Errors in Decision Making Flashcards
What are the 3 heuristics errors that can occur with system 1?
- availability heuristic: things that are easier to recall impact judgements (especially those regarding frequency or probability)
- representativeness heuristic: switch probability for plausibility (ex: x seems more plausible so must be more probable)
- anchoring heuristic: likely to attach to first piece of info and adjust insufficiently from that when making judgement
What are the 3 important points for the availability heuristic? What is an example?
1) ppl biased with what easily available in memory
2) frequency/probability judgements are hard, so use easier one: ‘how easy is it to think of examples?’
3) Availability is influenced by
a. emotional or vivid things
b. frequent events :. come to mind :. learn association that frequent = easy to recall
Examples:
- people guess how often _ _ _ _ _ N _ word appears in x pages vs how often _ _ _ I N G word
= easier to think of ING words so that one higher, but really ING is 100% included in the N one so cant be higher
- vivid 9/11 event caused biases where people willing to pay more travel insurance that covered death by terrorism than death by ‘any cause’ bc terrorism triggered that 9/11 event in mind
What is the important point for the representativeness heuristic? What is an example?
Judge based on similarity or representativeness! A subset cannot be more likely than the set its a part of
Ecample: Kelly is an activist and ASOB graduate. probability that she is a bank teller? probability that she’s a feminist bank teller? –> people say more probable that feminist BT, but not possible bc if thats true then just bank teller also true! many more cases of bank teller than feminist bank teller in world, but because feminist one is more representative of her we think, that one feels more probable
What are the 3 important points for the anchoring heuristic? What are examples?
- Anchor makes a reference point! (ex: door in the face technique – > anchor at high ask, so lower ask seems chill)
- Order of things can impact anchoring (ex: see expensive thing first, cheap thing feels like a DEAL // see cheap first, expensive seems crazy)
- can also anchor on counterfactuals (ex: olympics bronze medalists anchor at ‘could have been worse - not podium at all’ VS silver medalists anchor at ‘could have been better - so close to gold’ SO bronze often happier)
What causes the 3 heuristics and what is their impact?
Caused by too much reliance on system 1 - make lots of assumptions and guesses based on quick intuition rather than thought out logic
impact = biased judgements!
What are contextual effects on judgements? What are the 2 kinds?
Biased decisions are results of the choice environment itself!
- Decoy effect
- Choice overload
What is the decoy effect? Example? When stronger?
When an inferior product is shown in a set - offers without value in a choice set make other options appear even better
ex: Economist magazine subscription:
- Online = $59, online & print = $125 (only options, online had most sales)
- Add Print only option @ $125 into mix, now online & print option has most sales
Decoy effect is stronger with:
- weak brand preferences
- equally important attributes (care about price and quality the same amount)
- strong feelings about decoy (woah this one is a terrible product/price!)
- when people notice the decoy = they’re involved!
What is choice overload? Example? What is it’s impact? When more likely? What do marketers need to do?
There are negative consequences when there are too many choices! ex: 100 ice cream flavours is overwhelming!
Impact:
- change what choose
- less likely to purchase
- more dissatisfaction and regret if purchase
More likely…
- choice set is more complex and all attractive (‘they all sound good!’)
- decision is difficult (no decoy or time restriction)
- preferences are less certain (‘I love all ice cream!’)
- when want to put in less effort
What do marketers need to conider with contextual effects?
- understand consumers and the decision context they face
- know context effects don’t always exist and they depend on other variables
- be aware of choice # and attributes
What are trade-offs? What are the two solution options?
Decisions are limited capacity - always have to give something up, cant have it all!
- *trade offs are inherent to decision making!
a) mixed solutions
b) extreme solutions
What is a mixed solution (trade off)?
compromise! = partially satisfy both/all parts
- balance between goals/values
- seek variety in consumption experience
ex: I want to eat healthy but I also want to enjoy my vacation so I’m going to plan to have only one dessert/treat per day
What is an extreme solution (trade off)?
go all in = choose one solution and do it to the fullest
- adopt goal/value WHOLEHEARTEDLY
- seek consistency in consumption experience
ex: if I’m going to the concert then I’m gonna get the VIP backstage pass meet the band whole shebang
What impacts a consumers choice between the two solutions to a tradeoff?
- identity = if view the choice as expressing their identity, more likely to choose extreme (ex: I AM a enviro-warrior, so I am committing to strictly eco-friendly/recyclable products
- preference certainty = if they are more sure of what they want, more likely to choose extreme (ex: I know what I want for breakfast, so I’m going to drop the extra money on these bomb-ass waffles)
