Dm in Marketing, Summary of Book

Decision making marketing

Lecture 1

Between subjects design: a model of research that has 2 independent groups with the same question but 1 group has 3 options and the other has 2 options.

Within subjects: you may be influenced by a similar question asked on forehand and later the same question is asked by adding or minimizing an option.

Heuristics and Biases

Bounded rationality: individuals have to make decisions under

constraints

– Limited knowledge/information

– Time pressure

– Limited cognitive resources (attention, computation, memory)

– Limited motivation

People use cognitive shortcuts, intuitive rules to come up with likelihood judgments, with little mental effort and awareness. May be efficient in some situations but lead to systematic errors and biases in others.

Biases:

– deviations from the true or objective value

– violations of the basic laws of probability (Linda example)

6 heuristics:

• Availability: Events are judged more likely to the extent that they are vivid or easily recalled.

• Anchoring: Estimation is often a process of anchoring on a salient number and adjusting up or down ; but Adjustments are typically insufficient and the estimation is biased toward the anchor.

A person begins with a first approximation (anchor) and then makes incremental adjustments based on additional information.

• Representativeness: The probability that object A belongs to class B depends on the degree to which A resembles (look like) B

• Mental Accounting: People keep track of their expenses in different mental accounts and budgets.

• Prospect Theory: Losses loom larger than gains

• Context Effect: Choices are made in a context. Everything is relative, without context choices (in absolute terms) mean nothing

Examples:

1.Assume you would like to subscribe to ‘Time’ magazine:

1. Internet-only subscription for 59 Euro

2. Print-only subscription for 125 Euro

3. Print-and-internet subscription for 125 Euro

Context effect:...