Exam 2 Lecture 3

Question 1

prospect theory characteristics

Answer 1

• value is judged relative to a reference point
• diminishing sensitivity
• losses loom larger than gains

Question 2

loss aversion

Answer 2

• the tendency for losses to weigh heavier in decisions than gains
• tendency to favor stability over change (which may be associated with incurring a loss)

Question 3

discount vs. surcharge

Answer 3

more likely to pay cash to get $15 off than to use a credit card (easier) and get a $15 charge

Question 4

best predictor for future purchase?

Answer 4

past purchase- customer loyalty

Question 5

the endowment effect

Answer 5

people value a thing more once it becomes their own property (coffee mug example)

Question 6

the doors experiment revealed

Answer 6

that people hold on to options for too long even though it is disadvantageous to do so

Question 7

money and self sufficiency

Answer 7

• having money allows people to achieve goals without the help of others
• consequently when people think about money the concept of self-sufficiency is activated

Question 8

what other types of behavior might self sufficiency lead to?

Answer 8

• being anti social. The fish v. money screensaver experiment also indicated a greater preference for solo activities
• less helpful - they expect other people to take care of themselves

Question 9

positive effects of believing in self sufficiency

Answer 9

-work harder

Question 10

psychology of money

Answer 10

• money can change how we see ourselves and others (self-sufficiency)
• money can bring us closer and pull us apart
• money can lead us to unethical behaviors
• consumers differ in how they manage and spend money

Question 11

opportunity cost

Answer 11

what are you giving up by choosing one thing over another (We should think about money this way)

Question 12

aside from being a medium of exchange, money can

Answer 12

• prime personal traits/behaviors
• be used as a social signal
• influence our behaviors towards others
• affect our ability to empathize with others
• influence our ethical behavior

Question 13

the power in free

Answer 13

• we seem to lose all sense when told something is free
• our ability to make intelligent tradeoffs deteriorates when the price drops to zero
• we tend to choose a “free” option even when it is clearly inferior to other options

Question 14

money and relationships

Answer 14

• sometimes we spend money to form relationships

- and sometimes money isolates us, like we just discussed

Question 15

money can isolate

Answer 15

• space btw chairs and screensaver example
• participants primed with money recalled less facts learned about students
• financial (but not social) incentives work to motivate helping behavior

Question 16

money and ethical behavior

Answer 16

you’re envious when you see other people flaunting money; envy drives people to restore equity, even if its unethical

Question 17

spendthrifts

Answer 17

feel too little pain when they see a price tag, so they spend more money than they should (focus on product)

Question 18

tightwads

Answer 18

feel too much pain when they see a price tag, so they spend less money than they should (focus on price)

Question 19

alcohol myopia

Answer 19

• under the influence of alc we can only focus on most salient aspects of the environment
• alcohol amplifies spending differences