JUDGMENT AND DECISION MAKING BASED ON HIGH AND LOW EFFORT

MKT 450 JUDGMENT AND DECISION MAKING Lars Perner,

Instructor 2

Judgment and Effort

• Effort is a continuum• Need for efficiency

– In time-pressed situation– Relative to other demands on consumer’s attention over time

• The amount of effort can be adjusted to the perceived importance of the issue– Consumer may misjudge significance– Cumulative importance of frequently used product category may be

under-estimated– Effort may be spread between individual decisions and periodic

overviews and re-evaluations


Instructor 3

Daniel Kahneman: Thinking Systems 1 and 2• System 1

– Fast, intuitive, unconscious– There may be conscious knowledge of judgment, but the reasoning underlying it

will be less well known– Judgment may be present before it reaches consciousness (e.g., hesitation in

computer game experiences before clicking on suboptimal choice)– “Gut” feelings– Accurate under some circumstances—especially when quick decisions are

needed– An individual will not generally be aware of when System 1 decisions are

accurate and when they are not

• System 2– Slower, more analytical and conscious– Explicit calculations and reasoning


Instructor 4

Judgments

• Types– Likelihood– Goodness/badness

• Anchoring and adjustment processes– Anchoring: Basic value

against which other examples are judged (e.g., price of gasoline)

– Adjustment process: Based on repeated experiences, initial values may be updated.


Instructor 5

Social Proof: Looking For the “Wisdom of the Masses”• Restaurants with long lines

outside are likely to attract more business

• Apple iPod wearers became walking advertisements

• Incoming USC architecture majors are advised to buy Windows computers which can run needed software but end up buying Apple because they see so many others have that brand


Instructor 6

Mental Accounting

• Consumers tend to see their spending as from “accounts” in a budget– The way an opportunity is categorized may affect a

decision—e.g., “dining out” budget has been spent but “entertainment” budget has not

– Something received as gift from a spouse may be cause of happiness even if the person would not have spent the same amount of money himself/herself.

• “Emotional accounting”


Instructor 7

Biases in Judgment

• Confirmation bias• Self-positivity• Negativity: Negative info is viewed as more

“diagnostic” and weighted more heavily• Mood induced• Prior brand evaluations and experience

(discounting or rejecting of new info)• Distortions due to calculation difficulty


Instructor 8

Decision Sets

• Consideration set—possibilities that may be activity considered

• Inept set—seen as unacceptable• Inert—seen with indifference

– Attractiveness effect: Poor brands make brands in consideration set look better


Instructor 9

Issues in Selecting Decision Criteria• Goals• Time point

– Construal theory: More abstract judgments are made about possible future decisions; decisions about actual impending purchases tend to be based on more concrete issues

• Framing


Instructor 10

Compensatory vs. Non-Compensatory Decisions

• Compensatory: Decision based on overall value of alternatives (good attribute can outweigh bad ones)

• Non-compensatory: Absolutely must meet at least one important criterion (e.g., car must have automatic transmission)


Instructor 11

Brand vs. Attribute Based Processing• Brand based: Each

brand is considered as a whole to be compared against other brands

• Attribute based: Attributes are generally selected in order of importance, with the most important attribute considered for each brand, followed by the consideration of less important attributes


Instructor 12

Brand Based Models

• Multiattribute Model (Expectancy-Value)• Conjunctive model: Each brand must meet a

minimum cutoff on each attribute to remain “in the running”

• Disjunctive model– Decision based on the most important variables

rather than all– Consideration of both absolute minimum and

“good” levels


Instructor 13

Multiattribute Models of Attitudeand Judgment--Review

• Attitude computed as a function of multiple attributes weighted for importance:

Ab= attitude toward brand b

Wi: weight of attribute I

Xib: belief about brand b’s performance on attribute I

• Model assumes rationality

n

iibiXWA

1b

Calculations will not be required on the exam. You should know conceptually what this involves conceptually—i.e., weighing importance and intensity of feeling.


Instructor 14

Attribute Based Models

• Additive difference model: Brands are compared two at a time on all attributes—thus, there is some tradeoff between attributes

• Lexicographic: A comparison is made based on the most important attribute, with lower importance attributes used for tie-breaking

• Elimination by aspects: Brands with attributes below acceptable levels on attributes are sequentially eliminated, starting with the most important attribute


Instructor 15

Decisions Based on Gains and Losses• Consumers tend to be more sensitive to perceived “losses” rather

than gains– A $1 price increase is worse than a $1 price cut is good

• Framing effects—attractiveness of an option will be judged based on whether framed as a “gain” or “loss”– “Gain” framing

• “Regular price, $7.99; sale, $4.99”• “An extra four ounces free!”

– “Loss” framing• “$9.99 plus shipping and handling” (not that this may be deemphasized in

infomercials)

• The “Endowment” Effect and Windfalls– People are more likely to spend a “windfall” they just received even though their overall

situation has not changed much


Instructor 16

Other Issues in High Effort Decisions• Decision delay—more difficult decisions

– Take longer– Get put off– May result in more input and soul searching– Must appear to be taken seriously and not made too easily

• Non-comparable options: Generally, the more different the alternatives, the more abstract the standards of evaluation– “Utility”– Pleasure – Convenience– Security


Instructor 17

Affect and Social Context

• Affect is a strong component of motivation• Long vs. short term outcomes


Instructor 18

Usefulness of Low Effort Judgments• Low effort judgments are not necessarily a bad

thing– Need to focus energy and mental resources on more

important decisions• Where more is at stake• Where making a better decision will have more of an impact

– Larger differences among brands or other alternatives– Less obvious what to go with

– Low effort judgments will, of course, tend to be less accurate.


Instructor 19

Heuristics

• Simplified rules for making decisions

• Intended for quick but not necessarily optimal decisions

• Often used unconsciously—the consumer may not be aware that a shortcut is being taken

• Some specific heuristics– Representativeness

(comparison to prototype)

– Availability heuristic (easiest to bring to mind examples or information control)


Instructor 20

Biases in Heuristics

• Ignoring baseline information and focusing on vivid examples that easily come to memory (ready availability)--e.g.,

– How likely is a refrigerator to break down? (Implications for extended warranties)– How likely is Bob to be a librarian? (People are asked how likely it is that Bob is a

librarian vs. a sales person, given information about his personality. This description fits the stereotype of a librarian, but there are many more sales people than librarians.

– How likely is Jennifer to be a “bank teller” vs. a “feminist bank teller?” (The probability of the former has to be higher than the latter)

• Law of Small Numbers—extrapolation from small sample sizes


Instructor 21

Unconscious Decision Making

• In some cases, decisions may be made unconsciously– Significant underlying information may actually be used– Some factors

• Attitudes– Beliefs (simple or complex)– Affect (e.g., associations from classical conditioning)– Past behavior

– Body may give cues to decisions based on learning (e.g., hesitation, discomfort)


Instructor 22

Some Additional Simplified Decision Strategies• Satisficing: Searching only until an

acceptable alternative is found• Specific tactics

– Price– Affect (“Like”)– Performance– Normative (expectations of others)


Instructor 23

Learning and Future Decision Making

DECISION(EXPLICIT OR

IMPLICIT)

TRIAL/EXPERIENCE

(NOVEL OR REPETITION)

EVALUATION(UPDATING; HIGH OR LOW INVOLVEMENT;

CONSCIOUS OR UNCONSCIOUS)

BACKGROUND(KNOWLEDGE, OPINIONS, SITUATION ASSESSMENT/

CONTEXT, ATTITUDES, PREDISPOSITIONS)

LEARNING(UPDATING; HIGH OR LOW INVOLVEMENT;

CONSCIOUS OR UNCONSCIOUS)

This model is not intended to be taken overly literally. Sequences may vary depending on context.


Instructor 24

Learning

• Two types of conditioning:– Classical (Pavlov): The consumer learns to associate two

events– Operant (Skinner): Consumer learns that behavior has

consequences• Reward (Positive reinforcement): Behavior positive consequences

behavior is more likely to be repeated• Punishment: Behavior Negative consequences behavior is less

likely to be repeated (at least under some circumstances) • Negative Reinforcement (not the same as punishment!): Aversive

situation followed by behavior by the consumer Cessation of aversive situation Behavior more likely during aversive situation in the future


Instructor 25

Consumer price response

• Zone of acceptance (range of prices considered acceptable)

• Asymmetry for discounts (“gains”) and price increases (“losses”)

• Deal prone consumers and bargain hunters– Transaction utility: Pleasure from getting a deal

rather than from obtaining the product itself

Documents

JUDGMENT AND DECISION MAKING BASED ON HIGH AND LOW EFFORT