MKTG 322 exam 2 - FLASHCARDS - Consumer decision making (1)

Question 1

What is the Standard Model of Economic Decision-Making?

Answer 1

1. Consumers are fully aware of all the options they have
2. Consumers know what they want: they can rank their
   options in accordance with their preferences
3. Consumers always choose the best option available

Question 2

What is wrong with the Standard Model of Economic Decision-Making?

Answer 2

• Consumers aren’t machines. Their brains can only
process a limited amount of information at a time.
• Consumers are not accurate when predicting how
their future selves will feel and behave.
• Consumers often fail at exerting self-control.
• Consumers are often influenced by what is around
them.

Question 3

What is system 1 of thinking?

Answer 3

Automatic
Unconscious
Rapid
Emotional

Question 4

What is system 2 of thinking?

Answer 4

Controlled
Conscious
Slow
Logic-based

Question 5

What is a heuristic?

Answer 5

A cognitive shortcut or rule of thumb that
consumers use to reduce task complexity
in judgment and choice

Question 6

Are heuristics in system 1 or 2 of thinking?

Answer 6

They live in System 1. Work well in certain contexts but produce errors when over-applied leading to a cognitive bias

Question 7

What is a cognitive bias?

Answer 7

A systematic error in thinking that occurs when people are processing and interpreting information

Question 8

What is anchoring?

Answer 8

A cognitive bias whereby an individual’s decision is influenced by a particular reference point or ‘anchor’

Question 9

What are commin examples of anchoring?

Answer 9

• Manufacturer’s Suggested Retail Price
• Suggested donation or tip
• Real Estate list price

Question 10

True or false: Anchors can often be irrelevant or meaningless?

Answer 10

TRUE

Question 11

What is availability bias?

Answer 11

A distortion that arises from the use of information which is most readily available, rather than that which is necessarily most representative

Question 12

What is confirmation bias?

Answer 12

Form of selective thinking in which an individual is more likely to notice or search for evidence that confirms his or her theory, while ignoring or refusing to search for contradicting evidence

Question 13

What is present bias?

Answer 13

People tend to accept less now than more later

Question 14

What is revision bias? (example: selfie stick)

Answer 14

Consumers prefer products labeled as revised, even absent objective improvement

Question 15

What is the better than average effect?

Answer 15

Overestimating one’s own qualities and abilities, relative to others

Question 16

What is the endowment effect?

Answer 16

People ascribe more value to things merely because they possess them

Question 17

What is the planning fallacy?

Answer 17

We underestimate the amount of time it will take to do things in the future, compared to the same activity in the past

Question 18

What is the evaluation of an object or estimate likelihood of an outcome or event?

Answer 18

Judgements

Question 19

What is making a selection among options or courses of action?

Answer 19

Decision making

Question 20

What is the structure of a decision environment?

Answer 20

Choice architecture

Question 21

There are many EXTERNAL factors that cause us to make systematically different choices, even among identical items

Answer 21

.

Question 22

What are decisions in choice architecture?

Answer 22

Framing, defaults, decoys, evaluation process, and choice bracketing

Question 23

What are the effects of framing?

Answer 23

A person’s choice from a set of options is influenced more by the presentation than the substance of the pertinent information

Question 24

What is loss aversion?

Answer 24

Losses feel worse than gains feel good. Consumers are willing to take more risk to avoid losses than to receive gains

Question 25

What is the effect of defaults?

Answer 25

“Status quo bias” – consumers stick to the default option, especially when effort is required

Question 26

What is the compromise effect?

Answer 26

Consumers tend to choose in the middle because they are hardwired to avoid extremes

Question 27

What is the decoy effect?

Answer 27

Consumers change their preference between two options when presented with a third option

Question 28

What is separate evaluation?

Answer 28

Assess one item at a time

Question 29

What is joint evaluation?

Answer 29

Assess multiple items simultaneously

Question 30

What does joint evaluation force evaluation?

Answer 30

• Forces people to look at trade-offs and comparisons
• Favors attributes that are difficult to evaluate in isolation

Question 31

What is thinking about one choice at a time?

Answer 31

Narrow bracketing

Question 32

What is thinking about the effect of each choice on
all the other choices in the set?

Answer 32

Broad bracketing

Question 33

What is variety?

Answer 33

• Consumers like variety (…or at least think they do)
• BUT variety may lead us to choose differently than we
would’ve otherwise because we switch from narrow
to broad bracketing

Question 34

What are the effects of bracketing?

Answer 34

when consumers make different decisions under narrow or broad frames, despite identical options