Decision Making Flashcards
(25 cards)
Three types of decision-making:
- Cognitive: deliberate, rational, sequential
- Habitual: behavioural, unconscious, automatic
- Affect: emotional, instantaneous
Stages in Decision Making
- Problem recognition
- Information search
- Evaluation of alternatives
- Product choice
- Outcomes
Problem recognition
Occurs when consumer sees difference between current state and ideal state
Information search
The process of surveying the environment for appropriate data to make a decision
Internal vs external search
Internal: based on memory, what we know
External: internet, asking other people
Pre-purchase vs ongoing search
Pre-purchase: search for information because you need to buy something
Ongoing: you don’t need something, but you search for it over time
Evoked Set
acceptable alternatives that come to mind
Consideration Set
Alternatives the consumer seriously considers in making a purchase
Compensatory Rule
Gives a product a chance to make up for its shortcomings on one dimension by excelling on another
Simple additive rule
Leads to the option with the largest positive attributes
Weighted additive rule
Allows consumer to take in to account the relative importance bu weighting
Non-compensatory Decision rules
Used when we feel a product with a low standing on one attribute can’t compensate for this flaw even if it performs better on another attribute
Lexicographic rule
A consumer selects the brand that is best on the most important attribute. When two or more brands are equally good on that attribute, they compare them on the second most important attribute etc etc until the tie is broken.
Seeks maximum performance at each stage
Elimination-by-aspects rule
A consumer evaluates brands on the most important attribute, but imposes cutoffs - eliminating alternatives that do no meet a minimum cut-off level on each attribute
Seeks satisfactory performance at each stage
Conjunctive rule
A consumer establishes cut-offs for each attribute. They choose a brand if it meets all the cut-offs
Heuristics
Mental rules-of–thumb to make a quick decision
Covariation
When we only have incomplete product information, we often base our judgements on our beliefs about covariation (our associations among events that may or may not actually influence one another)
Sunk-cost
A cost that has already been paid for and cannot be recovered in any way
Sunk-cost fallacy
We are reluctant to waste something we have paid for
Prospect Theory (Kahneman and Tversky)
How people make decisions under uncertainty and how they evaluate potential losses and gains
- Stems from loss aversion
Loss aversion
We emphasise losses more than gains. We tend to prefer avoiding losses to acquiring equivalent gains
Framing effect
People’s decisions can be influenced by how information is presented, affecting their reactions despite the underlying facts being the same
Nudge
A deliberate change in the way choices are presented by an organisation with the intention of influencing behaviour in a predictable way, without restricting options or significantly changing economic incentives
Default bias
We are more likely to comply with a requirement than make the effort not to comply
