5 - Heuristics & Biases Pt II Flashcards
Confirmation Bias
Consumers focus on later information that confirms initial expectations
eg: when looking at houses, initial expectations are formed from exterior impressions, and styling in the first few rooms of the visit will confirm/disconfirm expectations
Customer centricity and confirmation bias example
Online reviews of products can confirm a consumers initial expectations based on impressions of the brand or image of the product
Confirmation bias for perceived quality violinist example
Award winning violinist plays and gets no recognition in the metro because consumers have impressions on metro musicians
Sunk cost bias
Tendency for consumers to escalate commitment to a course of action to which they have already made substantial commitments (time, money, effort)
Sunk cost bias stocks example
People will hold on to a bearish stock do to availability of stock trends (knows it’ll go up in the future) and miss out on current profiting stocks. People will also not want to cash out a stock they have lost money on due ot loss aversion
Overconfidence bias
Consumers are more confident in their own abilities than is warranted by the facts
Lottery overconfidence example
People are more confident in their own ability to pick ticket numbers
Availability of large jackpot winnings, past winners, past winning tickets
Driving skills overconfidence example
90% of people think they are better drivers than the average person. This is due to low availability of consequences in bad driving (people don’t often see traffic accidents or think of pigs aka cops giving them tickets)
KADEF ways to reduce biases
Knowledge
Review
Feedback
Feedback (reducing bias)
Feedback from others - difficult to see your own biases, but others around you may give you feedback that is hard for you to perceive
Knowledge (reducing bias)
Understanding heuristics and biases, and applying this knowledge to understand what is happening to you when you make decisions
Establish habits with knowledge, look for data and don’t only use examples (increase availability). Look for opposite points of view (confirmation), avoid reference points
Review (reducing biases)
Reflect on past decisions/memory
Examples are most memorable
Status quo bias
Consumers have a general preference to stick with what they already have/do. We form “default options”
eg: ordering sangria at every restaurant
FOMO bias
The fear that the option we are currently considering buying may not be the best one out there
eg: 24 choices of jam - 3% of shoppers bough jam vs 6 choices of jam - 30% of shoppers bought jam
Choice postponement jam example
Too much thinking for more options, increased anticipated regret for more options
