Value, biases and choices (Week 5)

Question 1

What are the consequences of the value function?

Answer 1

2) Reflection effect
- Ppl tend to be risk-averse for gains but risk-seeking for losses
- Perception of gains vs. losses is infl. by framing

Question 2

In a GAIN situation, people tend to be…

Answer 2

RISK-AVERSE

Question 3

In a LOSS situation, people tend to be…

Answer 3

RISK-SEEKING

Question 4

How is perception of loss and gain associated?

Answer 4

Perceived to be negatively associated

Actually positively related

Question 5

How is perception of loss/gain and cooperation associated?

Answer 5

Perceive negotiation as gain = High cooperation (Assoc. w/ risk-averse behaviour)

Perceive nego. as loss = Low cooperation (Assoc. w/ risk-seeking behaviour)

Question 6

What are the steps involved in escalation of commitment?

Answer 6

1. Investing a SIGNIFICANT amount of resources
2. Receiving -VE FEEDBACK about this decision
3. CONTINUING with ORIGINAL decision

Question 7

How is typology of preference influence escalation of commitment?

Answer 7

Taker: High susceptibility to ego threat, invest more resources, high levels of escalation

Matcher: Medium, feeling frustrated about not being reciprocated, moderate levels of escalation

Giver: Low, willing to admit mistakes and focus on protecting ppl, minimal levels of escalation

Question 8

What is the attraction effect?

Answer 8

Adding a DOMINATED OPTION can attract market share to the dominating option (i.e. better option)

Question 9

What is the compromise effect?

Answer 9

Adding a more EXTREME OPTION can attract market share to the new moderation option

• Consumers tend to prefer a compromise alternative rather than an extreme option [extremeness aversion]