposal, insurance, house paint is a search good = lots of researchable info available so consumers can learn what they need to know before buying the product... manufacturer's website CNET/Consumer Reports/Edmunds online testimonials pamphlets/demos, etc. --> quality and attributes can be inspected and determined before purchase 2. Context: Example: buying a truck for your business --> consider important attributes: towing capacity, cargo space, length of warranty 3. Marketing channel = personal selling •Knowledgeable salespersons encourage a cognitive process •promote consideration of differences among products 4.Individual differences Some people just want to analyze every purchase as a set of objective tradeoffs... (Excel) overall example of cognitive decision making: 2.Context: Example: buying a truck for your business à consider important attributes: towing capacity, cargo space, length of warranty 3.Marketing channel = personal selling •Knowledgeable salespersons encourage a cognitive process •promote consideration of differences among products 4.Individual differences Some people just want to analyze every purchase as a set of objective tradeoffs... (Excel) overall ex: Samsonite umbrella is advertising its many attributes

hot-cold state and food

in a hot state, you are emotional, impulsive, or rushed --> unhealthy food choices -in cold state, you are logical and calm--> better long-term decisions about health/healthier foods selected --plan ahead: pack snacks/lunch the night before, shop for groceries AFTER meal --Self-control problems can be an issue - we can: •utilize our far-sighted "planner" self to promote our long-term welfare to help cope with •our myopic "doer" self, "who is exposed to the temptations that come with arousal."

general findings of choice studies

in a variety of product categories, ppl show more interest in having more choice but more satisfied w/ decision when fewer options •Participants also more satisfied with chocolate choice when choosing from a smaller vs larger set (6 vs 30) •consumer electronics - mutual funds why? choice overload-- struggle to choose from large assortments, often leave w/out buying things, experience less satisfaction and more regret when choosing from a larger set of options.

williams sonoma asymmetric dominance example

introduced a new invention called a bread maker and was priced at 275 dollars, but customers had no frame of reference for price/value, so sales just meh... •Later, they introduced a second home bread maker w/ similar features except larger. and priced at $429. Results: •Williams-Sonoma did not sell many units of the new (overpriced) item, but •sales of the less expensive option ALMOST DOUBLED •People did not know how to evaluate the bread maker at $275 •Introducing another option "helped" people make a relative comparison (gave frame of reference).... -Can slightly tweak procedure in decoy effect and get similar results like in this one (introduce slightly substandard product to market and then sales of og will rise)

identifiable victim effect child donation studies

investigated our propensity for giving: asking people to donate money on behalf of children facing starvation: 3 conditions: 1.One child (girl): Rokia 2.One child (boy): Moussa 3.Two children: Rokia and Moussa DVs: money donated and positive affect felt Results: •Affect AND Donations (theoretical and with actual money) were LOWER in the "two children" condition (donations 24.5--> 21.5 and affect 3.5--> 3.0) phenomenon of psychic numbing: when realize how many deaths happening, you turn a blind eye study 2: compared 1,2, 8 children... donations & affect declined as the number of victims grew --Drop in money donated and fewer positive emotions as # victims grew/ ppl realized more ppl need help Compassion fade and psychic numbing happening as #s grow to 1000s

example of a marketer's solution to hold and cot state food temptation

kitchen safe tool: enables us to pre-commit to smart choices (locks the cookies away) to resist temptation of unhealthy foods

how we could nudge consumers to put more healthy items in shopping cart

make dividers in cart for food groups, and make the fruit/veg ones largest -May be big changes for some but small for others-- encourage you to at least up your purchases of fruits/veg by some amount even if you do not radically change it ... Fairly small changes in context and environment can cause big changes in behavior on a grander and individual scale (none technically universal though)

availability heuristic/bias

mechanism by which we judge the frequency or likelihood of something by the ease with which evidence OR examples can be brought to mind by how easy it is to imagine it happening or by how easy it is to remember it happening in the past In many cases, this is a useful shortcut - imaginability and memorability are often related to frequency... but it can lead us astray in certain, predictable cases --situations where people judge the frequency of a class or the prob of an event by the ease with which occurences can be brought to mind. For example, you might assess the risk of heart attack among middle-aged people by recalling heart attacks among your parents' friends or relatives. Availability is often a good heuristic, because events that are more frequent are usually more easily recalled. But it also leads to errors... People answer these questions by searching their minds for words that start with "r" like road and words that have "r" as the third letter like car, and because words that start with "r" are more available to them, they judge that to be more common, which is in fact, false. --ex: think that a shark, bear, gator will be more likely to kill you than a cow or dog, but you would be wrong (also more likely to be killed driving to the lake than by being attacked ) ex 2: ppl think there are more gun deaths by homicide than suicide, by 2x as many suicide deaths (0.1% of kids are abducted by a stranger) ---ex 3: ppl think children more likely to be kidnapped by a stranger than they are... why helicopter parenting is prevalent in US (location tracker apps, leasing kids, schedule kids and don't leave them alone, etc)

Why does the availability heuristic occur?

many people overestimate the likelihood of low-risk incidents such as shark deaths 1. Some are inherently: more vivid more imaginable more memorable 2. movies and pop culture make things seem more common than are 3. more attention/press coverage (media is biased towards novelty & poignancy The media shapes what we are interested in and we shape the media through our interests --are situations where people judge the frequency of a class or the prob of an event by the ease with which occurences can be brought to mind. For example, you might assess the risk of heart attack among middle-aged people by recalling heart attacks among your parents' friends or relatives or you may think nut allergies are more common than they are bc always banned in classrooms

solutions to mindless eating

mini packs: Wansink gave Philadelphia moviegoers free snacks—Wheat Thins and M&Ms - that contained 440 calories. They repacked them in clear zipper bags to make sure they could see all they ate and all they didn't. One group: got 4 small bags with 110 calories each = 440 calories total Another group: got 1 large bag with 440 calories Movie-goers watched the movie and munched away. Afterward, he collected and weighed the bags. The results: Moviegoers with the four small bags ate about half as much! When they got to the end of their first or second pack, they just stopped eating. Even crazier, more than half also said they'd pay 20 percent more money for snacks if companies put them in smaller packages... bc ppl recognize they don't have self-control and want outside help recognizing when to stop eating CALLED THE PARTITIONING EFFECT

conjunctive rule

non-compensatory decision rule where the option selected must surpass a minimum cutoff across all relevant attributes -•Consumer establishes minimum required performance standards for each evaluative criterion and •Selects the first or all brands that surpass these minimum standards and eliminates all that don't meet ALL minimum cutoffs •The item must meet all of the cut-offs imposed •done online through the use of filters on the website

simple nudges that get people started on difficult projects article

ppl more likely to begin a task when deadline feels like the present (getting started is often the hardest step) -- study of how categorizing deadlines affects ppl's propensity to start a task--> participants began a job sooner when deadlines were set on the same day of the week as the day a task was assigned, and when due dates fell in the same month (viewed these deadlines as the present) --study w/ two calendars: ne with the same background color for the entire week, and the second with one background color for weekdays and another for weekends. Participants who were given a task on a Wednesday with a deadline on Sunday were more likely to start the task sooner when the week was shown in one color than when it was divided into two colors. --- this idea could get people to save more. In another study, researchers told farmers in India they would receive a financial bonus if they opened a bank account and saved 5,000 rupees in six months. They found that farmers with a deadline in December were more likely to immediately open an account, while those with a January deadline felt less urgency to get started.

emotional decision making

purchases primarily emotional/subjective in nature. younger people DO THIS MORE 1. Product type: serves a hedonic purpose, i.e. purchased for their pleasure-seeking factors: the item says something about who they are or aspire to be AND/OR the item makes a statement to peers and social groups. Examples: fashion goods: clothing, shoes, jewelry, fine wines, gourmet foods is an Experience good can't assess the characteristics until after purchase and use Example: You need to see a movie for yourself, or actually go on vacation, to see if truly you like it or not Other examples: services, cars, new types of food 2.Context Example: buying a truck buying for personal use: convey the sense that the owner is a rugged outdoorsman is it made in the USA? convey a certain sense of style/status/design 3.Marketing channel = advertising Stories pull at heartstrings or An ad appeals to the ego à draw them closer to the brand 4.Individual differences Some people just make most purchase decisions on a whim based on how they feel in the moment

heuristic

quick rules of thumb and shortcuts used to make decisions. AKA rules of inference used to 1.simplify decision making 2.minimize effort & 3.still leave consumers feeling confident in their decision -can lead to characteristic errors or biases/ faulty beliefs and suboptimal decisions

mental accounting lost ticket problem study

realize you lose ticket right before about to enter classic music theater... •Do you buy another ticket? 54% said yes Your data: 80% ...You do not yet have a ticket. As you go to enter, you see that you have lost $50. •Do you still buy a ticket? 70% said yes Your data: 83 % In both cases, people have lost something worth $50. From an Econ's standpoint, exactly the same story has unfolded. But people seem to consider the not simply whether they have another $50 to spend.

emotional decision making strategy

relying on emotion, AKA your emotional response to the design

choice in western societies

the concept of choice is seen as fundamental to autonomy & well-being --> "choice is good" -•Range of products available in supermarket has increased 55% over the past 10 years •Example: # of pain and fever medications available = 55 --> 210 varieties at stores •True in almost every product category •The average grocery store offers 55,000 items

sunk cost effect

the fact that we've invested money on something leads us to make choices we otherwise wouldn't have made! It often drives us to continue to do things or consume things we have already paid for with time, money or effort because not doing so would feel (or look to others) like a waste Nonmonetary examples: Should I continue with this terrible job? I spent a year training to get this position. Waiting in a line

how to market to satisficers

they generally don't want to pay high price for anything bc they think stuff is "good enough" / basically the same -Make the product easy to find •Give it a large amount of shelf space •Design colorful packaging to make it stand out •Give it an affordable price ex: garnier (green shampoo) does all of these

use of prospect theory in public policy

to discourage use of plastic bags (undesirable behavior), asking ppl to pay 10 to 25 cents per plastic bag will significantly decrease their use compared to you paying ppl a small amount for each bag of their own they bring in...

Huber Payne and Puto's asymmetric dominance/decoy effect study

uni students had to make choices w/ options in beer; cars; restaurants; films; TVs... In each product scenario participants first had to choose between two options. •Then they were given a third option - a decoy designed to nudge them toward picking the target over the competitor. •Results: "in every case the decoy successfully increased the probability of the target being chosen".

constructive processing

we evaluate the offer we'll need to make a particular choice and then tailor the amount of cognitive effort we spend to get the job done; when the task requires a well thought out, rational approach will invest brain power to do it-- otherwise we look for shortcuts like habitual actions or making gut decisions based on emotional reactions

individual differences in decision making: maximizers vs satisficers

•Maximizers: those who always aim to make the best possible choice -on maximization scale (1-7), ppl w/ a rating >4 = maximizers -Engage in more product comparisons: both before AND after they make a purchase -Take longer to decide what to buy -Exert great effort: •reading labels •reading consumer magazines •trying new products -Spend more time comparing their purchase decisions with those of others -Strive towards checking out every option -Often experience post-purchase regret as they think about items they did not buy - often make better objective choices but feel less satisfied with them •Satisficers: those who aim for "good enough" whether or not better options exist and then move on - independent of product category or type of decision... A general way of making decisions

framing effects explained

•the core information related to a decision does not change; people still have the same decision options and the same potential decision outcomes •But the way we present that information - and what is explicit or implicit in the presentation of the problem or choice - differs In this case above, people respond to choices involving losses (deaths) differently than those relating to gains, i.e. (survivors)

examples of affect heuristic

--celebrities change names to manipulate consumer affect (judy garland was frances gumm) -- Music is added to movies because music conveys affect and enhances the meaning -- all the models in catalogs are smiling to link positive affect with the clothes they are selling --ex 1: When we are in a positive mood, we evaluate products more favorably Even when the positive mood came about in an unrelated manner, i.e. was manipulated by the researcher How researchers manipulating Ps' moods: "finding" a dollar or receiving a small gift --ex 2: effect of music on product evaluation: Ps asked to evaluate a pair of speakers through which pleasant/unpleasant music was playing •When asked to rate the speakers without being asked to reflect on the music, participants rated the speakers playing pleasant music higher. •But when first asked about the music and then the speakers, i.e. drawing attention to the potential influence of the music (and likely engaging the cognitive system), participants rated the speakers the same regardless of the type of music. Only when engaging in thoughtless evaluation. Once clued in this affected results --ex 3: Students were more willing to buy a warranty on a new car when it was: •a beautiful convertible rather than •a dull, ordinary station wagon even though the repair costs were anticipated to be the same! --> Their liking for the car (positive affect) influenced their decision to buy a warranty to protect it

affect heuristic

--we have positive or negative feelings about something, and we use those feelings to make a decision, rather than utilizing a more involved thought process to make a decision. •using an overall, readily available affective impression/feeling (emotion rather than thoughts/knowledge) to make: 1.a decision or choice or 2.judgment or 3.an assessment of risk can be far easier - and more efficient - than weighing the pros and cons or retrieving from memory many relevant examples (i.e. a more elaborate cognitive process --how it works: Representations of objects and events in people's memories are tagged to varying degrees with affect, i.e. •weak to strong and •positive or negative associations When making a judgment or decision, people consult an "affect pool" Affect pool = sum of all the positive and negative tags (consciously or unconsciously) associated with the idea / product / brand / person, etc.

rational economic theory assumes that ____

-Behaviors should totally rely on cognition (but they don't) -Behaviors should be consistent and yet we make irrational decisions at times - Decision and choices should not vary with context, but sometimes our decisions are relative -Decision and choices should not vary with descriptions, but they do

brand heuristic

-Brands give buyers confidence in their purchase decision, allowing for cleaner interpretation and easier processing of information shortcut that helps use to pick a product/service based on familiar brands •consumers tend to adopt a decision rule to purchase familiar and well-known brands •lead us to believe that brands with high brand awareness have higher quality •used especially in low-involvement situations or when consumers have low motivation -Helps brands bc can launch brand extensions and when customers have a high/favorable opinion from the brand that leads them to buy these extensions ex brand heuristics: buy the most familiar name/which brand do I like the most?

country-of-origin heuristic ( what it is and how impacts products from developing and first-world countries and chocolate example)

-Consumers strongly associate certain items with specific countries, and products from these countries often attempt to benefit from these links... marketers often go out of their way to link a brand with a country to capitalize and Associates people are the specific country of origin Ex: Americans like to buy Italian shoes, Japanese cars, Italian sports cars, French wines, etc.-Brands / products from developing countries are often perceived as being of lower quality Example: Chocolates El Rey from Venezuela processes some of the best cacao beans in the world and charges a 30% price premium •The beans are bought by the big chocolate houses in Switzerland and Belgium •But El Rey chocolates are hard to find outside of Venezuela •And international consumers won't pay a price premium for Venezuelan chocolate --> believing that the best chocolate comes only from Europe country of origin of products has substantial impact on consumer product evaluations. Maheswaran (1994) found: •C.O.O. provides consumers with information about the quality and other aspects of a product, e.g. authenticity •or perceived authenticity: Generally, consumers are willing to spend more money for a branded product from a C.O.O. with a more favorable country image (think how TOMS logo mimics argentine flag even though brand is american to communicate fashionable)

Creating the Demand Landscape article (frito-lay)

-reason for strategy change: unit volume decline issue in immediate consumption category w/ growth being less for several years than expected, and convenience stores had also diversified product mix w/ larger category of snacks (seen as just one choice of many), lacked hard data abt consumer trends and preferences about the brand, esp for convenience store purchases and why and how ppl consumed them, strong corporate bias about current incentives -- research phases: 1. placed video cameras in convenience stores to immerse self in commercial ecology of the store --> found that ppl ignored the front-end merchandiser (point of sale for all purchases) near the cash register... instead they would head to a specific shelf as if they had already planned to get something specific. SHOWED THAT PREVIOUS BELIEF THAT FRITO-LAY PRODUCTS WERE IMPULSE PURCHASES WAS TOTALLY WRONG 2. studied point of purpose/consumption or use context in everyday routines through diaries/photographs from 35 ppl to see how ppl interacted w/ snacks and how snacks fit into activities/contexts and situations (the # of food-related activities was statistically significant even if # subjects was not) and then depth interviews --> showed associations and attitudes about ready-to-eat foods. revealed demand landscape that illustrated how consumers live their lives... ex: "i always eat potato chips w/ a sandwich intersect w/ occasion of eating a sandwich." key insight: some brands more closely associated w/ eating a sandwich and at home for consumption out of home while others more toward socializing at home w/ friends... different brands link to different behaviors in terms of consumption episodes or contexts and how these behaviors invoke certain needs/wants and in which contexts behaviors combined w/ complex emotions and urges... importance of social-cultural context --indirect and direct research methods increased validity and reliability of data -demand landscape research should be centered on goals/needs/activities that ppl pursue in which products/brands incidentally may play a role -frito-lay's demand landscape included brand values and associations but not a specific range of products. only needed to determine in which niche or everyday lives the brand played best/what kind of snacks consumers like most w/in given demand cluster (ex: like to eat salty food when socializing)--> learned identity and location of specific brand equities of brand that might potentially intersect w/ particular demand cluster

identifiable victim effect/IVE

-tendency to give greater assistance to an individual in need rather than a larger group Emotions like sympathy, empathy, sadness, and compassion influence helping and charitable giving -ex: photo of boy named Aylan made people become more aware/focused on syrian humantarian crisis and brought in record donations to syrian victims why this photo was particularly affect-arousing: •See side of face --> project familiar face •very young, nicely-dressed, could be one of our own kids; and •We can imagine the life he and his family almost achieved --counteracts feelings of psychic numbing and helplessness by creating a warm glow and promoting only one/few person or animal... creates feeling of smallness and emotional connection --Avg daily donations to the Swedish Red Cross campaign for Syrian refugees was 55 times greater in the week after the photo of aylan (~$215,000) than the week before (~$4,000). -ex 2: WATSI website that introduces kids to charity by featuring one child in need of help ex 3: national geographic magazine cover (Loss vs Gain Framing AND Identifiable victim effect in cover picture) generated sympathetic affect for endangered animals by just showing one struggling rhino --see other slide for study discussed in class

potential country of origin heuristic strategies

1) Incorporating the country or region into the name Bank of America Royal Dutch Shell 2) "Made in Germany" or "Made in Italy" or a flag 3) Use of COO language Example: Volkswagen's "Das Auto" - slogan used internationally from 2007- 2016 In modern "hybrid products", with distributed locations of production à more complicated Example: Athleta labeling "designed in" and "manufactured in" Home country bias-- especially if the consumer belongs to a more developed country (explains Athleta label)

information search stage

Process by which we survey the environment for appropriate data to make a reasonable decision Pre-purchase search: recognizing I need and then searching the marketplace for specific information ongoing search: enjoy browsing just for the fun of it or liking to stay up to date on what's happening in the marketplace (shopaholics) As a general rule, we search more when the purchase is important, when we have more of a need to learn more about the purchase, or when it's easy to obtain the relevant information consumers differ in the amount of search they tend to undertake regardless of the product category and question who searches more for info: younger, better educated people who enjoy shopping process tend to conduct more information searches women are more inclined to search more than men, as are those who plays greater value on the style and image they present Knowing something about the product does not necessarily make it more or less likely that we will engage in search because experts and novices use different strategies and they make decisions search tends to be greatest among consumers who are moderately knowledgeable about the product people with limited expertise (novices) may not feel they are competent to search extensively... They rely on the opinions of others and non-functional attributes, such as brand name and price, to distinguish among alternatives process information in a top-down rather than bottom-up manner; they focus Less on details than on the big picture ( example being oppressed by the large amount of technical information in ad gives them by the actual significance of the claims made) Experts have a better sense of what information is relevant to the decision, so they engage in selective search in which their efforts are more focused and efficient Inverted-U relationship (downward parabolic) between knowledge and search effort

to effectively recommend new decision criterion, marketer needs to convey three pieces of information:

Should point out that there are significant differences among brands on the attribute Should Supply consumer with decision-making rule such as if... (deciding on competing brands), then... (use attribute as a Criterion) Should convey a rule that is consistent with how a person made decision on prior occasions or else likely to ignore recommendation because it requires too much mental work

perceptions of control: affect heuristic and risk

Slovic & Peters (2006) surveyed people regarding their opinions about: •adding fluoride to the water supply •chemical plants •food preservatives •nuclear energy topics people likely have little knowledge about, yet potentially very strong feelings towards... findings: •when people were favorable towards a technology/topic, they perceived it as having: •high benefits and •very little risk •Not favorable à opposite pattern: low perceived benefits and high risk •This link between emotion and assessment of high benefits and low risk was even stronger when they answered questions under time pressure, •meaning there is less chance for thought and recall of relevant info --> •showing their affect towards the technology/issue drove the assessment... Not allowing cognitive effort --Starr (1969); Slovic & colleagues •People are willing to accept far greater risks for activities that they choose over activities that do not involve personal choice •Example: people would be willing to accept a higher level of risk for activities such as: •driving or skiing or bungee jumping But find a similar level of risk unacceptable when it comes to things like building safety or the use of preservatives in food Slovic (Jan 2021) hypothesized this may help us to understand why some people said they were: •not worried about becoming ill with a COVID-19 virus •but were worried about the safety of the COVID-19 vaccine --> Why would Paul Slovic say this research explains this phenomenon? -ppl felt like they had control over getting virus ("small risk") but vaccine felt like it was low-control and out of hand (perceived as less safe) -feel you have control when you go to a restaurant, you convince yourself the risk of the virus is small, but you don't have control over how a vaccine is made. You have to trust the results of studies conducted by scientists whom you will never meet. Paul says our sense of control plays a significant role in our perceptions of risk.

bc of diminishing sensitivity to gains (prospect theory), advertisers should

Strategy = Segregate gains (into smaller pieces to stay closer to reference point) à to experience more pleasure / joy •Infomercials •Opening gifts ( like slowly spreading out over few hours) •Giving gifts; recommendation is smaller gifts as surprises

wooing us down the aisle article

grocery store nudge experiments to get ppl to purchase more produce/healthier items from the store -mirror inside shopping cart that reminds you how you look - VA experiment: duct tape divided shopping baskets in half and included a flier that told shoppers to put fruits and veggies in front half of cart... avg produce sales 3.99--> 8.85 -- green arrow experiment directing shoppers to produce aisle (left, rather than the usual right consumers do) 9/10 went left, and also included a placard inside the baskets in english/spanish that told shoppers how much produce avg customer bought (5 items/visit) and what produce were biggest sellers (bananas, limes, avocados) --> conveyed social norms/acceptable behavior. by second week produce sales up 10% and 91% up for those in the women/infants/children program --while produce sales increased, store total sales were the same, meaning shoppers spent less on non-produce items bc still on budgets, but produce aisle is on of most profitable parts of store w/ large volume and higher-than-avg markups --full-length mirror at store entrance did not work as a nudge bc ignored or used for grooming --mindless eating cornell study: if you put food on a smaller plate, you will prob eat less, and this idea also applies to shopping for produce vs processed foods --in el paso grocery store trials, using both green arrows and the placards in carts decreased sales bc too much nudging -tactics that manufacturers use to sell processed foods: --sweetest items sold at eye level midway along aisles (customers attention lingers longest) --ends of aisles generate lots of revenue, esp for soda (45% sales made there) --impulse purchases (60% purchases are) can be encouraged by placing items next to checkout --free-standing displays effective toward rear of supermarket and left side of aisles (shoppers move through store counterclockwise, from back to front, in aisles buy items mostly from shelves to left) --sprinkling same produce throughout store rather than grouping in one spot boosts sales through repetitive exposure --grouping ingredients for a meal in one spot attracts home cooks w/ limited time (think taco section) --posting health-related info online/on kiosks/on shelf tags can link groceries to good health in shoppers' minds

Test to tell difference btwn inertia and brand loyalty:

if consumer discovers that a store is out of normal brand, will they just choose another one or defer the purchase to find this brand somewhere else? (defer = brand loyalty)