INTERNATIONAL MARKETING: THE PERILS OF CAUSAL REASONING FROM SINGLE INSTANCES

Shekhar Misra, California State University, Chico

Abstract

Recent research indicates that when faced with new and complex situations people tend to use the similarity of that situation with a single prior instance (or exemplar), in making analogical predictions. This is done at the cost of other, more objective, evidence. Since international marketers entering new markets face similar circumstances, there is a likelihood that they too may rely too heavily on single instances. Theoretical issues, as well as research findings and their implications for international marketers are discussed.

Introduction

It is now widely believed that people usually base their decisions on general principles and rules that they have abstracted from experience. Yet, evidence from several disciplines appears to indicate that people may rely on the similarity of their present situation to a single, past experience in arriving at some analogical judgement. Thus in the wake of "Black Monday" (October 19, 1987) on Wall Street, many experts were looking at the parallels to, and for lessons to be derived from, "The Great Crash of 1929." Subsequently they were proven to be wrong, since they were too many structural dissimilarities between 1987 and 1929. Similarly, one of the better known examples comes from the area of political decision making:

In the early days of World War I ••• President Woodrow Wilson found himself involved in disputes with the British about the American rights on the seas. The diary of his close friend, Colonel House, records the President as saying, "Madison and I are the only Princeton men that have become President. The circum­stances of the war of 1812 and now run parallel. I sincerely hope that they will go no further." Having this per­ception, the President acted cautiously. (May 1973, p. IX)

President Wilson was very concerned about the possibility of war with

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Britain as a result of the perceived similarity between the situation being faced by him and the one faced by President Madison, and this influenced his decision making. May (1973) and Jervis (1976) have presented excellent analyses of historical records, showing how politicians have explicitly relied on single historical events (rather than generalizations) in choosing specific courses of action.

The influence of prior knowledge on decision making has been much discussed in the recent literature (Cohen and Basu 1987; Nisbett and Ross 1980; Wyer and Carlston 1979), and it was Abelson (1976) who first proposed that people might base their decisions on the similarity between their present situation and a single prior event. Some recent studies which have inves­tigated the analogical reasoning based on single exemplars include Gilovich (1981), Lewicki (1985), and Read {1983; 1987). Although the availability heuristic (Tversky and Kahneman 1973; 1974) may have a role to play, there has been relatively limited amount of research which investigates the condi­tions under which analogies using single (or even two) instances might be used in explanation and prediction.

Factors Affecting Use of Single Exemplars

As the cause-effect relationship becomes complex, or when the causal relationship is unknown (and cannot be inferred easily), people tend to make analogical predictions based on the overall similarity of the new instance to a similar instance experienced in the past (Gilovich 1981; Read 1983). Read had his subjects read descriptions of a foreign culture, in which some of the members performed a rule governed behavior. The subjects were then asked to pre- diet the behavior of other members of the culture. One of the members was similar to an individual who performed the behavior, but the rule predicted that this new member would not perform the behavior. The study revealed that subjects relied on the similarity between this member and the previously encountered individual in making these predictions. Addition­ally, it was found that people were increasingly likely to use a single similar exemplar as the rule governing

behavior became more complex. Further, such judgments were made quite confidently.

Gilovich (1981) also found a relian­ce on highly similar exemplars in two separate areas: rating of college foot­ball players in terms of their potent­ial for professional teams, and in the course of action preferred in an international political crisis. At this point it is interesting to note that similarity judgments need not be symmetrical. That is, people may judge A to be more similar to B than B is to A. Thus it has been found that people tend to think that North Korea is more similar to Red China than Red China is to North Korea (Tversky 19771 Tversky and Gati 1978).

An analogy may be considered as having two parts, a target and a base (Genter 1983). The target of the analogy is the person or situation for which the prediction is to be made, while the base is the person or situation from which the generalizat­ion is made, so as to facilitate a prediction regarding the target. It has been suggested by some researchers that people may be more likely to make analogical predictions (based on exemplars) when the base and the target share features or attributes that can be causally related to the behavior or outcome of the base exemplar.(Holyoak 1984; Winston 1980) Subsequent research has shown that this matching of the base and the target on a causally relevant variable is not necessary for the use of analogy: sub­jects tend to use the degree of similarity between base and target, in the absence of a causally relevant variable (Read 1987).

Analogical Reasoning in International Marketing

When marketers are faced with a new, foreign market they usually know little or nothing about it. Since the prior knowledge is so meager that it may even be difficult to determine what are the appropriate questions that should be asked. Many businesses rely on their "man in China", in Japan, or elsewhere for crucial information (Gronhaug and Graham 1987). Cavusgil (1985) quotes a telling remark from an executive:

When we make a direct investment in a foreign market, there is more risk involved. We will then engage in an in-depth analysis. Much of our potential in that

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market is probably established by a representative prior to that moye (p.29, emphasis added).

Thus it appears that much of the initial judgments about the potential of a foreign market may be made in the context of little knowledge. Since the causal relationships tend to be more complex in international settings, the probability of using single instances or exemplars appears to be high (viz. Read 1983). To the extent that the analogical reasoning based on single (or even dual) instances can be potentially misleading.

The recent controversy on the high Japanese tariff on American beef thus may be used as a (misleading) exemplar: the weighted average of U.S. tariffs is 4.2%, while Japan's is only 3% (Alden 1987). Similarly, the recent debate regarding the problems faced by California farmers in penetrating Japan's markethas been cited by several businessmen (in personal discussions) as being exemplars of how "difficult" the Japanese market is for foreign marketers (including markets for products other than rice.) overlooked are important facts that Coca-Cola holds a 60% market share of Japan's soft-drink market, Schick has 71% of the safety razor market, and McDonald's is the number one fast-food chain.

Since it is difficult, by their very nature, to measure lost opportunities or erroneous decisions regarding maintenance of status quo, it is hard to say how much of potential business is lost because of the misuse of single instances in international marketing decision making. Thus after Coca Cola's "ouster" from India in 1977, it is possible that some businesses may have been dissuaded from entering the Indian market, overlooking the over 500 u.s companies who were still doing business successfully. Recently, in September 1988, the Indian government has allowed Pepsico to start a joint-venture, and even Coke has applied for permission to set up a plant to manufacture concentrate there.

Although the usefulness of having local businesses as partners in inter­national markets is well established in the literature, the following quote indicates the single exemplar effect in action:

After carefully negotiating with the banks and the government, the Irishman orchestrated the entire deal.

I saw the advantages of having a partner who knew all the tricks. (Gordon Lankton, president and CEO of Nypro, Inc., quoted in Hyatt 1988)

Presumably, if Mr.Lankton had had an unsatisfactory experience with "the Irishman", he might have been reluctant to use local partners in future international ventures, despite the more objective reasons in favor of doing so ! As it were, Mr.Lankton went ahead with a similar joint venture in Hong Kong, also with a local partner. Mr.Lankton admits that when he signed the deal he had not taken the time to understand his new partner very well. "But," he says, "I figured I hadn't known the Irish partner all that well, either." (Hyatt 1988) This time the partnership turned out to be quite unsuitable for the corporation.

Another area where this concept may have application is when businesses "overlook" potential competition. It has been suggested that American businesses have in recent years focused too much on the Japanese "threat" as being primarily in consumer durables (exemplar) such as cars, VCRs, motor­cycles, cameras, and so forth, even as they have been building their strength in such diverse areas as fashions, cos­metics, air conditioning, hotels, and pharmaceuticals (Kotler, Fahey, and Jatusripitak 1985).

Theoretical Bases

The above discussion has focused on the existence of analogical reasoning based on single exemplars. The theore­tical underpinnings are now.discussed further.

The single exemplar effect is similar to the research findings on base rates versus concrete instances (Kahneman and Tversky 1973, 1974; Nisbett and Borgida 1975). Thus people often overlook decision rules (or base rates) and instead rely on single exemplar (or concrete information). Another similarity is that when persons do not perceive (or learn) the causal rule (or causal relevance of the base rates) that they are more likely to rely on the single similar instance (or concrete instance).

Thus the common thread appears to be that the relatively more vivid inform­ation appears to have a greater impact on decision making. It has been argued that in influencing peoples•judgements, inferences, and behaviors, vividly presented information is weighted more heavily than are "pallid and abstract

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propositions of substantially greater probative and evidential value." (Nisbett and Ross 1980, p.44) Thus when the effect of drugs on the brain is presented as being akin to frying of an egg, the effect is expected to be greater.

"Information may be described as vivid, that is, likely to attract and hold our attention and to excite the imagination to the extent that it is (a) emotionally interesting, (b) concrete and imagery provoking, and (c) proximate in a sensory, temporal, or spatial way." (Nisbett and Ross 1980, p.45) (Also see Taylor and Thompson 1982, for a detailed discussion of vividness, and a rationale for expecting its effect on judgements.)

The above definition of vividness is rather general and researchers have used their own interpretations when operationalizing vividness. Generally, vividness has been treated as a communication characteristic, inherent in the stimulus qliaiTt.ies of the information itself. For example, concrete information has been assumed to be more vivid than abstract information. Pictorial illustration is assumed to be more vivid than unillustrated ads. Direct experience is regarded as more vivid than vicarious experience. And case histories are thought to be more vivid than statistical information. (Taylor and Thompson 1982) To the extent that a single exemplar might be based on personal experience or a first-hand account by an individual, it is likely to be more vivid than objective, statistical information.

One difference between the base-rate literature and the single exemplar literature is that the base rate research emphasizes the importance of the "matching" between the concrete instance and a schema (or existing knowledge structure) for the concrete information to be influential. In the case of single exemplar, the matching of the exemplar with a specific (past) situation is· emphasized (Read 1983).

It will be for future research to design studies which are able to ascertain which of the two effects (the base rate effect versus the single exemplar effect) plays a greater role in international decision-making situations. It is the view of this author that since existing knowledge structures are likely to be relatively limited in international situations, single exemplars are likely to be more influential.

Implications

It appears that when the rules governing behavior are somewhat complex people tend to learn the examples rather than the rules. Although it is nor entirely inappropriate as a cognit­ive strategy, on grounds of efficiency sometimes a businessperson may respond' to irrelevant aspects of a situation.

Can something be done about this? Knowledge of inferential principles, and their failings, does not guarant­ee correct inferences. But, it can substantially reduce the likelihood of error in at least some domains (Nisbett ~nd Ross 1980). Therefore, it is 1mportant that corporate training programs for managers in international business should emphasize their potential pitfalls.

Conclusion

Recent research indicates that when faced with new and complex situations, people tend to respond to possibly irr­elevant aspects of the situation by relying on single instances or exemplars from past experience to make analogical predictions. This is a function of the perceived similarity between the target and the base. Since foreign markets present, for many businesses, a new and complex environment, there is the possibility of over-reliance on single exemplars in decision making. It is hoped that discussions and further research in this area will help in more objective decision making among international marketers. It is hoped that future research will try to measure the extent to which single instances are implicitly being used by international marketers in their decision making.

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