MKTG 322 exam 2 - FLASHCARDS - Consumer decision making (1)
What is the Standard Model of Economic Decision-Making?
- Consumers are fully aware of all the options they have
- Consumers know what they want: they can rank their
options in accordance with their preferences - Consumers always choose the best option available
What is wrong with the Standard Model of Economic Decision-Making?
• Consumers aren’t machines. Their brains can only
process a limited amount of information at a time.
• Consumers are not accurate when predicting how
their future selves will feel and behave.
• Consumers often fail at exerting self-control.
• Consumers are often influenced by what is around
them.
What is system 1 of thinking?
Automatic
Unconscious
Rapid
Emotional
What is system 2 of thinking?
Controlled
Conscious
Slow
Logic-based
What is a heuristic?
A cognitive shortcut or rule of thumb that
consumers use to reduce task complexity
in judgment and choice
Are heuristics in system 1 or 2 of thinking?
They live in System 1. Work well in certain contexts but produce errors when over-applied leading to a cognitive bias
What is a cognitive bias?
A systematic error in thinking that occurs when people are processing and interpreting information
What is anchoring?
A cognitive bias whereby an individual’s decision is influenced by a particular reference point or ‘anchor’
What are commin examples of anchoring?
• Manufacturer’s Suggested Retail Price
• Suggested donation or tip
• Real Estate list price
True or false: Anchors can often be irrelevant or meaningless?
TRUE
What is availability bias?
A distortion that arises from the use of information which is most readily available, rather than that which is necessarily most representative
What is confirmation bias?
Form of selective thinking in which an individual is more likely to notice or search for evidence that confirms his or her theory, while ignoring or refusing to search for contradicting evidence
What is present bias?
People tend to accept less now than more later
What is revision bias? (example: selfie stick)
Consumers prefer products labeled as revised, even absent objective improvement
What is the better than average effect?
Overestimating one’s own qualities and abilities, relative to others
What is the endowment effect?
People ascribe more value to things merely because they possess them
What is the planning fallacy?
We underestimate the amount of time it will take to do things in the future, compared to the same activity in the past
What is the evaluation of an object or estimate likelihood of an outcome or event?
Judgements
What is making a selection among options or courses of action?
Decision making
What is the structure of a decision environment?
Choice architecture
There are many EXTERNAL factors that cause us to make systematically different choices, even among identical items
.
What are decisions in choice architecture?
Framing, defaults, decoys, evaluation process, and choice bracketing
What are the effects of framing?
A person’s choice from a set of options is influenced more by the presentation than the substance of the pertinent information
What is loss aversion?
Losses feel worse than gains feel good. Consumers are willing to take more risk to avoid losses than to receive gains
What is the effect of defaults?
“Status quo bias” – consumers stick to the default option, especially when effort is required
What is the compromise effect?
Consumers tend to choose in the middle because they are hardwired to avoid extremes
What is the decoy effect?
Consumers change their preference between two options when presented with a third option
What is separate evaluation?
Assess one item at a time
What is joint evaluation?
Assess multiple items simultaneously
What does joint evaluation force evaluation?
• Forces people to look at trade-offs and comparisons
• Favors attributes that are difficult to evaluate in isolation
What is thinking about one choice at a time?
Narrow bracketing
What is thinking about the effect of each choice on
all the other choices in the set?
Broad bracketing
What is variety?
• Consumers like variety (…or at least think they do)
• BUT variety may lead us to choose differently than we
would’ve otherwise because we switch from narrow
to broad bracketing
What are the effects of bracketing?
when consumers make different decisions under narrow or broad frames, despite identical options
