Reading I NEED HELP ON MY HOMEWORK 2

LULULU

160dm_11-JDMI_w24.pdf

Home >Reading homework help >Reading I NEED HELP ON MY HOMEWORK 2

CONSUMER BEHAVIOR (IN A DIGITAL WORLD)

JUDGMENT AND DECISION-MAKING I

TODAY’S AGENDA

1. Review 2. System 1 and System 2 3. Judgments Based on System 1

• Heuristics and Biases

REVIEW

UP NEXT:

THE “PSYCHOLOGICAL CORE” OF CONSUMER BEHAVIOR

Judgment and Decision-Making

Motivation Attention

Perception Memory Attitudes

SYSTEM 1 & SYSTEM 2

UP NEXT:

CONSUMER DECISION-MAKING PROCESS

CONSUMER DECISION-MAKING PROCESS Is this how consumers make decisions? Maybe… Always? Probably not…

CONTINUUM OF RESOURCES DEVOTED

TWO “SYSTEMS”

The impression that the man is angry • Simply comes to mind

(within 200 msec.) • You can tell that he’s angry

just as quickly as you can tell that he’s bald

17 X 26

TWO “SYSTEMS”

The product 17 x 26 • You know some things

immediately (like that it’s a multiplication problem), but solving the problem will take time & effort

• Must engage in sequential computations, governed by rules

17 X 26 =

One way thoughts come to mind

Another way thoughts come to mind

TWO “SYSTEMS”

SYSTEM 1 AND SYSTEM 2

SYSTEM 1: RULES OF ASSOCIATIVE MEMORY

SYSTEM 2: LOGIC

System 1

System 2

SYSTEM 1 AND SYSTEM 2

Kahneman, 2003

INTUITION SYSTEM 1

REASONING SYSTEM 2

Associative Fast

Parallel Effortless

Slow-learning Emotional Automatic

Rule-governed Slow Serial

Effortful Flexible Neutral

Controlled

Efficient “Optimal”

UNDERSTANDING THE TWO SYSTEMS

Is System 1 stupid? • On the contrary, many complex behaviors and decisions

become intuitive as high skill is achieved.

Is System 2 always smart and right? • No. Computations and careful thoughts can be wrong,

both factually and logically.

Which one controls judgments and behaviors? • Normally, behavior is skilled and effortless (System 1),

but System 2 monitors and can try to “correct” System 1.

SYSTEM 1 AND SYSTEM 2

System 1 (automatic associations) continuously generates “suggestions” for System 2 (logical reasoning) in the form of impressions, intuitions, intentions, and feelings.

Kahneman, 2011

SYSTEM 1 AND SYSTEM 2

System 1 (automatic associations) continuously generates “suggestions” for System 2 (logical reasoning) in the form of impressions, intuitions, intentions, and feelings.

When all goes smoothly, which is most of the time, System 2 adopts the suggestions of System 1 with little or no modification.

Kahneman, 2011

SYSTEM 1 AND SYSTEM 2

System 1 (automatic associations) continuously generates “suggestions” for System 2 (logical reasoning) in the form of impressions, intuitions, intentions, and feelings.

When all goes smoothly, which is most of the time, System 2 adopts the suggestions of System 1 with little or no modification.

Most of what you think and do originates in System 1, but System 2 takes over when things get difficult.

Kahneman, 2011

SYSTEM 1 AND SYSTEM 2

JUDGMENTS BASED ON SYSTEM 1: HEURISTICS AND BIASES

UP NEXT:

HEURISTICS AND ASSOCIATIONS

System 1 is rooted in the associative network.

HEURISTICS

System 1 minimizes effort by making use of heuristics. Heuristics are “rules of thumb” that simplify the process of making decisions. We don’t need to treat every judgment or decision like a completely unique event.

HEURISTICS AND BIASES

Heuristics often lead to accurate judgments and high-quality decisions. Heuristics are “rules.”

However, heuristics also create biases. Biases are systematic and predictable (not random) “errors” in judgment.

HEURISTICS AND ASSOCIATIONS

Heuristics and biases are consistent with the structure of the associative network. • Availability • Representativeness • Anchoring

In four pages of a novel (about 2,000 words) how many words would you expect to find that have the form:

__ __ __ __ __ n __

__ __ __ __ i n g

AVAILABILITY HEURISTIC

100

200

300

400

500

600

_ _ _ _ N _ _ _ _ I N G

M ea

n #

of w

or ds

Data from Class Survey

M = 400 words

M = 566 words

Many MSM students had prior exposure to JDM theory.

Does this make a difference?

In four pages of a novel (about 2,000 words) how many words would you expect to find that have the form:

__ __ __ __ __ n __

__ __ __ __ i n g

The frequency of each form is judged by the ease with which words come to mind (i.e., the availability of these words).

AVAILABILITY HEURISTIC

“What percentage of the shopping do you do?”

I do at least 55%.

I do at least 70%.

= 125%

AVAILABILITY HEURISTIC

We are disproportionately influenced by what immediately comes to mind (i.e., what is available in memory).

AVAILABILITY HEURISTIC

The availability heuristic is the basis of the familiarity heuristic—consumers often prefer what is familiar over what is new. • Repeat purchases

• Preference for dominant brands

REPRESENTATIVENESS HEURISTIC

Bill is 34 years old.

He is intelligent, but unimaginative, compulsive, and generally lifeless.

In school, he was strong in mathematics but weak in social studies and humanities.

Kahneman & Tversky, 1973

How likely is it that Bill

plays jazz for a hobby?

(write down your estimate, from 0-100%)

Kahneman & Tversky, 1973

REPRESENTATIVENESS HEURISTIC

How likely is it that Bill

is an accountant who plays jazz for a hobby?

(write down your estimate, from 0-100%)

Kahneman & Tversky, 1973

REPRESENTATIVENESS HEURISTIC

10%

15%

20%

25%

30%

35%

40%

JAZZ JAZZ ACCOUNTANT

Li ke

lih oo

d (o

ut o

f 1 00

% )

M = 25% likely

M = 38% likely

Data from Class SurveyREPRESENTATIVENESS

HEURISTIC

Many MSM students had prior exposure to JDM theory.

Does this make a difference?

Bill is representative of an accountant…and the representativeness heuristic is insensitive to base rates.

Belief that P(A and J) > P(J)

REPRESENTATIVENESS AND BASE-RATE NEGLECT

ACCOUNTANT JAZZ

Kahneman & Tversky, 1973

REPRESENTATIVENESS HEURISTIC

Representativeness is an assessment of the degree of correspondence between a sample and a population, an instance and a category, an act and an actor or, more generally, between an outcome and a model.

Tversky & Kahneman, 1983

REPRESENTATIVENESS HEURISTIC

We mistake representativeness (similarity to the “prototype”) for likelihood.

REPRESENTATIVENESS AND BASE- RATE NEGLECT

Most car accidents take place within 5 minutes of home

…where we drive most often

Most dog bites (77%) are by dogs known to the victim … and we’re most often near dogs we know

Honda Civics are one of the most commonly stolen cars

…and are one of the most popular models

ANCHORING HEURISTIC

Group 1: Is the average price of a new car more or less than $25,000?

What is the average price of a new car?

Data from Class Survey

Group 2: Is the average price of a new car more or less than $40,000?

What is the average price of a new car?

ANCHORING HEURISTIC Data from Class Survey

$37,000.00

$38,000.00

$39,000.00

$40,000.00

$41,000.00

$42,000.00

$43,000.00

$44,000.00

$45,000.00

Low Anchor (25k) High Anchor (40k)

M ea

n pr

ic e

of c

M = $40k

M = $44k

ANCHORING HEURISTIC Data from Class Survey

Many MSM students had prior exposure to JDM theory.

Does this make a difference?

CONSEQUENCE OF ANCHORING Is the average price of a new car more or less than $25,000 [40,000]?

What is the average price of a new car? • $25,000 = Estimate of $32,602

• Cues: Kia, Hyundai, GM, Toyota, Dodge, Honda • Inhibits: Lexus, Mercedes, BMW, Cadillac

• $40,000 = Estimate of $36,854 • Cues: Lexus, Mercedes, BMW, Cadillac • Inhibits: Kia, Hyundai, GM, Toyota, Dodge,

Honda

Cognitively accessible brands influence the answer to the second question.

ANCHORING HEURISTIC

We rely too heavily on the first piece of information that comes to mind (the “anchor”).

TAKEAWAY

Our decisions are influenced by two distinct cognitive systems. Most of what you think and do originates in System 1 But System 2 takes over when we recognize the need to make an effortful decision.