Lecture 13 - biases

Question 1

Who is Amos Tyersky

Answer 1

His work explored, biases, and failures in rationality, continually exhibited in human decision-making

Question 2

Definition Biases

Answer 2

• consumers don’t always behave in a rational way that economic models presume
• they are consumers misunderstandings because of irrational thinking
• it is the mistake you make
  ( being irrational and buying the wrong wine in the store)

Question 3

Most Important Types of Biases

Answer 3

• heuristics
• anchoring
• information availability bias
• sunk cost effect
• halo effect
• warmth and competent

Question 4

More Types of Biases

Answer 4

• self-positivity bias
• egocentric bias
• hindsight bias
• compromise effect

Question 5

Heuristics

Answer 5

• mental shortcut that helps us making decisions and problem solve quickly
• you have to make heuristics because you cannot know everything
• if you are in a situation where you don’t know everything you make a judgment based on the heuristic of for example the price (if you buy one in the store)
  -> main reason to explain consumers biases

Question 6

Anchoring

Answer 6

• Anchor pricing
• context by which all prices are judged
  -> we encounter new product and accept first price we see. From that on this price becomes anchor for what we are willing to pay for that product
  -> Ex: tamagotchi: new to the market and not comparable to anything else therefore the first price was accepted and is now being g compared to newer ones

Question 7

Information Availability bias

Answer 7

• consumers see information repeatedly they think it happens more often
• ex: shark kills in Sweden and people are being killed by hippo in Africa
• ex: violence against women in Spain and violence against women in South America

Question 8

Sunk cost effect

Answer 8

• cost that has already been made and cannot be recovered
• don’t let sunk cost influence your future decision because this ensures that you are making the best decision for this current one instead of letting already spend cost of your past influence your future decisions
• application to consumer behavior:
  -> we make decision and spend money that we cannot get back anymore and therefore we behave a certain way
  -> ex. Spending money on movie tickets but the movie is bad. You still watch it because you can’t get the money back of you leave

Question 9

Halo effect

Answer 9

• tendency to assume something is good on one attribute then it is good on all others
• person who is good at x is thought to be good at y
  -> attractive people often seen as nicer
• consumer behavior and marketing
  -> ape products ( one product of the brand is good the others have to be good as well)

Question 10

Warmth and Competent

Answer 10

-> occurs the opposite as halo effect
- too warm> not so competent
- too competent > maybe a bad person
- ex: a doctor is more competent and a nurse is more warm
- Service providers luxury hospitality
-> more competent
- Service providers, cheaper hotel
-> more warm

Question 11

Self-positivity bias

Answer 11

• thinking bad things happen to other people but not to us
  -> marketing implications: have to convince people they are indeed at risk

Question 12

Egocentric bias

Answer 12

• you think people are more like you than they actually are
• marketing implications
  -> you are not average consumer
  -> creating ads/products that appeal to you doesn’t guarantee they’ll appeal to everyone

Question 13

Hindsight bias

Answer 13

• tendency to look back at events and believe that you correctly predicted the outcome
• marketing implications:
  -> can lead to overconfidence in making marketing decisions
  -> new product is raging success - you remember being certain that it would BUT
  -> this leads to: overconfidence in future decisions and you don’t rely on data anymore
  -> Ex. I can pass my exam without studying because that worked in the past

Question 14

Compromise effect

Answer 14

• people theme to chose the middle option
• outcome of extremness Aversion
  -> we like to avoid extremes
  -> ex: Netflix with membership planes ( 3 options) they want you to chose the middle one
• managerial implications
  -> important if you sell intangible product that isn’t easily comparable
  -> for retail business: offer 3 choices at different price levels and don’t isolate one of a kind items from comparable products