Midterm review Flashcards
Step 1 of decision making - “I need a new car”
Problem recognition
Step 2 of decision making - test drives, reviews, etc
Information search
Step 3 of decision making - compare models, features
Evaluation of alternatives
Step 4 of decision making - choose a car
Choice
Step 5 of decision making - life with the new car
Post-purchase evaluation
Problem recognition
Knowing one’s desires and needs, not being distracted by irrelevant cues
Information search
Consider all relevant information, all potential options and their attributes, all opportunity costs
Evaluation of alternatives
Evaluate all options and their attributes, not influenced by the presence or addition of irrelevant options or attributes
Choice
Select the option that maximizes utility, consistent preferences
Post-purchase evaluation
sunk cost independent, no regret
Rational economic view of the consumer
perfectly calculating
stable preferences
attentive to opportunity costs
limitless processing capacity
patient and self-controlled
logical (not intuitive or emotional)
Exploratory research (qualitative)
Focus groups, in-depth interviews
Descriptive research (quantitative)
Observational research
Surveys
Experiments (causal inference)
Attempt made to specify the nature of the functional or causal relationship between 2 or more of the variables in the problem model
Consumer forecasting
WTP
- assume others willing to pay more than us
- overestimate how much other people are willing to pay
Predicting our own feelings
- over-diversification bias, over-estimate regret, near miss vs. wide margin
Limitation of information processing
Attention
Encoding
Storage
Retrieval
decisions require effort
identify all cues
recall and store cue values
assess the weights of each cue
integrating information for all alternatives
all alternatives compared, highest value selected
Compensatory model (more difficult)
- multi-attribute cost benefit analysis model used to make a decision
- alternative with highest overall score is selected
- includes weights - weak performance on one attribute can be compensated by another
Non-compensatory model (easier)
- Decide by rejecting
- an alternative with a value on some attribute below a cutoff level is rejected, no matter how high its score on another attribute
Lexicographic model
All but those with the HIGHEST VALUE of the MOST IMPORTANT attribute are eliminated
Elimination-by aspects
All but those above an ACCEPTABLE CUTOFF on the MOST IMPORTANT attribute are eliminated
Conjunctive
Choose the alternative that passes all minimum cutoffs on ALL ATTRIBUTES
Disjunctive
Choose the alternative that passes acceptable levels for the MOST IMPORTANT ATTRIBUTES
Regression to the mean
exceptional performance and circumstances are unlikely
Bootstrapping
- Use a regression equation to predict the outcome of interest
- Compare the judge’s predictions to the bootstrap model’s predictions (which is based on their judgments)
Result: bootstrap often more accurate than the judge
Four sources of error
noise, bias, improper cue weighing, inconsistent cue weighing
Heuristic
intuitive strategy that relies on a natural assessment to reduce a complex tax of estimation or prediction to a simpler judgmental operation
guided by common sense, intuition, quick-and-dirty reasoning, achieves a good enough solution
- heuristics produce both systematic and predictable errors
Representativeness heuristic
judging probability by similarity
- “they look like a good employee, so they probably are”
Availability heuristic
judging probability or frequency by the ease with which examples can be brought to mind
- ex. estimating probability of product failure and imagine ways it might go wrong
Anchoring heuristic
estimating a value too close to an accidental/irrelevant starting pointC
Conjunction fallacy
Judging the conjunction of 2 events to be more probably that just one of the constituent elements
Scarcity heuristic
Judging a good’s value by how scarce it is
- scarcity = in demand
–> in demand = high quality, high WTP, more valuable
Effort heuristic
Judging a good’s value by the effort that went into making it
Diversification
anchoring on a 1/n (equal proportion) distribution of options (goods)
- trying to get equal proportion of each good
Default/ status quo bias
People tend to not move from where they are
Confirmation bias
Search for information that confirms what you thinks
Halo effect
if a good is good at one attribute, it is good on other attributes
