Midterm review

Question 1

Step 1 of decision making - “I need a new car”

Answer 1

Problem recognition

Question 2

Step 2 of decision making - test drives, reviews, etc

Answer 2

Information search

Question 3

Step 3 of decision making - compare models, features

Answer 3

Evaluation of alternatives

Question 4

Step 4 of decision making - choose a car

Answer 4

Choice

Question 5

Step 5 of decision making - life with the new car

Answer 5

Post-purchase evaluation

Question 6

Problem recognition

Answer 6

Knowing one’s desires and needs, not being distracted by irrelevant cues

Question 7

Information search

Answer 7

Consider all relevant information, all potential options and their attributes, all opportunity costs

Question 8

Evaluation of alternatives

Answer 8

Evaluate all options and their attributes, not influenced by the presence or addition of irrelevant options or attributes

Question 9

Choice

Answer 9

Select the option that maximizes utility, consistent preferences

Question 10

Post-purchase evaluation

Answer 10

sunk cost independent, no regret

Question 11

Rational economic view of the consumer

Answer 11

perfectly calculating
stable preferences
attentive to opportunity costs
limitless processing capacity
patient and self-controlled
logical (not intuitive or emotional)

Question 12

Exploratory research (qualitative)

Answer 12

Focus groups, in-depth interviews

Question 13

Descriptive research (quantitative)

Answer 13

Observational research
Surveys

Question 14

Experiments (causal inference)

Answer 14

Attempt made to specify the nature of the functional or causal relationship between 2 or more of the variables in the problem model

Question 15

Consumer forecasting

Answer 15

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

Question 16

Limitation of information processing

Answer 16

Attention
Encoding
Storage
Retrieval

Question 17

decisions require effort

Answer 17

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

Question 18

Compensatory model (more difficult)

Answer 18

• 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

Question 19

Non-compensatory model (easier)

Answer 19

• 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

Question 20

Lexicographic model

Answer 20

All but those with the HIGHEST VALUE of the MOST IMPORTANT attribute are eliminated

Question 21

Elimination-by aspects

Answer 21

All but those above an ACCEPTABLE CUTOFF on the MOST IMPORTANT attribute are eliminated

Question 22

Conjunctive

Answer 22

Choose the alternative that passes all minimum cutoffs on ALL ATTRIBUTES

Question 23

Disjunctive

Answer 23

Choose the alternative that passes acceptable levels for the MOST IMPORTANT ATTRIBUTES

Question 24

Regression to the mean

Answer 24

exceptional performance and circumstances are unlikely

Question 25

Bootstrapping

Answer 25

1. Use a regression equation to predict the outcome of interest
2. 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

Question 26

Four sources of error

Answer 26

noise, bias, improper cue weighing, inconsistent cue weighing

Question 27

Heuristic

Answer 27

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

Question 28

Representativeness heuristic

Answer 28

judging probability by similarity
- “they look like a good employee, so they probably are”

Question 29

Availability heuristic

Answer 29

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

Question 30

Anchoring heuristic

Answer 30

estimating a value too close to an accidental/irrelevant starting pointC

Question 31

Conjunction fallacy

Answer 31

Judging the conjunction of 2 events to be more probably that just one of the constituent elements

Question 32

Scarcity heuristic

Answer 32

Judging a good’s value by how scarce it is
- scarcity = in demand
–> in demand = high quality, high WTP, more valuable

Question 33

Effort heuristic

Answer 33

Judging a good’s value by the effort that went into making it

Question 34

Diversification

Answer 34

anchoring on a 1/n (equal proportion) distribution of options (goods)
- trying to get equal proportion of each good

Question 35

Default/ status quo bias

Answer 35

People tend to not move from where they are

Question 36

Confirmation bias

Answer 36

Search for information that confirms what you thinks

Question 37

Halo effect

Answer 37

if a good is good at one attribute, it is good on other attributes