Week 7 Flashcards
What is status quo bias?
Status quo bias is an emotional bias; a preference for the current state of affairs. The current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss.
What is the default effect?
Experiments and observational studies show that making an option a default increases the likelihood that it is chosen; this is called the default effect.
What is the endowment effect?
the endowment effect is the hypothesis that people ascribe more value to things merely because they own them.
This is typically illustrated in two ways. In a valuation paradigm, people will tend to pay more to retain something they own than to obtain something they do not own—even when there is no cause for attachment, or even if the item was only obtained minutes ago. In an exchange paradigm, people given a good are reluctant to trade it for another good of similar value
What is an insensitivity to foregone gains?
Consumer is likely to take loosing
What is hedonic editing?
If you have the choice, based on prospect theory, you will want to take two-equal size gains separately and two equal-size losses together.
Whereas, you will want to to commingle one big gain and a small loss, but separate one big loss and a small gain.
Why should you use rewards instead of punishment?
Punishment will get the reaction you want in the short-run, but will damage your brand in the long-run
In the Fish restaurant case why might a manager want to use a comfort and discomfort tactic?
If it’s hot outside, to turn tables, a manager may want to keep the restaurant cold. Once the customer enters, he will immediately feel grateful for the cool temperature. After his body adjust, he will become uncomfortable and ready to leave. However, this discomfort will subside once he returns outside. And later when thinking about his experience, he will likely forget the discomfort toward the end of his meal.
Is it more rational to have bias toward items that are fixed or. variable cost?
Variable. The item that is fixed has a one time hit. Whereas the variable item, can be duplicated over and over again.
When people will not accept a stolen watch that they would have bought any way, what affect is at play here?
the identifiable victim effect. People feel they may know the person the item was stolen from.
A random scenario where the outcome is highly probable, people tend to believe they can pick the right outcome with out knowing the underlying fix. What bias is this?
Overconfidence bias.
A random scenario where the outcome is highly probable, people tend to believe they can pick the right outcome by picking the opposite of the underlying fix. What bias is this?
Reversion to the mean
