Consumer Behavior: Judgement & Decision Making

Biases in Judgement Processes

1. Confirmation- focus on information that reinforces or confirms that the product is good 2. Self-Positivity- tendency to believe that bad things are less likely to happen to you 3. Negativity- consumers give more weight on negative information than positive. For example I love Chapman so I will be less to think about negative information I hear 4. Mood- tendency to respond positively when in a good mood 5. Prior brand evaluations- judging a brand based on past exposure 6. Prior experience - learning from previous experience creates a judgment for future decision. 7. Difficulty of mental calculations- when comparing various prices or discount the ease or difficulty of calculating the difference will affect consumers judgement.

Heuristics

A decision shortcut or rule of thumb

Compensatory models

A mental cost-benefit analysis model in which negative features can be compensated for by positive ones. Basically consumers make judgments about goodness and badness and weight them in terms of how important the attributes are to their decisions. The one that has the best overall score is the one consumer choose. Attributed of goodness X importance summed across all brand attributes> than attributes of badness Example: Americans may have negative evaluations of products made in China. This evaluation can change if the product rate highly on other criteria deemed important such as price.

Noncompensatory models

A simple decision model in which negative information leads to rejections of the option. For example: U.S consumers reject a product because it is foreign made Less cognitive effort than compensatory because consumers set up cutoff levels for each attribute and reject any brand with attribute ranking below the cutoff.

Mental Accounting

Categorizing spending and saving decisions into "accounts" mentally designated for specific consumption transactions, goals, or situations Example: we might have an emergency account, vacation account, credit card account.

Representativeness Heuristic

Comparing a stimulus with the category prototype/exemplar- stereotype ¥ Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. ¥ Which is more probable? • Linda is an insurance salesperson. • Linda is a feminist who works as a bank teller • Linda is a teacher in elementary school. • Linda is a feminist. • Linda is a bank teller.

Attribute Processing

Comparing brands, one attribute attribute at a time- such as comparing each brand on price. Consumers prefer this over Brand Processing

Group Context

Consumers decision can be affected by the presence of other people, or even a relationship with someone else. ¥ Self-presentation- comsumers seek to convey a certain image through the decisions they make in a group ¥ Minimizing regret- consumers who are risk averse and want to minimize regret so they make choices that are similar to others ¥ Information gathering- consumers can learn more about the different choices each has made through interaction with other group members. This leads to Low Effort Judgement which is Heuristics

Brand Processing

Evaluating one brand at a time

Judgement of Goodness/Badness

Evaluating the desirability of something Example: if you are planning a trip to Europe you might judge the face that Europe is cold this time of year or the fact that European travel can be expensive.

Judgement:

Evaluation of an object or estimate of likelihood of an outcome or event

Ownership

Happens because ¥ We fall in love with what we already have- if you want to sell your car you start imagining all the trips you did with it ¥ We focus on what we may lose rather than what we may gain- you loose the car forget about the money- ENDOWMENT EFFECT ¥ We assume other people will see the transaction form the same perspective we do ¥ IKEA effect- the more work you put into something the more ownership you begin to feel. Virtual ownerships (imagining themselves wearing the product/service)

Decision Frames

Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two programs to combat the disease have been proposed. Assume that the exact scientific estimate of the consequences of the program are as follows: (Which of the two programs would you favor?) ¥ Frame 1: o If program A is adopted, 200 people will be saved. o If program B is adopted there is 1/3 probability that 600 people will be saved, and 2/3 probability that no people will be saved. ¥ Frame 2: o If program A is adopted 400 people will die. o If program B is adopted there is 1/3 probability that nobody will die, and 2/3 probability that 600 people will die.

Estimation of likelihood

Judging how likely it is that something will occur

Endowment Effect

Losses> Gains Ownership increases consumers' valuation of an object as owners feel greater loss aversion compared to buyers

Decision- Making

Making a selection among options or courses of action

Imagery

Multi-sensory mental representation (image) of a stimulus or an event

Anchoring and adjustment process

Starting with an initial evaluation and adjusting it with additional information But adjustments are typically insufficient!

Cognitive Models

The process by which consumers combine items of information about attributes to reach a decision. ¥ Compensatory Models ¥ Non-compensatory models ¥ Brand Processing ¥ Attribute Processing

Compromise Effect

When brand gains share because it is an intermediate rather than an extreme

Prospect Theory/ Loss Aversion

losses and gains are valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses The general concept is that if two choices are put before an individual, both equal, with one presented in terms of potential gains and the other in terms of possible losses, the former option will be chosen.

Availability Heuristic

¥ Basing judgments on events that are easier to recall o Base-rate information: How often an event occurs on average o Law of small numbers: The expectation that information obtained from a small number of people represents the larger population Example:Which of the following causes more deaths in the US each year? • Stroke • Motor vehicle accidents

Marketing Heuristics

¥ Price-related tactics o Simplifying decision heuristics that are based on price (e.g., cheapest brand, brand on sale, brand with coupon, etc.) ¥ Affect referral o Tactic whereby people simply rely on their feelings for the product or service

Two Common Heuristics

¥ Representativeness heuristic ¥ Availability heuristic

Status Quo Bias

• Disadvantages of leaving the status quo loom larger than advantages