Irrational behaviors Flashcards
1
Q
Nine key takeaways PREDICTABLY IRRATIONAL
A
- To appraise things, we compare them to others
- When we’re offered something for free, our rational thinking goes out the window
- The first price number we hear affects what we are willing to pay later
- We overvalue what we own
- Our experiences are shaped by our expectations
- People’s responses to your requests depend on whether they fall under social or market norms
- People are prone to dishonesty, but not wildly so
- Dr. Jekyll sets our rational long-term goals, but we must fight Mr. Hyde’s irrationality to reach them
- People are obsessed with keeping their options open, even when it hurts them in the long run
2
Q
Decoy effect
A
- Also called asymmetric dominance effect
- Phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated
- Examples / experiments
- The Economist subscription choices
- MIT students attractiveness ratings depending on showing of decoy pictures of selected students
3
Q
Anchoring
A
- Also called focalism or imprinting
- Cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions
- During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments
- Examples / experiments
- Konrad Lorenz discovered that goslings, upon breaking their eggs, become attached to the first moving object they encounter
- Price for black pearls established by the pearl king Salvador Assael
- Willingness to pay for wine dependent on first two digits of social security number
4
Q
Arbitrary coherence
A
- Basic idea: Although initial prices can be “arbitrary”, once those prices are established in our minds, they will shape not only present prices but also future ones (thus making them “coherent”)
- Examples / experiments
- People do not adjust rent when moving from a “cheap” city to an “expensive” city
- Willingness to pay for poetry reading dependent on priming question “Would you be willing to pay me $10 …” vs. “Would you listen to me if I paid you $10 …”
5
Q
Self-herding
A
- Tendency to follow the same decisions we have made in the past (= future decision are influenced by previous decisions)
- Examples / experiments
- Moving to a higher consumption curve for Coffee once used to paying a lot for Starbucks
6
Q
Behavior herding
A
- Assumption that something is good (or bad) on the basis of other people’s behaviors and we act upon this assumption
- Examples / experiments
- Perception of a restaurant depending on the number of people waiting for a seat
7
Q
Zero price effect
A
- Phenomenon whereby the demand for a good, service, or commodity is significantly greater at a price of exactly zero compared to a price even slightly greater than zero
- Graphically, a zero price effect appears as a discontinuity in the demand curve at a price of zero
- Examples / experiments
- Preference for truffles vs. Hershey’s kisses depending on Hershey’s kisses being FREE
- Amazon FREE shipping
- AOL switch to flatrate at fixed price doubling number of customers and internet usage
8
Q
Pain of paying
A
- Pain experiments when paying for a good or for a service
- Not perfectly correlated with the amount that is being paid
- Thought to be reduced in credit card purchases, because plastic is less tangible than cash, the depletion of resources (money) is less visible and payment is deferred
- Different types of people experience different levels of pain of paying, which can affect spending decisions
- Examples / experiments
- Splitting the bill inflicts more pain than taking turns paying
9
Q
Market norms and social norms
A
- Market norms introduced as soon as a service or good is paid for
- Examples / experiments
- Willingness to help for free but not for highly reduced hourly rates
10
Q
First and second law of demand
A
- States that, all other things being equal, the quantity bought of a good or service is a function of price
- As long as nothing else changes, people will buy less of something when its price rises and will buy more when its price falls
- First law: More people buy at a lower price
- Second law: People buy more of the same at a lower price
11
Q
Backward sloping demand curve
A
- At higher prices, the quantity demanded is less than at lower prices
- Demand curves generally have a negative gradient indicating the inverse relationship between quantity demanded and price
- The law of diminishing marginal utility
- The income effect
- The substitution effect
12
Q
Influence of emotional states
A
- People act differently in different emotional states (e.g. anger, arousal, etc.)
- Examples / experiments
- Interest in uncommon or criminal sex practices depending on state of arousal (e.g. rape)
13
Q
Schedules of reinforcement
A
- Schedules of reinforcement are the precise rules that are used to present (or to remove) reinforcers (or punishers) following a specified operant behavior
- These rules are defined in terms of the time and/or the number of responses required in order to present (or to remove) a reinforcer (or a punisher)
- Examples / experiments
- Addictions, e.g. regarding checking of mails
14
Q
Ikea effect
A
- Cognitive bias in which consumers place a disproportionately high value on products they partially created
- The name derives from the Swedish manufacturer and furniture retailer IKEA, which sells many furniture products that require assembly
15
Q
Virtual ownership
A
- Feeling ownership even before owning something
- Examples / experiments
- “Trial” promotions e.g. for cable television packages
