4201 Exam 2

The Tendency for consumers to be more likely to donate their organs if they are asked to check the box if you do not want to donate as oppose to check the box if you do is an example of

status quo bias

Identifying Alternatives

choosing a brand/ product among available alternatives requires much of the effort that goes into a purchase decision the amount of alternatives do we actually consider/ evaluate --> depends on decision making process (extended problem solving you evaluate 2-8 and with habitual decision you consider few or no brands) goal is the consideration set

When shopping for a phone, Rebecca carefully considers all attributes and weighted them according to her importance. In her strategy, apartments with a low standing on one attribute (screen size) can be made up by being better on another attribute (memory). What type of decision model is this?

compensatory

Prospect Theory and Context Effects Takeaways

context is key: judgments/ evaluations are not independent three rules of decision making 1. people act differently when something is framed as a loss vs a gain 2. losses loom larger than gains 3. evaluations are driven by individual events, not total outcomes people like organizations do accounting many situational factors contribute to ultimate purchases

Halo Effect

the tendency to assume that if something is good on one attribute then it is good on all others a person who is good at X is thought to be good at Y even if the two are not related example: attractive people often seen as nicer, more skilled etc. example: reliable brand may be viewed as driving better opposite: horns effect cogntiive bias underlies successful brand extensions example: Ipod --> positive effect on perceptions of other Apple products

Hindsight Bias

"I knew it all along" the tendency to believe, after learning an outcome, that one would have foreseen it tendency to look back at past events and believe that you correctly predicted the outcome once they know an outcome people inflate original prediction by 15% to 20% can lead to overconfidence in making marketing decisions; your new products is a raging success --> and you remember being absolutely certain that it would b overconfidence in future decisions, over reliance on intuition rather than data make you less likely to take advice and less likely to do research

Influence of Consumer's Prior Expertise on Search

- Moderately knowledgeable consumers tend to search more than product experts and novices moderately knowledge know enough to know that they need more information; searches the most; marketers target these Experts: selective search Novices: often just use others' opinions graph is shaped like a mound experts have selective search and are less likely to search novice less likely to search often just use others' opinions

5 Step Decision Process

1. Problem Recognition 2. Information Search 3. Evaluation of Alternatives 4. Purchase Decision 5. Post-Purchase

3 Rules of Decision Making

1. people act differently when something is framed as a loss vs a gain 2. losses loom larger than gains 3. evaluations are driven by individual events not total outcomes loss aversion risk seeking for losses and risk aversion for gains evaluation for individual events

Prospect Theory and its 3 characteristics

1.diminishing returns 2. loss aversion (losses loom larger than gains); steeper for losses than gains 3. reference point replaces expected utility (objective) with subjective utility (how we see things) incorporates human element of evaluation people don't follow a traditionally rational theory of choice contrast with expected utility theory from economies Context is Key: reference point effects we know losses and gains are important so how do we know if something is a loss or gain? - reference point: loss or gain determined by external reference point - determines whether something is coded as a gain or loss - used to make evaluations - reference point is always 0 is always the present

Biases in Information Search

Availability Bias: availability heuristic; recall information that is more accessible, but not necessarily more diagnostic or accurate (Toyota not reliable because the last ones I owned were in the shop; think terrorism cause most deaths because we hear about it more but its flu) make decisions based on what comes to mind; if something is available to memory its judged to be more likely (number of memories = frequency of event) Confirmation Bias: the tendency to see what you expect to see; people will interpret information in a way that supports (or confirms) their prior expectations; we search for evidence that confirms our attitudes; often fail to search for evidence that disconfirms example: unhealthy = tasty intuition (confirm hypothesis generated by ads); horoscopes (you look for confirming behavior, justify everything it says as something thats true, given to us with enough vagueness that if your looking for it to confirm something than you will find something) example: card examples Wason Selection Task; look at the card that disproves not proves; shows bias because we should be looking for disconfirming information but we tend to look at and for the confirming information can connect to halo effect; it makes the halo effect even stronger Inhibition- recall of one attribute inhibiting the recall of another (limitations of a consumers processing capacity) mood

What does it mean that consumers "satisfice" vs maximize

Consumers Satisfice: don't search for the perfect solution; stop search and choose when find one that is good enough or satisfactory when you satisfice you find a brand that satisfies a need even though the brand may not be the best brand Maximizers have more regret, less life satisfaction, less optimism, more depression, worse at forecasting and more overconfident, and get paid more but are less happy with their jobs the more you consider an option the more likely you are to regret

Consequences of too much choice?

Consumers wants large assortments because more choice is desirable; more choice means better chance of finding something we like, higher quality options, and lower prices Negative Conséquences: -requires more effort - information overload - defer choice Paradox of Choice: Why More is Less Your Perspective Matters: - costumers choosing for immediate or delayed consumption have different preferences - consumers choosing for near or far consumption have different preferences - it is difficult to get people to choose the smaller option

Post-Purchase Disposal

Disposal: - lots of money in it - second hand markets (like eBay, flea markets, charities, etc) -self storage -donation -Patagonia buy less campaign Recycling: public policy implications of product disposition What leads to a willingness to dispose of possessions? - product failure/ product loses functional value - product become technologically obsolete - major life events: moving, role transitions (graduation, marriage, divorce) - fully depreciating the mental book value of a durable good (car, appliance) - availability of/ desire to upgrade Why might consumers be unwilling to dispose of possessions? - individual differences in: hoarding (clinical disorder), production retention tendency (non clinical tendency to be a packrat vs a purger), green consumption values - because the possession is special: pets, memory laden objects, achievement symbols, collections, more likely to get ride of if you recycle rather than throw away

Extended Problem Solving vs Limited Problem Solving vs Routine Problem Solving

Extended: all five steps with lots of effort on each step - MAO is high - careful evaluation on attributes and many brands considered - internal and external search - decision is perceived as risky, highly involving, or personally relevant -usually high cost Limited: simple - lower risk and lower involvement - medium MAO - limited number of brands and attributes - might go through all 5 steps but not as much effort, less search - mostly internal Routine: automaticity (no conscious effort -MAO is low - efficient (minimal time and energy) - little or no comparison of brands and attributes - not going though all 5 steps -habit purchases - usually low cost - internal search only

What is the difference between heuristics and bias?

Heuristic: Decision Shortcuts - fancy word for rule of thumb - examples: representativeness, availability, confirmation bias, compromise, consumer lay theories - nothing inherently wrong about them (they make life easier but they can become a bias) Bias: - use or overuse of a heuristic leads to poor decision - problems happen if we over apply a heuristic

Compensatory vs Non Compensatory Decision Rules vs Heuristics

High Effort, Higher Accuracy use Compensatory middle non compensatory low effort lower accuracy use heuristics Compensatory: a mental cost- benefit analysis model used to make a decision (multi attribute and expected utility models); goal attributes compensate for bad/ low attributes can use Pro/Cons (additive) and multi-attribute models (weighted additive) ex: better picture of a Samsung compared to a Vizio compensates for its higher price Non-Compensatory: simple decision models (but still fairly high effort); being bad on one dimension cannot be made up for use conjunctive, lexicographic, eliminated by aspect Heuristics: very simple decision short- cuts/ rules of thumb

People are Irrational

IKEA Affect if you have the options same price and comes assembled or IKEA option people choose the IKEA option because they feel like even though its same price if they put in work assembling the product they feel they are contributing and like that more

Internal vs External Search

Internal Search: scanning memory to assemble product alternative information things that make it easier to recall for internal search: - primacy and recency - prototypicality (think of Coke when you think soft drinks) - goals and usage (do they match, does the product serve the goal) -accessibility (link strength, more likely to remember if you have strong attitudes) - diagnosticity (negative > positive; negative information is more valued than positive than you remember it more) - brand loyalty - vividness / salience -retrieval cues (logos, spokespeople) - consumers only use information they can recall External Search: interpersonal sources (friends/family), experiential search (product samples/ trials/ test drives), independent media, retailers, marketer-dominated media typically start with internal and continue with external

Rule 2: Losses Loom Larger than Gains

Loss Aversion people tend to be more sensitive to losses than to gains (the loss of $10 is more significant than a gain of $10) we go out of our way to use theater tickets that are more expensive, regardless of the show (sunk cost effect; want to avoid calling it a loss) coke wants to charge different prices in the summer compared to winter should they charger ($1.5 in the summer and give a .25 discount in winter; $1.25 in winter and charge .25 refrigeration surcharge in summer) - gain framing: same situation framed as a gain is more favorable example: 1. mugs example: sellers would only accept $5.25 for the mug (even thought they got it for free) but buyers would only buy it for $2.25 - loss aversion (endowment effect): merely processing an object increases its value; selling it seems like a loss because you own it and you feel like its more valuable example: once you buy it its harder to return something because you own it and it feels like a loss giving it up (loss domain has more value than gain domain) -loss aversion (status quo bias): people have a tendency to not want to change their current state example: check box if you want to participate in organ donor (you don't do anything) or check box if you don't want to participate (you don't do anything) example: Korean Traffic Lights - people tolerate longer waiting times if they know how long they are waiting for - it helps to know your loss is coming to an end (backfires it it is a larger amount) example: ads count down to when they are over

Determinants of How Much/ How long We search (MAO)

Motivation: -importance of task - involvement - perceive costs/ benefits - discrepancy of information - attitude toward search -relative brand uncertainty - consideration set Ability - expertise (consumer knowledge) - cognitive abilities -demographics Opportunity - availability of information - time - format -number of items being chosen Generally people under search - look at only 1-2 sources because we are cognitive misers (lazy), minimize cognitive effort put into something Over Search? - can lead to less satisfaction (learning more alternatives and learning more of what you are giving up) -especially in ordered environments even search on price is poor; if you are going to discount your price make sure consumers realize its on sale

Recall of 4 Major Types of Information from Internal Search

Recall of brands: - consideration set Recall of attributes: - accessibility or availability - diagnosticity: distinguishable from others - salience: attribute that is at the top of mind or more important - vividness -goals recall of evaluations: - online processing: when a consumer is actively evaluating a brand recall of experiences

Consequences of Customer Dissatisfaction and Satisfaction

Satisfaction: - repeated purchase intentions -increase positive WOM - basis for positive emotional connection to the brand and brand loyalty Dissatisfaction - voice response: complain to firm, product returns - private response: complain to friends (negative WOM), boycott firm - 3rd party response: file official complaint, take legal action

Attraction Effect

Vacation Choice Example - if its between rome and paris you will choose paris because thats what everyone does - if you add an undesirable rome you will choose the original rome because now you have a comparable and now you can justify the Rome decision example: print, online, both subscription 84% do the both however if you take away the print option people move to pick online because you are taking away the bad option and making it harder to justify the more expensive (both) option disappears if the options are undesirable (you become more careful because everything become adversive)

Decision Illusion

Visual Illusion you know your wrong and you tell yourself you are wrong but you can't stop seeing it example: the two tables side by side and see which one is longer but they are the same length but if you take the lines away you always see one is longer than the other example: Asian Disease Problem the two problems are identical they are simply framed differently 200 people saved (saving frame) = 400 dead (dying frame) framing should NOT make a different in choice but it DOES people are more likely to choose saving frame rather than dying frame

Additive Compensatory Rule

attributes not explicitly weighted look at notes Decision Making; High Consumer Effort brands are compared by attribute, two brands at a time evaluate differences between two brands on each attributes and then combine them into an overall preference

Marketing Biases

availability heuristic representativeness heuristic base rate fallacy sunk cost effect anchoring and adjustment placebo effect self positivity- make judgments about the extent to which they or others are vulnerable to having bad things happen to them out group homogeneity bias egocentric bias hindsight bias fundamental attribution error halo effect

Differences Between Availability and Representativeness

availability is a single instance representativeness is a category that you have stereotype of

Marketing Heuristics and Shortcuts

based on knowledge unhealthy = tasty scarcity = desirability green = ineffective price = quality more shelf space = more popular leisure = wasteful habit/ loyalty variety seeking performance based: buy the best tasting; buy the cheapest habitual/ loyalty: keep on buying the same brands (habit vs loyalty) variety seeking: buying something different each time reluctance to choose an unknown brand: often prefer generics (until brand name is revealed) know effects are and examples

Placebo Effects in Action

beliefs and expectations evoked by marketing actions, such as price changes and advertising claims, can give rise to behavioral (placebo) effects that alter the actual efficacy of products marketers can take this knowledge and use it to improve the real experiences of positive expectations visually appealing packaging (aesthetically designed box) helping customers who love your brand share their satisfaction through social channels like web forums or twitter B2B hinting to a sales prospect that your company was awarded for great customer satisfaction

Our Bias Blindspot

can you train yourself to avoid these biases? not necessarily- even Kahneman says he can't we have a bias blind spot goes back to system 1 vs system 2 biases have their root in unconscious system 1 thinking: means we can't really access them and they are impervious to what we think of as intelligence bias are really predictable so if you use a bias correctly then its hard to ignore these biases

Problem Recognition (actual vs ideal state)

consumer purchase = response to problem problem/ need = current - ideal state problem (need) recognition occurs when consumer sees difference between current state and ideal state (can result from a purchase of a product) Two Ways it occurs: - need recognition: current state moves downward; examples include running out of a product, buying a deficit product, or creating new needs (organic products make your current products bad) - opportunity recognition: ideal state moves upward; exposed to different/ better quality products (standard of comparison); examples include took a diamond and made it a need example of need recognition: Betty White and Snickers bar commercial; moving your current down; your hungry self is a bad self and your ideal state is what you want to be (your normal) and you get there by eating a Snickers Ideal State: what we want things to be; stimulated by own personal motivations and aspects of our own culture (reference groups); major changes in personal circumstances can change this actual state- real situation; perception of this can be influenced by variety of factors; needs play a critical role (can make ur actual state unacceptable); external stimuli can change this greater the difference the higher the MOA

Post Decision Takeaway

consumer satisfaction/ dissatisfaction is based on perceptions (companies need to manage expectations) product failures are often attributed to the firm (stability, control and focus matters) uncertainty about having made the correct choice leads to post decision dissonance wishing you bought another option leads to post-decision regret (deliberation and choice sets contribute to it) consumers dispose belongings in a variety of ways (understanding when and how as important economic implications)

Information Search

consumers need information to solve problem; we survey our environment for appropriate data to make decision we search for: - brands (form consideration set): consideration set means --> more likely to be chosen (if something is not in my memory its not in my consideration set) not in consideration set --> almost no change of being chosen - attributes - evaluations/ attitudes - experiences

Heuristic and Bias Takeaways

consumers often use heuristics (or simple decision rules) to make low effort decisions however sometimes these heuristics are over-applied leading to biases in decision making several heuristics that we use when making decisions there are several unexpected and counterintuitive forces than can influence our decisions Big 3: 1. availability- our liking is what is available in our mind; more people die form texting than what we think however more people actually die more drunk driving 2. representativeness- look at a product then our stereotypes and place in category based on that 3. base rate neglect: veterans in each state (look at the raw numbers but didn't compare it as a percent of the states total population); can use a wrong base rate for favorably (the car being like i fell in love with you out of the world population) others: sunk cost: shouldn't consider these but we do; the $10 cover bar example halo/horns effect: horns (don't like a chevy truck then you won't like any); halo (you like one product in a brand so you will choose other products by same brand) anchoring and adjustments: two circumstances (price is relevant to use and have to be uncertain); example is the price of toaster and social security number placebo effect: the cake example; thought the more expensive cake tasted better than cheaper cake even thought it was the exact same cake

Rule 1: Loss/ Gain Framing Changes Risk Taking

consumers sometimes prefer risky options over non risky options and vice versa risk seeking: when the choices are perceived as losses (deaths) risk averse: when the choices are perceived as gains (lives saved) risk seeking for losses and risk averse for gains example: Custody Scenario - frame of questions matter - when using word award its a gain domain; choose options that have a lot of good (choose parent that has good qualities) - when using deny word its a loss domain and focus more on the negative (chose to deny the parent with just average)

Sunk Cost Effect

costs that have already been incurred and which cannot be recovered costs that have already been incurred and which cannot be recovered sunk costs should not influence our decisions, because doing so would not be assessing a decision exclusively on its own don't throw good money away after bad How do marketers use this? - get people to make a number of small and easy commitments - when they try to pull out, remind them of the total commitment they have already made example: printers, razors, and coffee makers; longer time to setup an account How can consumers avoid falling prey to it? - when thinking of pulling out of something, focus on future costs and benefits other than past investment Only thin you can do to avoid this is to tell yourself forget the past focus on the future

Paycheck deductions for insurance, parking, investments is an example of

couple losses with gains

What is System 1 vs System 2

created prospect theory System 1: our fast, automatic, intuitive and largely unconscious mode - system 1 jumps to an intuitive conclusion based on heuristic: an easy but imperfect way of answering hard questions System 2: our slow, deliberate, analytical and concisely effortful mode of reasoning about the world -system 2: lazily endorses this heuristic answer without bothering to scrutinize whether it is logical

Evaluative Criteria and Determinants Attributes

determinant breaks the ties dimensions used to judge merits of competing options determinant attributes- used to differentiate among our chooses; consumers focus on differences (carry more weight than commonalities); marketers educate consumers about (or event invent) determinant attributes

Post Decision Dissonance

did i buy the right brand? should i have searched more? could I have found lower price? we feel anxiety experienced post-purchase when a consumer wonders whether they made the right choice (even when they turn out positive) --> particularly under approach - approach conflicts Reducing Dissonance - make customer feel good about the purchases; follow up mailings and thank you notes; salespeople at cash registers; alumni newsletters - make customers confident about the purchase; warranties; price protection policies; return policies

Decision Making: High Consumer Effort Takeaways

different rules can lead to vastly different decisions consumer use a combination of decision models (rarely if ever just one) consumers do no always have compete information across all options consumers tend to use beliefs (subjective) about attributes and their importance many times the decision process proceeds in two stages: consideration set (non compensatory models) --> reduced consideration set (compensatory method) --> choice eliminated by aspect: reject all classes before 9 am

Post Decision Dissonance vs Regret

dissatisfaction with how the decision is made = post decision distance dissatisfaction with the outcome itself = post decision regret

Economics of Information

do consumers get full information and then optimize their decision? gather as much data as needed to make informed decisions, then stop we will collect most valuable information first we continue to search until costs exceed utility of ionfromaitn search

Implications of Decision Making

endowment effect: merely possessing an object increases its value; so selling it seems like a loss because you own it and you feel its more valuable status quo bias- people have a tendency to not want to change their current state sunk cost bias- want to avoid calling it a loss gain framing: same situation framed as a gain is more favorable

Evoked vs Consideration vs Inert vs Inept Sets

evoked is imagined and consideration are the ones you are actually considering consideration is the goal (its not enough to be in evoked) evoked set -> you are aware but consideration are the ones you actually consider and think about inept set- options that are unacceptable when making a decision inert set- options toward which consumers are indifferent consideration set- those they want to choose among (who the market is competing against)

Mental Accounting

examples and implications money is not 100% fungible we put money into different mental accounts (tax refund vs paycheck; house's money; food vs rent; $25 does not equal $25) sunk cost effect: a case of loss aversion; frame is a loss of money under a mental account that is already there; something not already in a mental account feels like a bigger loss because you are opening another account in your mind) we can reframe money in our mind to mold to what decision we want implications: we can frame purchases to fit inside people's budgets example: 1. lamp store example people willing to drive to another store when its $75 vs $100 rather than $1775 vs $1750 2. more people willing to buy a ticket after losing $40 but not willing if they lose their original ticket (you can make $40 big or small but you can't make a ticket big or small)

Problem Recognition and Information Search Takeaways

for a decision to be made, there needs to be a need consumers conduct both internal and external search to find information about how to move further from their actual to ideal state most consumers under search (marketers need to find a way to be top of mind; using availability heuristics) some consumers over search (marketers should make sure not to give irrelevant information for the sake of giving information) most consumer conduct based search; confirmation bias (marketers need to find a way to have an image that fits with target market ideals; using perceptual and preference maps) information overload: can lead to a decline in decision quality

Many companies make use of the growing trend in sustainable marketing by presenting their offerings as green and sustainable even when this is not the case. This is an example of

greenwashing

Dissatisfaction would likely lead to all of the following except

habitual purchase

Typically the next step in consumer decision making after problem recognition is

information search

Car dealers list price in one lump sum is an example of

integrate losses

Why we hate phone bills, itemized tuitions bills is an example of

integrate losses

Representativeness Heuristic

is when decisions are based on how similar an example is to something else (or how typical or representative the particular case in question is) is basically stereotyping while availability has more to do with memory of specific instances, representativeness has more to do with memory if a prototype, stereotype, or average stereotyping is basically classification Overcome This by changing the name of things to get rid of the stereotype (changing dentures to veneers) position bands close to the prototype; first mover advantage, show positive outcomes of using your product; and regression to mean (manage expectations)

Multiattribute Compensatory Decision Model (with or without explicit weights)

look at notes Decision Making; High Consumer Effort type of brand-based compensatory model gives more weight to those that are compatible with their goals

Prospect Theory

losses loom larger than gains for consumers even when the two outcomes are of the same magnitude

Dissatisfaction likely leads to

lost sales, negative WOM, complaints, and lower profits

Continuum of Consumer Decision Making

low MOA generally use Heuristics to make decisions limited MOA generally use typically non-compensatory rules high MOA generally use non compensatory or compensatory rules

Paths to Satisfaction

manage outcome (actual): - deliver the goods manage expectations - set expectation accurately - communicate consistent messages - clear, definitive, and simple messages to customers

Mental and Emotional Accounting

mental accounting- categorizing spending and saving decisions into accounts mentally designated for specific consumption transactions, goals, or situations emotional accounting- the intensity of positive or negative feelings associated with each mental account for saving or spending

Appraisal Theory

our emotions are determine day the way that we think about or appraise the situation; explains how and why certain emotions can affect future judgments and choices affective forecasting: a prediction of how you will feel in the future; can influence the choices they make today (we can forecast how we think we will feel as a result of a decision, how intensively we will have the feeling, and how long this feeling will last)

Sustainable Marketing? Greenwashing?

packaging that creates less waste: tubeless toilet paper consume less: patagonia greenwashing: companies disingenuously spinning their products and policies as environmentally friendly example: presenting cost cuts as reductions in use of resource example: using packaging that evokes environmentally friendly imagery even though there has been no attempt to lowering the environmental impact of product How does greenwashing work? - no proof - means nothing - hidden tradeoffs (or lesser of two evils); sustainable harvested - smoke and mirrors (airlines using non plastic; fuel efficient SUV) - vagueness (all natural) - false labels (green colored labels) - irrelevant attributes (CFC free coolest when its already illegal to use) - bold lies (energy star when in fact not) organic is the only term that is regulated everything else someone can lie about

When Something Goes Wrong

people want to blame someone fundamental attribution error - look for external rather than internal causes it is perception that matters not reality three factors influence who gets blamed: 1. stability: is the cause temporary and permanent 2. focus: marketer/ brand's fault or my own? 3. controllability: marketer/ brand control? permanent, marketer-related, and marketer controlled = BAD

5 Main Situational Influences on Decision Making

physical surroundings (crowding, messiness, store layout) - the concrete physical and spatial aspects of the environment that encompass a consumer activity; messy stores symbolizes low quality (however messy food aisle means its more popular) -atmospherics: refers how you manipulate the design, scent, color, and sound of a space to achieve a certain affect (atmosphere --> emotional response --> behavior) - shoppers love touch and trial, mirrors, discovery, and bargains; they hate lines/waiting, being force to ask, stock out (unless has positive signals), obscure price tags, and intimidating service social surroundings (presence of others) - consumers can be influenced by attitudes of others (friends, other customers) - Mere presence effect: people do not even have to say anything to infelnucen our behavior; presence of other shoppers in aisles changes how we shop (more likely to buy name brand products) time (amount of time, time of day) - how much time a consumer has available to do a task influences the buying strategy used to select and purchase the product (easy to justify --> cheapest, name brand; habitual; more affective/ hedonic; based on gut feelings) - time of day: some products/ services only seen as appropriate for certain times of day purchase goal (why are you buying; for self or gift etc.) - how do your purchases differ when you are buying something for yourself vs someone else (less willing to buy an experience) - something to share with others vs use by yourself - work or leisure? - unplanned buying: 60-70% or purchases unplanned (point of sale is crucial once the customer is in the store); young unmarried adults, trip unplanned, traveling by car all makes you more susceptible antecedent states (what do you bring into the buying situation in terms of your mood, your physical state, etc.) - mood/ physiological condition influences what we buy and how we evaluate products (stress impairs info processing and problem solving; physiological conditions can trigger need recognition --> hunger; more impulse buying when in good moods) - other antecedent states: how much energy we have when we start shopping; how much cash we have on hadn't; our attitude about shopping in general (job or an adventure)

Base Rate Fallacy/ Neglect

prior probability is ignored when making a judgment place too little (or no) weight on the base (original) rate of possibility (the probability of A, given B) generally stems from people's tendency to judge likelihood of a situation by not taking into account all relevant data and focusing more heavily on new information without acknowledging how the new information impacts the original assumption with simple frequencies you miss the base rate Examples: 1. most car accidents take place within 5 minutes of home (need to look at where most trips are located) 2. fords are most stolen car (look at how many of each car sold, more fords sold it would make sense that a higher number are stolen, and however hondas are most % stolen) this is how information is spinned in today's society; pick and choose information; pick up frequencies which do not represent % example: Donal Trump and any immigrant statistics problem is base rates are told very convincingly but most often not true

Judgments of Goodness/ Badness

reflect our evaluation of the desirability of the offering's features consumers tend to form judgments of goodness or badness more quickly and consistently based on the intensity and direction of their affective responses anchoring and adjustment process: starting with an initial evaluation and adjusting it with additional information imagery- visualization; imaging an event in order to make a judgment

Post Decision Regret and its Sources

regret = unchosen - chosen unfavorable comparison between chosen and unchosen alternatives; knowledge about the outcome of the unchosen not required can you be satisfied and still have regret? yes example: be on a diet and eat something unhealthy; you are satisfied with the meal but regret eating it because you were supposed to be healthy regret and post decision dissonance are NOT the same thing What increases regret: 1. deliberation 2. choice overload; more choices/ larger consideration sets causes decision paralysis, decreased satisfaction with product, and decreased satisfaction with the choice process 3. ease of comparison 4. inaction example: 401 K plans; decline when options increase and usually more choice just doesn't help period larger choices are not bad for experts; need to be order and filter a set to make large choices not bad limited choice is best

Why do marketers care what happens after a sale?

repeat purchases - 5x more expensive to get a new customer low involvement purchases - attitudes can be formed after choice WOM: product information transmitted by individuals to individuals - influences two thirds of all sales - particularly powerful when we are unfamiliar with product category - negative > positive: weigh negative WOM more

Satisfaction (Expectancy Disconfirmation Model)

satisfaction is the evaluation of product after consumption; its a positive evaluation of decision, associated with positive effect dissatisfaction- negative evolution of decision, associated with negative affect satisfaction = actual - expected dissatisfied; actual is below expectations satisfied: actual is equal to expectations delighted: actual is above expectations they are weighted differently: 12 positive experiences = 1 negative experiences; weight negative experiences heavily; can take a negative experience and turn it into a positive if you recover correctly outcomes of satisfaction/ dissatisfaction

Car descriptions list out attributes separately this is an example of

segregate gains

Rule 3: Evaluations are driven by individual events, not total outcomes (Individual vs Multiple Gains/ Losses are Evaluated Differently)

segregate gains integrate losses to reduce psych cost better not to have any loss silver lining of small gain helps reduce psych cost of loss example: rather get two winning lottery tickets than one with the same ending amount because want to segregate gains and win twice (this changes if the number is extremely high) rather receive one letter from IRS with saying owe $150 rather than two seperate letters with smaller amounts that add up to $150 because you only want to experience loss once (avoid losing multiple times) rather won a lottery ticket for $20 than win one thats $100 and have to pay $80 for a repair (better not to have any losses) rather have to spend $200 then win $25 in a game than to have to spend a $175 repair (silver lining; small gain help reduce the psychological cost of a loss)

What are marketing implications of prospect theory?

segregate gains, integrate losses, silver lining effect, and cancel losses against larger gains

Product Choice

selecting among alternatives first assemble and evaluate relevant options from a category; now we must choose from consideration set several models of decision making; depends on MAO, depends on the person, and depends on marketing we use models to try to predict decision making

Julie saw that there was more Tide detergent than any other brand of detergent on the selves at her local Target; she decided this must mean that Tide is the best quality detergent available. This is an example of

shelf space heuristic

$500 cash back when you buy a Nissan is an example of

silver lining

Reframing

the Fun Theory make stairs more fun than 60% more people choose to take the stairs make throwing trash away more fun by adding sound 41kg more trash thrown away than normal using heuristic: if its fun then its more enjoyable cereal example they changed their shape from a square to diamond even though its the same shape (they laugh at the commercial which helps you remember it when you go to make a cereal purchase)

Availability Heuristic

the availability heuristic is when you make a judgment about something based on how available examples are in your mind has a lot to do with your memory of specific instances and what you've been exposed to Example 1: if you are feeling guilty about homelessness your friend tells you that the primary problem underlying homeless is that mentally ill do not have adequate care and most homeless are mentally ill - later two foundations ask for your donation a mental illness and homeless shelter and you give your money to the mental illness foundation but before you would have chosen homeless shelter example 2: you are trying to decide which warranty to buy, one for your dishwasher or one for your vacuum cleaner - your friends dishwasher recently broke and put huge suds all over the kitchen floor; you decide to buy the warranty for your dishwasher Example 3: you thinking texting and drive kills more people than drunk driving because you hear more about texting and driving - however more people are killed by drunk driving than texting and driving example 4: restaurant satisfaction survey; you infer from an ease or difficult of making a decision - if you as someone to list an unreasonable number of things that went wrong and you can't you infer something better provide consumers with positive and vivid product experiences; stimulate positive WOM (sneak previews, samples)

Specific Non Compensatory Decision Rules

the conjunctive rule: set minimum cutoffs levels on multiple dimensions; start with all items and reject bad options; conjunctive choice discards options based on not meeting several criteria attributes treated jointly and as equally important the lexicographic rule: rank attributes by importance and compare one at a time; best on most important attribute --> retain --> repeat; winner takes all eliminated by aspects: rank attributes by importance; set minimum level on most important attribute then 2nd, 3rd...; eliminate brands that don't meet cutoff on most important dimension; eliminate brands that don't meet cutoff on 2nd most important decision; continue until 1 brand remains

Context Effects

the influence of the context in which the decision takes place context- the set of circumstances or facts that surround a particular event, situation, etc.; most people dont know what they want unless they see it in context compromise effect attraction effect

Decision Framing

the initial reference point or anchor in the decision process because the frame serves as the initial anchor in the decision process, all subsequent information is considered in light of that frame can frame as gains or loss, how the problem is structured in the external environment, time period, positively or negatively, and priming certain attributes like reliability and creativity

Internal search is

the process of recalling stored information from memory

Self Positivity Bias

thinking bad things happen to other people, but not to us reason why people smoke, drive drunk, speed, bake in the sun marketers have to convince people they are indeed at risk ask them to calculate population risk, then friend's risk, then their own risk imagine or elaborate on situation hard because you have to believe you are at risk in order to change your behavior and most people with this don't believe they are at risk so harder to change their behavior have to go after their perceptions and feel special and real deeply engrained perception of ourself and difficult to change

Anchoring and Adjustment

we look for cues around us and then adjust or anchor from there two conditions under which we know this works 1. you can not know the answer 2. has to be made relevant to you example: - would you be willing to pay more for a toaster if it was next to $100 toasters or $30 toasters (if the $100 toaster changes your anchor higher so you are willing to buy a more expensive toast of $80; if average toasters are $30 as reference price you are less willing to buy a toaster costing $70) reference pricing

Endowment Effect

when ownership increases the value of an item consumer have a much stronger reaction to price increases than to price deceases

Compromise Effect (Extremeness Aversion)

when there are more choices and you don't really know what to do you pick the in between because we are not comfortable picking the two extremes Implications: -especially important for service businesses selling an intangible product that is not easily comparable example: Williams Sonoma $275 bread machine suffers weak sales but as soon as introduce a $415 model increases sales of $275 double give customers three related choices at 3 different prices avoid one of a kind items sitting on shelves isolated from comparable products (especially if your product is average)

Out Group Homogeneity Bias

you feel people in the out group are more like each other than they themselves feel they are; people in an out group are all alike; people in your in group are all different; sometimes perceptual and little can be done to correct example: 1. you are a man and ad meant to appeal to women so you put fluffy pillows, kittens, and cleaning products in the ad 2. you are a woman making an ad meant to appeal to mean; you put a basketball player, pitfalls, and cars in the ad 3. stereotypes 4. madmen example; the guys classify girls as either Marilyn Monroe or Jackie Kennedy; however the girl in the room was like no im not either; you simplify what you don't know but when you know them they are individual; all women are the same but all men are different 5. political: democrats simplify all Trump supporters into one group they are all the same person and put them into a stereotype 6. racial: all blacks are similar to stereotype; all whites are similar to stereotypes

Egocentric Bias

you think people are more like you than they actually are example: I think Poltician X is an idiotic; I assume most people think the same way and am surprised to learn how many people support Politician X; if you are favor to Y - I think Politician Y is corrupt if you are favor to X Marketing Implications: you are not the average consumers and in most cases you do not represent the target market you are trying to reach - creating ads/ products/ etc. that appeal to you does not guarantee they'll appeal to everyone remember: you need to collect data to figure out what consumers want (vs. relying on intuition)