1 consumer decision making-1 mishra, s., & olshavsky, r. (2005). rationality unbounded: the...
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Consumer Decision Making-1
Mishra, S., & Olshavsky, R. (2005). Rationality Unbounded: The Internet and Its Effect on Consumer Decision Making. Chapter 17 of Online
Consumer Psychology.
Ravi VatrapuDirector, Computational Social Science Laboratory (CSSL)
Associate Professor, Center for Applied ICTCopenhagen Business School
Howitzvej 60, 2.10, Frederiksberg, DK-2000, Denmark
http://www.itu.dk/people/rkva/
Monday, 11-April-2011
T14: Human Information Processing: Lecture 21
2A20, ITU, Copenhagen, Denmark
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Neoclassical Rational Model of the Consumer
Three main assumptions:
1. Perfect knowledge about possibility sets
2. Transitivity of preferences
3. Existence of a scheme of preferences for all available alternatives
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Simon’s Bounded Rationality
Decision-making is Satisficing rather than Optimizing
Three main assumptions:
1. Limited Knowledge
2. Information is costly to collect and store
3. Economic behavior requires trial-and-error search process
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Consequences of Bounded Rationality
Cognitive Effort vs. Decision Accuracy tradeoffs
Less-accurate heuristics over optimal choice rules
Task Effects Time pressure Number of alternatives and number of attributes Response modes
Context Effects Similarity of alternatives
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Decision Heuristics
Weighted Additive Rule (WADD)
Equal Weight Rule (EQW)
Elimination-By-Aspects (EBA)
Lexicographic (LEX)
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Weighted Additive Rule (WADD): Example
Textbook: Table 17.2 (p. 365)
Alternative A: (6x4) + (4x7) + (2x4) = (24) + (28) + (8) = 60
Alternative B = 44 Alternative C = 54
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Picture Quality Versatility Convenience
Weights 6 4 2
Alternative A 4 7 4
Alternative B 2 7 2
Alternative C 4 6 3
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Equal Weight Rule (EQW): Example
Same as Weighted Additive Rule (WADD) but with Equal Weights
Alternative A = 4 + 7 + 4 = 15 Alternative B = 2 + 7 + 2= 11 Alternative C = 4 + 6 + 3 = 13
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Picture Quality Versatility Convenience
Weights 4 4 4
Alternative A 4 7 4
Alternative B 2 7 2
Alternative C 4 6 3
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Elimination By Aspects (EBA): Example
Form cutoffs for the most important attribute Eliminate all products with attributes not meeting the cutoff Repeat till only one product remains
Select Picture Quality First Alternative B is eliminated Select Versatility Next Alternative C is eliminated and Alternative A is selected
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Picture Quality Versatility Convenience Cutoff 3 7 4
Alternative A 4 7 4
Alternative B 2 7 2
Alternative C 4 6 3
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Lexicographic (LEX): Example
Select most important attribute Select the product with the best value on the attribute Resolve ties by selecting the next important attribute
Select Picture Quality First Alternative A and Alternative C are selected Select Versatility Next Alternative C is eliminated and Alternative A is selected
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Picture Quality Versatility Convenience
Alternative A 4 7 4
Alternative B 2 7 2
Alternative C 4 6 3
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WADD & EQW
Compensatory Utility loss in one attribute can be traded off
with utility gain in another attribute of the same product
Alternative-based All alternatives are considered
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EBA & LEX
Non-Compensatory Utility loss in one attribute CAN NOT be
traded off with utility gain in another attribute of the same product
Attribute-based Only specific set of attributes are considered
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Internet’s Effect on Decision Heuristics
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Impact on all Four Components of Consumers’ Choice Space:
1. Evaluation Strategies
2. Evaluative Criteria
3. Consideration Set
4. Image of Alternatives within the Consideration Set
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(Un)Bounded Rationality
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Authors’ Claim: The Three main assumptions might not be valid
1. Limited Knowledge
2. Information is costly to collect and store
3. Economic behavior requires trail-and-error search process
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Online Consumer Psychology
Hood, K., & Schumann, D. (2007). The Process and Consequences of Cognitive Filtering of Internet Content: Handling the Glut of Internet Advertising. In D. Schumann & E. Thorson (Eds.), Internet advertising: Theory and Research (pp. 185-202): Lawrence Erlbaum Associates.
Henry, P. (2005). Is the Internet Empowering Consumers to Make Better Decisions, or Strengthening Marketers' Potential to Persuade? . In C. Haugtvedt, K. Machleit & R. Yalch (Eds.), Online consumer psychology: understanding and influencing consumer behavior in the virtual
world (pp. 345-360): Lawrence Erlbaum Associates.
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The Internet Revolution
Traditional Media Newspapers Radio Television
SMEs and MNCs Virtual Storefronts Brand Comparisons
Travel and Tourism Government Education Libraries
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Human Information Processing-1Hood, K., & Schumann, D. (2007). The Process and Consequences of Cognitive Filtering of Internet Content: Handling the Glut of Internet Advertising. In D. Schumann & E. Thorson (Eds.), Internet advertising: Theory and Research (pp. 185-202): Lawrence Erlbaum Associates.
Sometimes there can even be too much of a good thing
Limited Cognitive Capacity Information Overload Clutter Effects
Sensation, Perception, Attention, Cognition, Action
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Human Information Processing-2
Contextual Cuing Situations influence perception Task demands influence attention Knowledge, skills and abilities influence cognition
and action
Internet Search Process Circuitous Process Decision Heuristics
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Cognitive Filtering
Learning in and of itself is selective (Broadbent)
Cognitive filtering is a coping mechanism
Internet Search: Two Primary Goal States Information-seeking goal state Desired Experiential State
Moderators of Cognitive Filtering Individual Differences Situational Influences
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Consequences of Cognitive Filtering
Restriction of exposure to diversity Intergroup-bias
First-order effects (confirmation bias) Second-order effects (inaccuracies) Third-order affects (restricted action)
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Implications of Cognitive Filtering
1. Accurate targeting of an online consumer’s “in-group” online spaces
2. Online market segmentation
3. Online communities
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Online Consumer Decision-MakingHenry, P. (2005). Is the Internet Empowering Consumers to Make Better Decisions, or Strengthening Marketers' Potential to Persuade? . In C. Haugtvedt, K. Machleit & R. Yalch (Eds.), Online consumer psychology: understanding and influencing consumer behavior in the virtual world
(pp. 345-360): Lawrence Erlbaum Associates.
Two Themes: Is the Internet
1. Empowering Consumers’ Decision-Making?
2. Strengthening Marketers’ Persuasion Potential?
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Henry’s Central Claim
“Despite the impact of innovation on media alternatives, we must realize that we are faced with human characteristics that remain constant over time.” (p. 346)
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Henry’s Four Skepticisms
1. Enhanced Decision Capability
2. Search Patterns
3. New Decision Strategies
4. Consumer Empowerment
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Human Information Processing
Information Overload “Single-Feature Responding” From “product orientation” to “marketing orientation” Online Heath information example
Constraining Factors Limits to Human Information Processing Limited Time Expanded Information More Cognitive Effort Increased Choice but decreased perception of power
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HUMAN DECISION-MAKING
Information presentation and communication requirements
Financial Decisions Kahneman & Tversky’s Prospect Theory
Decision-Making Heuristics Habitual Repurchase Most well-known brand Price as proxy for quality Third party opinions (experts, friends, trusted others)
“Short-cuts have utility” (p. 354)
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HUMAN COGNITIVE VARIABILITY
Different Cognitive Characteristics Knowledge Skills Abilities
“Access is only empowering if one has these prerequisite skills” (p. 354)
• Visual vs. Textual
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TECHNOLOGY CYCLES
Increased Time Pressure
Expanded Access to Information
Greater Range of Choice
Human Cognitive Limitations
Technology cycles that results in the default shortcut to reliance on expert opinion
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HENRY’S CLAIM
If this approximates reality, then the Internet will not change the basic decision strategies, nor it will lead to substantial knowledge enhancement.” (p. 356, emphasis mine)
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RECOMMENDATIONS
Understanding of Consumers’ Decision-Making Processes
Involvement with the category
Identification of current information-search patterns
Alternative evaluation criteria
Duration of the decision process
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THREE APPROACHES TO DECISION-MAKING INSIGHTS
1. Expert questioning Form a panel of prospective customers Facilitate expert questioning sessions
2. Guided Recall Category need identification Subsequent product purchase processes and outcomes
3. Triadic sorting• Sets of three product alternatives• Select one that is most different than the other two
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