Decision Making: Introduction, Stages and Consumer

Judgment
Decision (def): Choice between two or more alternative actions/items/behaviors.
Basic stages of decision making
- Problem recognition
- Search for alternatives
- Evaluate alternatives
- Select from among the alternatives
- Post-selection evaluation
-

May not go through each stage, depending on:

o Expense
o Frequency of decision (habits)
o Involvement
o Cognitive resources / ability
Certain stages can co-occur (e.g., search and evaluation)
Small decisions dont always go through each step

I. Problem Recognition
-

Discrepancy between current state of affairs and ideal state of affairs.

o Simple as I need a pack of gum.
o Complex as I need to make more money
Triggers action to resolve that discrepancy.
Those actions require decisions.

How do current-ideal discrepancies arise?

- Perceived current state may get worse (need recognition).
o Ex: losing your job, product could break, run out of a product, getting hungry or
sick
- Perceived ideal state may improve (and more further from current; opportunity
recognition)
o New circumstances (life changes)
o New desires (new social groups, new products)
How do marketers encourage current-ideal discrepancies?
- (Carefully) downgrade perceptions of current state
o 4 out of 5 women dont get enough calcium
- Augment the ideal state- (make them want something more than they did before)
o Primary demand as a whole (milk)
o Secondary demand Specific brand
- Most ads are secondary demand
- Need to use primary demand if you are trying to get people excited about a new product
(ex: TiVo)

Problem Recognition
- Perceived discrepancy is one trigger.
- Awareness of future potential discrepancy is another.
o Pre-need goods
o

Got Milk? They did research to figure out how to get people to buy more milk. They decided to
advertize GOT MILK instead of it being healthy because people already knew it was healthy.

Once them problem is recognized, consumers then try to solve it.

II. Search for Alternatives

-

What information do we need?

o Available alternatives
o Quality
o Price
How might we find it?
o Internal search
o External search

Internal Search searching your mind

- Retrieve information from long-term memory about products or services to help with
problem solving.
- Two musts
o Correct categorization-be in right place in mind
o Correct retrieval
o (Good to also have positive associations, etc.)
Categorization and Retrieval
- Is your product a member of the right category?
o Encourage alternative categorization for your product.
Its not just for breakfast anymore Orange Juice
Waffle House- Consumer like waffle house but may not categorize it as
dinner.
- Will your product be retrieved?
- Internal search may not be enough, however.
External Search
- Where do consumers get information?
o Marketer-controlled:
Commercials/Ads
Packaging/Store displays
Websites
o Non-Marketer-controlled:
Friends/Family
Media
Neutral sources like consumer reports
Reviews

How much do consumers search?

- Economic model of information
o Search until rewards of more searching are less than the expected costs of
searching.
o But, this doesnt seem to always hold:
Lower-income (most at risk) search less.
o Searching probably not completely determined by cost.
- Consumers dont actually search all that much.
- Search behaviors

Surveys like this may under-state the amount of search, but still few searchers are
exhaustive.

What leads to external search?

- Involvement:
o Product important to consumer/values
- Moderate product knowledge:
o Why?
o Low-involvement: Usually dont know where to start
o High-Involvement: Usually dont search either because they already know what
they want/are looking for.
- Risk:
o Large purchases, purchases that require commitments
- Many stores in proximity
- These people search more:
o Young People
o Educated People
o Women
o People with favorable attitudes towards shopping
Results of Searching- Where to go to nice Dinner?
- Evoked/ Consideration set (3-7 things) (Ballyhoo, Bonefish, Chilis)
o Actively considered during the choice process
- Inept Set
o Aware of, but considered unacceptable.(Nos) (Swamp, Dennys, Five Guys)
- Inert Set
o Indifferent towards; may not be aware of.

Maximize your chances of being in the evoked set!

III. Evaluation of Alternatives

Rational Theory of Choice
- Choose to maximize utility.
- We get an unbiased sense of how much utility each option will bring us.
- We choose the option that is expected to bring us the most utility.
Implications of the Rational Theory
- If we get an unbiased sense of utility, then
o Judgments should not be swayed by irrelevant factors.
o Choices should not be affected by irrelevant changes in the description of the
choice (invariance criterion).
EX: 20% Fat free or 80% fat. We shouldnt be swayed by the difference
because we can do the math!
o The utility of one option should not be affected by adding/deleting another option
(regularity criterion).
EX: You should never choose Laffy Taffy (your preference by 70%) over
Sweet Tarts just because another option was introduced.
- But do we uphold these criteria?
o Does the rational theory describe how people actually make decisions?
o No, sometimes we are biased (heuristics, framing, status-quo, mental accounting,
sunk costs)
o We do care about how things are described, it does affect our decisions

IV. Consumer Judgment

-

A judgment is an estimate (of likelihood, of quality, ect.)

Heuristics are used to simplify judgments (and decisions)
o Usually helpful
o Can be over-applied and mislead us.
Short- Cuts
Rule of Thumb

Availability of Heuristic
- Judge the frequency of something by the ease with which instances of it can be brought
to mind.
- Example: Whats more common?
o UF students from South Florida?
o UF students from North Dakota?
- Example: Whats more common?
o Words that start with N?
o Words that have N as their third letter?
- Ease (availability) does not always reveal frequency)

Example: Do you have a Greater chance of death doing:

o Peanut allergies or accidental poisoning (56%)
o Falling airplane parts or shark attacks (69%)
o You hear a lot about one instance and you tend to think it happens more)
Why are certain events more available?
o Some are inherently more vivid
o Some receive more attention/press coverage
A new danger on the rise? Stay tuned for details!

Availability and Marketing

- People act on the basis of availability, not actuality.
o Cars vs. flying More apt to die in a car (37X safer in a plane)
o Parents flying separately
o Your friends car vs. Consumer Reports
More sensitive to their friends experience with a car then the reports
- Product quality and safety perceptions
The Linda Problem
- Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a
student, she was deeply concerned with issues of discrimination and social justice, and
also participated in anti-nuclear demonstrations.
- What is more probable?
o Linda is a bank teller. 15%
o Linda is a bank teller and is active in the feminist movement 85%

o More specific is less likely

Representativeness Heuristic
- Judge the probability that an item is a member of a class by the degree to which the item
is representative of (resembles) the class.
- In Linda problem, people use resemblance to judge probability.
o How much does she resemble a bank teller?
o How much does she resemble a feminist bank teller?
- May also use resemblance to judge quality.
How do Consumers use Representativeness?
- Does this resemble a high-quality item?
o Price and quality

o Country of origin and quality

o Brand and quality
o EX: Vacuume cleaner: Dont want it too cheap, so you wont buy a $20 one, but
the $300 is too expensive, so you settle for the $40 one. Only use PRICE to
determine.

Anchoring and Adjustment Heuristics

- Are there more or less than 5000 marketing majors?
o How many are there? 1500
- Are there more or less than 50 marketing majors?
o How many are there? 399
- Start estimate at an initial value (anchor) and then adjust accordingly. But: Anchors are
sticky
o Adjustment is often insufficient.
o Anchors are often irrelevant.
- Can happen for many types of estimates
o Even with extreme, impossible anchors.
Anchors and Pricing
- Real-Estate Study
- All agents are shown identical house, listing price is manipulated, asked to give
recommended price. As the Listing price goes up the recommended price goes up as
well.
- Even experts are influenced by anchors.
- Pricing:
o What might you expect to pay for such a quality product?
EX: Mattress store place has cheaper mattresses in back so consumers
pass by all the expensive ones till they go to the $500 ones which then
seem like a deal!
o How much are you willing to give?
1000? 500? 250? 100? 50? ($50 now seems better)
- Negotiations
o Importance of the first offer.
Setting the anchor- Starting Salaries

Consumer Choice
Outline: Influences on Consumer Choice
- Framing
- Status Quo bias
- Mental Accounting (and sunk costs)
- Conflict
- Fairness
- Evaluability
- Self-Gifts
- Decision Rules
From Judgment to Choice
- Judgments may often be biased:
o Natural consequences of information processing.
o Satisficing- Giving up on perfection to reduce effort
- Recall rational model
o We assess the utility we get from any option
Judgment findings suggest we may be biased here
o We choose the option with the most utility
Examine choice behavior
Even if utility assessments are biased. Rational model requires that they be
relatively stable.
- Example: Imagine that the US is preparing for the outbreak of an unusual disease, which
is expected to kill 600 people. Two alternative programs to combat the disease have
been proposed. Assume that the exact scientific estimates of the consequences of the
programs are as follows:
o 67% If Program A is adopted, 200 people will be saved
o If Program B is adopted, there is a 1/3 probability that 600 people will be saved,
and a 2/3 probability that no people will be saved.
o Alternative Framing:
o 14% If Program A is adopted, 400 people will die.
o 86% If Program B is adopted, there is a 1/3 probability that nobody with die, and
2/3 probability that 600 people will die.
o Choices are the same

The risky option is chosen when it seems like a choice among losses.
The sure option is choices when it seems like a choice among gains.

I. Framing Effects
-

Changes in choices that arise when irrelevant aspects of the choice description are
changed.
o The acts, outcomes, and contingencies of the choice do not change. And yet the
preference itself changes.
o Whats going on?

Framing Effects and Risky Choice: Prospect Theory

- We value outcomes as gains and losses relative to a reference point.
- There is diminishing sensitivity to gains and losses.
o Losses have a bigger impact than an equivalent gain

o We are risk-averse when choosing among two gains that have equal expected
value.
Get $50 for sure (pv $50)
50% chance at $100, 50% chance at nothing
Sure thing has greater expect psychological value
Most people will lock secure thing over gambling.
o We are rick-seeking when choosing among two losses that have equal expected
value.
Lose $50 for sure (pv $50)
50% chance at losing $100, 50% chance of loosing $0
Risk has greater (less negative) expected psychological value.
People want to take the risk
-

Gains and losses are not absolutes

o Danger of thinking in terms of gains and losses.
o Disease Problem
200 people will be saved vs. 1/3 change 600 people will be saved(choice
among gains) *Sure Thing
400 people will die vs. 1/3 chance nobody will die(choice among losses)
*Gamble

The preference for an option will depend on how its described because risk
preferences are sensitive to whether things seem like gains or losses.

Another Example:
o Imagine you are $300 richer than you are today. What would you prefer?
Gaining $100 for sure (Most people prefer- risk averse option)
50% chance at gaining $200, and %50 change at gaining nothing.
o Imagine you are $500 richer than you are today. What would you prefer?
Losing $100 for sure
50% chance at losing $200, 50% chance at losing nothing. (this was
preferred option)
o But, both amount to a choice between $400 for sure vs. a gamble between $300
and $500. It is the way the questions are worded is what determines the choice.

Framing and Perceptions of Quality

- Ground beef that is:
o 25% fat
o 75% lean
- How greasy do you think it was taste (1-7 scale)?
o 25% fat: 4.9 greasy
o 75% lean: 3.6 greasy
- How would you rate the quality (1-7 sale)?
o 25% fat: 3.6
o 75% lean: 4.6
Where else to do we see framing effects?
- How much did you save?
o Otarian- Saved 1.02 grams of carbon
o Price Tags You saved 199 trees
- Discussions of the economy
o Jobs saved
o Rate of economic growth (vs)
- 2 for 1

II. Status-Quo Bias

(A close cousin to Framing)
-

Given two options, people elect to stay with whichever is described as the status quo.
Example: Inherited money
o Some told the money is in stocks.
o Some told the money is in bonds.
o More likely keep money in stocks/bonds to maintain status quo
Example: Enrolling in retirement (401K) plans:
o If status quo is youre not enrolled 39% elect to enroll
o If status quo is youre automatically enrolled 86% remain enrolled
Implications for brand switching etc.

III. Mental Accounting

-

Money is technically fungible.

o Any money could theoretically be spent for any purpose.
People dont treat money as fungible.
o People are sensitive to the source of money.
o People set up mental sub-accounts and budgets, and allocate spending based on
those sub-accounts.
Entertainment account comes from Job$, Food account comes from Moms
$, Something Special for me comes from $ Grandma sends for birthday.
Lost Ticket Problem
o Imagine you are about to attend a concert. As you go to enter, you see you have
lost you $50 general admission ticket.
Do you buy another ticket? 54% yes. There is a sense of Now Im
spending $100 on a concert
o You do not yet have a ticket. As you go to enter, you see that you have lost $50.
Do you still buy a ticket? 70% yes I still planned on going to the concert.
o In both cases, people lost something worth $50. People seem to consider the
balance in the entertainment account not simply whether they have $50 to
spend.
o People tend to think logically- How much you are spending on a ticket, rather than
globally- how much $ you have.
Jacket/Calculator Problem
o Imagine you are about to purchase a jacket for $125 and a calculator for $25the
calculator is on sale for @12 at the other branch, located 20 minutes away.
Would you make the trip? 66% yes
Seems like savings of 50%
o a jacket for $25 and a calculator for $125the calculator is on sale for $112 at
the other branch, located 20 minutes away.
Would you make the trip? 22% yes
Seems like savings of a little more than 10%
Save the same AMOUNT of money with either option

IV. Sunk Costs

-

Sunk costs: Prior investment of time, money, or effort

o That investment is gone and can never be recovered.
o And yet, the fact that weve spent it leads us to make choices we otherwise
wouldnt have made.
Airplane Example:
o With sunk cost: 87% invest in doomed plane
o Without sunk cost: 12% invest in same project.
Season Tickets
o Customers are randomly divided into three groups:
1/3 bought tickets for $15 each.
1/3 given a surprise $2 discount on each.

1/3 given a surprise $7 discount on each.

o People who paid more for the tickets have a higher attendance
o Amount paid shouldnt impact willingness to attend
Health Club Payments
o Attendance greater right after payment/renewal.
o Overall attendance greatest if on 12 month payment plan.

V. Conflict
-

Example:
o Buy a Sony stereo for $99 (one-day sale)? 66% yes 34% wait
o Buy a Sony stereo for $99 (one-day sale)?
o Buy a top-of the line Aiwa stereo for $169?
27% Song 27% Aiwa 46% wait (makes decision harder)
o Why? There was a conflict introduced by Aiwa. Conflict increases the likelihood of
deferring decision.
Example:
Complete a questionnaire for $1.50
o After completion:
1.50 vs. metal pen (25% take cash)
1.50 vs. metal pen vs. two plastic pens (53% take cash)
o Adding an alternate pen introduced conflict.
o Violates Regularity
Adding an alternative similar to the target alternative decrease the likelihood of the target
being chosen.
o A default option becomes more likely to be chosen.
Reducing Conflict
o In Special circumstances, adding an option can reduce conflict, increasing
preference for target.
o If new option is of clearly inferior quality:
$6 vs. elegant pen 36% take elegant pen
$6 vs. elegant pen vs. cheap pen- 46% take elegant pen
Asymmetric Dominance/Attraction Effect
o If new option has a much higher price:
Williams-Sonoma bread maker- Introduced new, expensive bread maker,
make other (original) bread maker seem like a better deal- they sold more.
Compromise Effect

VI. Fairness
-

Willingness to pay for a beer

o From a nice hotel? $2.65
o From a run-down grocery store? $1.50
Fair price may be determined by non-economic considerations.
When is a price increase seen as fair by consumers?
o Fair to protect profit or prevent loss

o NOT to make a bigger profit. NOT because others are making bigger profit. NOT
because of shortage, NOT because the customer can may more than before
o Must select the right reference profit when explaining pricing decisions.
Fairness is more important then economic soundness
o EX: Pepsi/Coke charges more on hot days

VII. Evaluability
-

EX: Dictionaries
o One group sees dictionary A: 20,000 entries, torn cover
o One group sees dictionary B: 10,000 entries, new cover
o One group sees both dictionaries
o When people only see B, they are willing to pay more
Joint evaluation vs. Separate evaluation
o Evaluability: how easy it is to tell whether an object performs well on a certain
attribute?
o Certain attributes are easier to assess when objects are evaluated together
(jointly) than when each object is evaluated on its own.
Often these attributes represent things like quantity, frequency. (also food
portion size).
o Those attributes will only have an effect under joint evaluation.
Even if those attributes are seen as more important overall.

VIII. Self Gifts

-

Generally premeditated and indulgent, people like to treat/reward themselves.

Some paradoxical patterns
o People will pre-commit to luxuries (and constraint their options) to ensure self gifts.
o Want to lock in gifts
o $200 in cash vs. $200 dinner for two
In future: Take dinner
In Present: Take Cash

IX. Decision Rules

-

Non-compensatory: One strike and youre out. Deal-Breaker

o Dell: 750GB hard drive, 2.6 GHz processor, 21 monitor, $699
o HP: 650GB hard drive, 2.7 GHz processor, 19 monitor, $650
o Gateway: 700GB hard drive, 2.7 GHz processor, 19, $699
o Lexicographic Rule: Determine the most important attribute and select the brand
that does best on it.
Most important attribute is price Choose HP
o Elimination by Aspects Rule: Determine the most important attribute. Eliminate any
brands not meeting a minimum level on that attribute.
Most important is that it needs to be below $800 Eliminate none
Next most important is that it needs to have at least a 21 monitor
Eliminate Gateway, HP.

o Conjunctive Rule: Go brand-by-brand. Assess whether each brand meets the

minimum cutoff on all relevant attributes. Put all important attributes together and
eliminate that way
Need a price below $800, a 700+ GB hard drive, and a 2.7 processor
Eliminate Dell, HP. Choose Gateway
Compensatory Rules: Combine across features to decide which is best?
o Simple additive: Choose the one with the largest number of positive attributes.
o Weighted additive: Assign weights to the attributes and sum across attributes to
choose the overall best option.
o Example
Car 1: Good color, bad gas mileage, very reliable, nice floor mats
Car 2: Bad color, good gas mileage, very reliable, bad floor mats

Consumer Judgment
Managerial (and Consumer) Judgment
- Managers often need to make decisions
o In the face on uncertainty
o despite information-processing limitations
- Should we run an ad during the Super Bowl?
o Many things could bias, including:
Availability heuristic- remember good ads, forget bad ads
Sunk Cost
- Consider a few ways in which managerial judgment is especially likely to be biased.
- The Case of AOL
o 1996 Robert Pittman appointed President; he switched to flat-rate pricing (before it
was by the hour). They faced a major change in pricing in four weeks.
o What will you find out what you need to know?
Scan environment
Crunch #s- Stagger implementation
o Faced with a time limit and high uncertainty, what do you do?
o They did an aggressive marketing/advertising campaign
Added 1200 modems
Number of login increase 68%. Average session length increase from 14
mins to 32 mins. House online per month increased.
o We see a demonstration of overconfidence

Overconfidence
- Joseph Kidd case, he had a psychological disorder
- People Learn something about guy, take test, dont do well, but get more confident
- Learn something else about the guy, take test, dont do well, but get even more confident
- People were given more and more parts of information, then take the test, there was low
accuracy, but increased confidence as they were given more info
o Rate confidence that each answer is right from 20% (chance) to 100% (certainty)

o Confidence goes up as they learn more about him.

-

Another example: 12 childrens drawings: From Europe or from Asia?

o Accuracy: 53%
o Confidence: 68%
Another example: Reports on 12 stocks: will they rise or fall?
o Accuracy: 47%
o Confidence: 65%
Another example: Express certainty of answers with odds.
o 3:1 odds = For every three time Im right, Ill be wrong once = 75% confidence
o 99:1 odds = 99% confidence
o As confidence increased from 3:1 to 100:1, accuracy did not increase

Another way to assess calibration: The Surprise Index

- Assessing the surprise index:
o Elicit a confidence interval. For example: Give an interval so that youre 90%
confident that the distance from London to Tokyo lies within it.
o Check: Does the interval include the right answer?
o Compute the proportion of times (across many questions) that the right answer is
outside of the interval.
o This is the surprise index
- The Surprise index indicated whether people are overconfident
o If the interval is to represent 90% confidence, what should the surprise index be if
people are appropriately confident? (10%)
o What would indicate overconfidence? Underconfidence?
- Across many studies with a 98% confidence interval:

o Every study had a surprise index >2%

o Averaging across all studies, surprise index: 32%
Your results: 98% confidence interval for
o Walmart 2009 revenue: Actually $408 billion
o McDonalds 2009 Revenue: Actually 22.7 Billion
o Think back to AOL

Overconfidence- General conclusion

- Overconfidence is fairly prevalent
- Overconfidence greatest when accuracy near chance.
- For every easy tasks, people may be underconfident.
- In general, confidence does not indicate accuracy.
Escaping Overconfidence
- Overconfidence can be reduced with regular feedback and when you list reasons why
you might be wrong
- Correct for other overconfidence. Be wary of 100% confidence
Planning Fallacy
o The fallacy is to believe your project will proceed as planned, even though you
know that most similar projects have run late.
- Lab examples
o Students completing honors thesis:
Estimate: 33.9 days; Actual 55.5 days
o Other short-term academic project:
Estimate: 5.8 days; Actual 10.7 days
o Non-academic project:
Estimate: 5 days; Actual 9.2 days
-

Why does the planning fallacy arise?

o People ignore base-rates
All those other times were flukes
o People engage in scenario thinking
They construct a scenario in which the task gets done.
Easy-to-imagine events seem more likely
o Abolishing the planning fallacy
Focus on relevant past experiences AND think about why this might turn out
like before.

Regression to the Mean

- Ex. Instructors at flight school: a study on how flight school instructors taught training
pilots how to land a plane, even if they did a good job he said they did horrible, if you give
them positive reinforcement, they are likely to slack off the next time
- Ex. Sport Illustrated jinx: the madden curse, whenever an athlete was on the cover of
sports illustrated or the madden football video game, they were more likely to perform
worse
- Whats happening?

Performance fluctuates- either really great or really poor

Eventually, all will regress to the mean, an average performance
By definition, not every performance will be exceptional
The performance following an exceptional performance will almost inevitably be
less exceptional!
But, people seek a further explanation, ignoring regression to the mean(oh, it must be
because of this)
Bad because..ex. sales are low this quarter, manager decides to fire all of his sales staff
because he thinks it is their fault when it was really just regression to the mean
Implications:
o Measures designed in reaction to a crisis will be judged to have worked
o Likely to affect judgment of both managers and consumers.
o
o
o
o

Tyranny of Choice?
- Take a free sample from a display of: 6 jams vs. 30 jams
- Then given a chance to purchase:
o More likely to purchase if initially selected from 6 jams than from 30 jams
o Further studies showed post-perchance satisfaction greater when choosing from a
limited choice set.
Summary: Choice can be affected in many ways not accounted for by the normative theory.
Managers are also likely to exhibited biased judgments. Too much choice, though, can leave us
dissatisfied.

Social Influence and Decisions: Conformity, the Presence

of Others, and Power
Outline:
- Normative Conformity
- Informational Conformity
- Pluralistic Ignorance
- Diffusion of responsibility
o Social loafing
o Bystander effect
- Power
Aschs Study of Perception
- In a room with others, asked to judge which comparison line (in B) matched the standard
(A).

Suddenly, all others began giving wrong answers!

Really a study on conformity
How often will you go along with group and how often will you stick with your own, right
answer.
Results:
o When others gave wrong answer:
76% of nave subjects conform at least once.
On average, people conformed on a third of these trials.
o One subjects thoughts- Standing out like a sore thumb
o If nave subject allowed to give answers privately, conformed on a 12.5%.
o People less likely to conform if people cant hear their answers.
o Driven by saying answers aloud, not by believability.
o Conformity went up with group size (to a point)

I. Normative Conformity
-

Definition: Conformity to meet the expectation of a person or group (Peer pressurechanging what you are doing/thinking in response to a group).
o Asch study
May only lead to mere compliance (not private acceptance)
o Just going long with it changes behavior but does not necessarily change your
thoughts and what you really think about it.
Norms
o Definition: information rules that govern behavior
o Descriptive norms: no pressure to conform
How things are- most people east breakfast
o Prescriptive Norms: Some press to conform
How things should be.- expectations in terms of what you should be doing.
o Consequences of Norm Violations

Johnny Rocco Study

Discuss appropriate punishment for Jonny.
One group member (deviant) told to always disagree.
Deviant received many comments and questions at first, then he was
ignored and punished.
The group is trying to come to an agreement, and deviant is violating
the norm.
o Violating norms is aversive!
Most people try to not violate norms
Norms work for your favor if everyone needs your product to fit it
Will your consumer be violating norms when they buy/use your product?
(cigarettes, certain cloths, porn, Viagra)

Sheriffs Study of Perception

- Really a study on conformity
- Dark room, dot of light 15 feet away.
- How much does it move? (several trials)
- Autokinetic effect: Dot isnt moving, but you think it is.
o People generate fairly stable estimates. (how many in? it is moving? Ex: 2-3
inches
o Estimates differ person-to-person
- Participants return 2 days later to make estimates in a room with 2 others.

Subject start to converge and conform to the same answer. You dont know how much
the dot is moving, so you take others answers and use them to make your answer more
appropriate (close to the correct answer).
People are then tested a third time, this time by themselves. Their answers reflected
those that were learned from the group (informational conformity) used other peoples
answers to learn what the correct answer is

II. Informational Conformity

-

Conformity because groups behavior helps you learn whats right or true in an
ambiguous situation.
Mimic others behaviors because it seems to be correct
o Assume their behavior is a valid indicator.
o Sheriff study: Later allowed to re-estimate in private.
Leads to private acceptance (not just mere compliance).
Crime and Suicide
o 35 suicide stores, for each story an extra 58 people killed themselves. Suicides
that got more coverage led to a greater # of follow up suicide deaths.

o A strange pattern:
After high-profile suicides: (national news) there was a big increase in
accidents that, upon investigations, appear to be masked suicide.
Increase in accidents further investigation showed they were suicides.
Only in areas where the suicide was widely-publicized. Was greater when
suicide got more coverage.
Effects of similarity of victims:
Suicides led to a spike in single-passenger accidents.
Murder-suicides led to a spike in multi-passenger accidents.
Age- when younger person is in paper for suiced, younger people kill
themselves.
o Homicides go up after highly-publicized acts of violence.
Heavyweight championship fights that receive evening new coverage
increase homicide rate.
Copycat crimes
Could theses be cases of information conformity? (learn how people just
like me deal with pain/stress.

III. Presence of others: Pluralistic Ignorance

-

Virtually every member of a group privately feels one way, yet believes that virtually
everyone else privately feels another way
o People mistakenly think that theyre out of step with everyone else.
o Looking around in a classroom, I feel confused but everyone else looks like they
understand. However, everyone is confused but hiding it (like you).
Discrepancy between peoples private views and their public acts.
Results in conformity from almost everyone
o People are conforming to a norm no one is actually happy with!
Examples:
o Gang Members
o College Drinking
Women own comfort = 4.8, other comfort = 7
Men own comfort = 5.8, other comfort = 7
Will lead to conformity
o How to dispel pluralistic ignorance? EDUCATE ABOUT IT
Peer session (about pluralistic ignorance) vs. Individual session (about
responsible alcohol choices)
Those who were in the peer session (about pluralistic ignorance were less
likely to drink (because they realized that less people actually liked to drink
than they thought)
Months later: Peer session participants averages 3 drinks per week, and
individual session participants averages 4.9 drinks per week
o Some products /interventions seem to suffer from pluralistic ignorance problems:
Condoms: I know using condoms is good, but Im worries about what my
partner may think (often times partner feels the same way)
o You may need to dispel pluralistic ignorance, rather than convince people that your
product is good

Ex: you partner wants you to use condoms

IV. Presence of others: Diffusion of Responsibility Social Loafing

-

Diffusion of responsibility- Responsibility for an action gets spread over the whole group.
o People dont work as hard when put into a group
Social Loafing
o As a consequence of DoR, people do not devote as much effort to a task when
their contribution is part of a larger group effort.
o College students yelling
Louder when thought they were alone
Social loafing eliminated when told that their contribution would be
measured
o Examples are all around us:
Tipping in restaurants people tip less per person when in a group then if
you are along (why many restaurants add gratuity for groups)
Group projects!

V.Presence of others: Diffusion of Responsibility- Bystander Effect

-

More likely to act/help when fewer people are around!

Kitty Genovese
o A woman was attacked, chased around for 30 minutes before being stabbed, 38
neighbors said they heard and saw things but no one called police or helped. No
one called b/c there were so many others who could call.
Smoke study
o Single subject: 75% reported
o Groups of three: 38% reported

VI. Power
-

Taxonomy of Power
o Referent Power- (informational conformity) people who you admire. You imitate
them, and follow their behavior because you are trying to be like them.
Ex: celebs, parents, mentors
o Information/Expert Power (informational conformity) some sort of knowledge you
try to learn from someone. Not trying to be like them but follow their
advice/behavior because they are experts. (someone knows something you dont)
Ex: Accountants
o Reward Power (normative conformity) Can reward you in some way
Go along with what someone says/wants to get reward
Ex: Friends- social acceptance
Parents- allowance
Professor- good grades
o Coercive Power- (normative conformity) Can punish you (boss or parent)
Go along with what someone says/wants to avoid being punished
Does not lead to private acceptance
o Legitimate Power - (informational/normative conformity)

Conform because you should

Meter feeding-law enforcement
Informative: learning what he/she says must be true
Normative: I might not believe it, but Ill do it anyway

The Power of Legitimate Power: The Milgram Studies

- Students reads work pairs, has to remember tree, river, etc. If he gets right answer he
movies on if not he is shocked. However, no one really gets shocked the student is
acting.
- 2/3 men agree to use highest shock
- 73% of women went all the way
- Experimenter had legitimate power (also has expert power)
o Both normative and information conformity at work
- When power was removed, no one gave the maximum shock
o When a fellow subject was assigned the experimenter role
o When the student (but not experimenter) encouraged continuance.
- Power can make us do things we wouldnt believe wed do.

Social Influence and Decisions: Reference Groups and

Word of Mouth
I. Reference Groups
-

Individual or group that sets standards for appropriate thoughts and behaviors.
Aspirational Groups- not a part of, but we idolize (Referent Power)
o Celebrities, sports teams, frats/sororities
Membership Groups
o Formal: Club, Team, Frat, Sorority (structured rules/criteria to be a member)
o Informal: Circle of friends (more influential)
Avoidance Groups (Dont want to be a part of- Anti-Referent)
o Antismoking campaigns (see the group, so you do the opposite)
What makes some groups more influential than others?
o 1. Cohesiveness- Close, tightly knit = more influential
o 2. Unanimity- more agreement, less diversity
o 3. Group size- bigger group = more influential
o 4. Power (Expert/Coercive/Reward)

Specific Influential People

- Option Leaders
o Act as information brokers (break down info and filter it for us)
No stake in products success
o Celebrities or average people
Often fairly similar to the people theyre influencing
Socially active, well-connected
o Experts in one category or several related categories
o Evaluate product early (and absorb risk)
o Firms sometimes try to reach or even develop opinion leaders.
- Market Mavens
o Solid overall knowledge
Not specific category expertise
o Interested in shopping and staying on top of whats happening in the marketplace
- Surrogate Consumers
o Paid
Interior decorator, ect.

Word of Mouth (Viral Marketing)

- Advertising is good for awareness but WOM is good for product adoption
- Is it effective?
o Yes, especially in evaluating and adopting new products
o Influences about 2/3 of consumer-goods sales
o More effective than ads?
- Why is it effective?
o More trustworthy than marketer-controlled sources (informational conformity)
o Desire to fit in with friends/family (normative conformity)
- Most relied upon when:
o Unfamiliar new product (complex, risky)
o No clear, objective standard available for judging
o People are especially reluctant to use ad to make decision. (you would use WOM
for various services more likely than ads)
o Marketer unable or unwilling to advertise
Lawyers
Ashley Madison (website where you go to have an affair)

When WOM goes bad

o People may be vocal about their negative experiences (homedepotsucks.com)
o People may create hoaxes/rumors about you:
Febreze Febreze kills pets
Proctor and Gamble satanic
o What do you do?
Nothing: Rumors stay out there
Something locally- small , too small
Something discreetly- never address rumor
Something Big- deny rumor, also spreading it at same time
Belief Perseverance- You cant un-ring a bell Rumors are sticky
Information still exerts influence, even if proven false

Guerrilla Marketing
- Create perception of buzz or positive WOM
- Like guerilla warfare, shun traditional tactics.
o Red Bull appearing on campuses- put empty cans all over campus after exam
weeks to make people think others use it to study.
o Planting products with buzzers- hired to generate buzz about product
Viral Marketing
- Get customers to sell for you
o EX: Hotmail, Yahoo! Every time you send a message using these sites your
recipient gets an ad.

Family, Organizational, and Group Decision Making

I. Organizational Decision Making
-

Consumer decisions in organizations (B2B)

o More $ than in consumer decision making
Characteristics
o Often made by groups or committees
o Often involves substantial amounts of money
o Often involves personal selling One sales person assigned to your account
(builds relationships)
o Examples: Raw materials, Supplies, Real estate, Office supplies, Services
(Consultants, accountants, ad agencies)

Buy-Class Framework
- Types of organizational decisions:
o Straight Re-Buy (Low effort/risk)- Need thats been filled before refill it same way
Out of ink- order more

o Modified Re-Buy (Low to moderate effort/risk)- Need is similar to something

bought before, with a slight change
Had a cleaning service before, thinking about upgrading
o New Task (High effort/risk)- **This is where its more important to understand
group decision-making** - New to organization, never bought before
Decision to carry a whole new product line

II. Family / Household Decision Making

-

Household (def.) Any occupied unit/dwelling

Family Household (def.) At least 2 people, somehow related

Traditional Households
o Extended Families 3 or more generations
o Nuclear Families Parents and Children
o Less nuclear families, more single parent, blended, childless, families
Contemporary Households
o Size- 3.3 in 1960 -> 2.5 today
o Composition (POSSLQ) People of opposite sex sharing living quarters
o Trends
The new extended family as people are getting older, moving back in with
their grown children or when kids move out, more move back in
(boomerang kids).

Family Life-Cycle
- Consumption determines in part by place in the life cycle
- Consider factors such as: (4 necessary variable)
o Age
o Marital status
o Children at home
o Childrens ages

What do people consume?

o Without kids- snack foods, restaurants, cleaning/lawn services, entertainment
o With kids

 Younger: baby food, health food, childcare/healthcare

Older: Junk food, home maintenance
o Empty nesters Cars, womens clothing
o Seniors Healthcare, travel, entertainment
Types of Decisions
- Autonomic: Made by one person
o More likely for:
Simple (low-involvement) products
Families who endorse gender stereotypes- traditional family
Families with an imbalance of resources- one person makes the $
Families with experience making decisions together
Families who are low or high SEC (socio-economic status)
o Husband-dominant products Insurance, law, alcohol
o Wife-dominant products Food, cleaning, kids clothing, furnishings
- Syncretic: Made by the family (any time decision isnt made by one person)
o Seen with bigger purchases (car, vacations)
o Types
Consensual- All agree about preferences/priorities
Accommodative Preferences/priorities are not aligned and in
disagreement
Group Polarization
- Discussion typically strengthens the average initial inclination of group members- start
out in favor of something, put in group to discuss, come out even more in favor of that
thing.
- Example: Business students deciding whether to take out a high-risk loan to save an
ongoing project (Sometimes called decision polarization)
o Pre-discussion: 72% agreed
o Post-discussion: 94% agreed
- Why does it happen?
o Two categories of explanations
Getting extra information (informational influence)
Desire to fit with the group (normative influence)
Groupthink
- Agreement-seeking becomes so dominant that alternate courses of action are not
examined.
- Happens when:
o Group is cohesive (close)
o Group is isolated from dissent (working in secret)
o Arguments are suppressed
Mocking
Mind-guard- takes on role of group protector
Self-censorship- b/c we want to agree
o Directive leader signals a preference
- Even groups of very smart people make bad decisions

o Example: Bay of Pigs Invasion orchestrated by JFK

Secret plan to train 1400 Cuban exiles, launch rebellion to overthrow
Castro- DIDNT WORK AT ALL. They looked back at plan and saw
numerous faulty assumptions.
Preventing Groupthink
o Education (about groupthink)
o Impartial leader
o Encourage doubters
o Assign a devils advocate
o Break into smaller groups
o Example: Challenger explosion
Seals werent meant to hold in cold weather, gasses mixed and shuttle blew
up. Months earlier, we dont know if seal will bold in cold weather.
Engineer voted not to launch, managers over rode, Nasa launched

Information Sharing in Group

- Studies on group deliberation
o Information was divided across the group
o Shared info: known by all members
o Unshared info: known by one member
o Results:
Shared info discussed more often, discusses sooner
The only way decisions improved though, was when people pooled their
unshared information together.
o Encourage sharing of unshared!

Consumption, Satisfaction, and Disposal: What happens

after purchase?
What might we want to manage in consumption?
Amount consumed, Consider:
-When consumed?
Wine- We want consumers to consume on a regular basis as opposed to saving it for a
special night.
Orange juice- consume at other times other than breakfast.
-Where consumed?
-import vs. domestic- try to get drinkers to have imports at home
- How consumed?
-Arm & Hammer baking soda- positioned to use as a odor absorber as well as in baking

- How often consumed?

- services- stickers to get oil changed
-How much consumed at once?
-Poptarts, 1 serving of poptarts is one poptart, however they come in two to a package,
therefore the consumers tend to consume more than the serving
-detergent caps- bigger than what you need so you use more detergent.
What might we want to manage in consumption?
-

Satisfaction with consumption. Consider:

o Enjoyment
o (perceived) Quality (and value)

Do we choose what we will enjoy?

-not always
- choice drivers may differ from enjoyment drivers
Example: River Rafting
how many rivers are we going to do down?
how many amenities?
-Satisfaction has more to do with intangible things- feelings, emotions, harmony with nature.
Preference in Choice vs. Preference in Consumption
-In choice, quantitative differences seem important.
-may choose the item that maxes out on a particular easy-to-quantify dimensions.
-Qualitative differences often end up affecting real experiences more
-Apt complexes draws students in by a long list of amenities; however, whether you like it or
not usually depends on experience there.
Feature creep- so many features.
Choice vs. Consumption Experience
-People do not predict well that theyll like:
- some attributes loom large in choice, not in experience.
-People arent good at predicting future tastes.
-Plain yogurt- people predicted they would hate it by the end of a week (tasting it everyday
for a week), they actually became neutral about it.
- chocolate ice cream- people thought they might get sick of it at the end of the week, but
actually they didnt.
The Endowment Effect
Group 1 (sellers) were given a mug and asked to set a price to sell for it. $6
Group 2 (buyers) shown the same mug and asked to set a price for how much they would
purchase it. $1.8

-Both groups have the same task- how much is it worth to you.
-Sellers require more money to part with the mug than the buyers would pay to acquire the mug.
-There is no real reason for the groups to differ in the value of the much
-MERE OWNERSHIP INCREASES PERCEPTION OF WORTH
*Buyers were given candy, and they were allowed to trade for mug. Very few people traded.
Are people aware that their values are so dramatically affected by ownership?
Second part to experiment:
-if you are a buyer, predict sellers valuation of the mug- $4.2
-if you are a seller, predict buyers valuation of the mug- $3.9
-Sellers require more money to part with the mug than buyers would pay to acquire the mug.
-but people dont seem to realize that this will happen
-EMPATHY GAP- cant predict how a certain change will affect you.
More on Empathy Gaps.
Example- ordering at a restaurant
-you are starving, so you order a salad, bread, an appetizer and an entre.
*you think you will be hungry still after you eat the bread, salad, and appetizer.
-Can capitalize on empathy gaps:
-Return policy- very few people will actually return online purchases
- encourage pre-commitment-telling customers about your chocolate cake that takes a few extra minutes to
prepare so you should order it while you are ordering your meal.
-Fridays- 3 course meal for 12.99
-Customers may not always know how they feel or what they will like.
-Enjoyment at consumption may not be well-predicted by choice.
Other Influences on Enjoyment of Consumption
- Unforeseen influences
o Airplane flights
- Happenstance features of the consumption environment- multitasking0 eating while
watching tv, etc
-What is the effect of distraction on consumption?
-Background:
-Pain (like from an injection) is actually greater when youre distracted than when
youre focusing on it.
- What about enjoyment?
Does Distraction Influence Enjoyment?

-Taste Lindt chocolate:

- high distraction: while remembering an eight-digit number.
- low distraction: while remembering a two-digit number.
- Mext choose between Lindt and Godiva chocolate.
-high distraction: 66% choose Lindt
-low distraction: 46% choose Lindt.
-People liked Lindt MORE if distracted while tasting it
Two- Factor theory:
-two things contribute to our enjoyment of an experience:
-affective component
-cognitive component
- with something like chocolate, affective may be more positive that cognitive
Distractionreduced influence of cognitive component.
Reduced influence of cognitive componentincreased enjoyment/liking of product
Distraction and the Cognitive Component
-Follow-up: if people are encouraged to focus on affective component, they like chocolate more,
even if they arent distracted.
-they tune out the (more negative) cognitive component
-Distraction promotes enjoyment if affective component is more positive than cognitive (like with
chocolate)
Choices will not always predict enjoyment:
-We may not know what we will like..
-other factors may intervene
-So, you cant be sure consumers will enjoy your product just because they chose it.
-But the enjoyment is only part of the picture.
(Perceived) Quality:
-

Beyond enjoyment, consumers make judgments about quality.

Acceptable level seems to vary
Expectations determine acceptable level

Expectancy Disconfirmation Model

Expectancy formed when:
-Prior experience with product.
- ad campaigns and packaging
-Word of Mouth
-promises or warnings- out of stock, kitchen backed up, delivered on
Three potential outcomes:
- Expectancy met.
- Positive disconfirmation.

o Encourage
Negative disconfirmation
o Avoid!

What if data is ambiguous?

-Cant tell if expectancy is met.
What sorts of products? Vitamins, financial consulting, detergents
-If you have a prior expectancy, odds are youll confirm it.
-perceptual confirmation again
Are people satisfied with their products?
-American Customer Satisfaction Index (ACSI)
(all below influence satisfaction, yet expectations influence perceived quality and perceived
value.)
-Measures:
Expectations
-experience with product
- information about product
Perceived quality- most important
-overall quality
- overall reliability
- were needs met?
Perceived value:
-overall price given quality
-overall quality given price.
ASCI SCORES
Highest: soft drinks, pet foods, apparel, personal care
Moderate: Gas stations, life insurance, athletic shoes, grocery stores- Publix best ranked.
Lowest: fast food, banks
Really low: IRS
Overall, were satisfied.
Dissatisfaction
When/why do people get satisfied?
How do they respond?
-To store (voiced response)
-To friends/acquaintances (private response)
-third party- Better Business Bureau, writing a letter to the newspaper, reviews on
website, blogging

Factors leading to voiced response:

-Awareness of proper channels and ability (including time) to use them.
-Large investment in product.
-expense
-long-standing relationship
-bound to future relationship
-General satisfaction with store.
-Stores likelihood of response.

Managing Dissatisfaction
Must do it.
Its cheaper to retain old customers than acquire new customers.
Three responses:
o Receive something free- only thing that really helps improve view
o Receive apology-does nothing
o Receive nothing- worst option
Diposal

-May be usable but no longer useful.

-Options: Keep
Temporary disposal-loaning out, rent
Permanent disposal-sell, donate, give.
**each has its own set of options.
Why care about disposal?
-disposal may be necessary for re-purchase
-disposal in the form of selling used merchandise may hurt firm.
-disposal of the firms packaging: may be wasteful and may make the firm the target of protests,
boycotts.
Ex- mcdonalds- used to be packaged in Styrofoam, however that stirred protests so they
switched to plastic and paper even though that generates more energy to produce.