behavioral economics + online retail

Presented by Paul M. CohenFounder & CEO of Cognection

Behavioral Economics + Online Retail

CONFIDENTIAL | Do Not Distribute

Heuristics

People are irrational

$8008 megapixels

Camera A

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

$8008 megapixels

$1,00010 megapixels

Camera A Camera B

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

QUALITY

PRICE$8008 megapixels

$1,00010 megapixels

Camera A Camera B

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

QUALITY

PRICE

Assume identical on all other dimensions

$8008 megapixels

$1,00010 megapixels

Camera A Camera B

(Or, that these two dimensions predict most of your choice)

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

QUALITY

PRICE$8008 megapixels

$1,00010 megapixels

Camera A Camera B

Sensitive to price Sensitive to quality (megapixels)

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

QUALITY

PRICE$8008 megapixels

$1,00010 megapixels

Camera A Camera B

Sensitive to price Sensitive to quality (megapixels)

50% 50%

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

$8008 megapixels

Camera A

$1,00010 megapixels

Camera B

$1,2009 megapixels

Camera C

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

$8008 megapixels

Camera A

$1,00010 megapixels

Camera B

$1,2009 megapixels

Camera C

“Wait, this is a pretty bad option…”

“Camera B is way better than

camera C…”

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

$8008 megapixels

Camera A

$1,00010 megapixels

Camera B

$1,2009 megapixels

Camera C

“Wait, this is a pretty bad option…”

“Camera B is way better than

camera C…”

40% 58% 2%

Huber, Payne, & Puto, 1982; Dhar & Simonson, 2003

Target

Target

Target

Context Effects

Context EffectsIt depends on the

context of the choice

Context EffectsIt depends on the

context of the choice

Tall Grande Venti

Simonson, 1989

Tall Grande Venti

That’s not enough for

me…

Simonson, 1989

Tall Grande Venti

That’s not enough for

me…

But I don’t want that

much…

Simonson, 1989

Tall Grande Venti

That’s not enough for

me…

But I don’t want that

much…

Seems about right

Simonson, 1989

Tall Grande Venti

That’s not enough for

me…

But I don’t want that

much…

Seems about right

preference

Simonson, 1989

Tall Grande Venti Trenta Quadragrane

Simonson, 1989

Tall Grande Venti Trenta Quadragrane

That’s not enough for

me…

Simonson, 1989

Tall Grande Venti Trenta Quadragrane

That’s not enough for

me…

But I don’t want that

much…

Simonson, 1989

Tall Grande Venti Trenta Quadragrane

That’s not enough for

me…

But I don’t want that

much…

Seems about right

Simonson, 1989

Tall Grande Venti Trenta Quadragrane

That’s not enough for

me…

But I don’t want that

much…

Seems about right

preference

Simonson, 1989

Tall Grande Venti Trenta Quadragrane

That’s not enough for

me…

But I don’t want that

much…

Seems about right

preference

Gravitate towards the center “compromise” option

Simonson, 1989

Is the Amazon river longer or shorter than

5,000 miles?

Is the Amazon river longer or shorter than

5,000 miles?

How long is the Amazon river?

Is the Amazon river longer or shorter than

3,000 miles?

Is the Amazon river longer or shorter than

3,000 miles?

How long is the Amazon river?

Is the Amazon river longer or shorter than 3,000 miles?

Is the Amazon river longer or shorter than 5,000 miles?

Tversky & Kahneman, 1974

Is the Amazon river longer or shorter than 3,000 miles?

Is the Amazon river longer or shorter than 5,000 miles?

4,500 3,500

Tversky & Kahneman, 1974

Anchoring

AnchoringBecome anchored

to specific pieces of data

0909

0986

0986

$36.00 $21.00

6 types of Jam

Iyengar & Lepper, 2000

6 types of Jam

Iyengar & Lepper, 2000

40% looked

6 types of Jam 24 types of Jam

Iyengar & Lepper, 2000

40% looked

6 types of Jam 24 types of Jam

Iyengar & Lepper, 2000

40% looked 60% looked

6 types of Jam 24 types of Jam

Iyengar & Lepper, 2000

40% looked 60% looked

30% bought 3% bought

Choice Overload

Choice OverloadWe want lots of

options….

Choice OverloadWe want lots of

options….

But we’re happier with fewer options

Context effects• Bar, cameras, and Economist.com –

asymmetric dominance • Coffee & popcorn – compromise

Context effects• Bar, cameras, and Economist.com –

asymmetric dominance • Coffee & popcorn – compromise

Anchoring• Amazon river• Social security number and bidding

Context effects• Bar, cameras, and Economist.com –

asymmetric dominance • Coffee & popcorn – compromise

Anchoring• Amazon river• Social security number and bidding

Choice Overload• Jam

Cognitive Comparisons

Algorithmic Behavioral Economics

+ Data Engine

In Stock Yes Yes Item# N82E16830124205 N82E16830180374 Model# EX-ZS5BK DMC-FH25K Brand Casio Panasonic Series Exilim Color Black Dimensions (WxHxD)

3.8”(W) x 2.2”(H) x 0.82”(D) (excluding projections; 0.76”) 3.9" x 2.2" x 1.1"

Weight

Approximately 5.0oz (Including Battery and Memory Card*)Approximately 4.2oz (Excluding Battery and Memory Card)* 1GB : When using Panasonic Pro High Speed 1GB SD Memory Card

Approx. 152g with Battery and SD Memory Card (0.33 lb) Approx. 135g without Battery and SD Memory Card (0.30 lb)

Type Compact Compact Image Sensor 1/2.3" CCD Effective Pixels 14.1 MP 14.1 MP

Resolution

14M(4320x3240)/3:2(4320x2880)/16:9(4320x2432)/10M(3648x2736)/6M(2816x2112)/3M(2048x1536)/VGA(640x480)

4:3 4608x3456(16M) / 3648x2736(10M EZ) / 2560x1920(5M EZ) / 2048X1536(3M EZ) / 640X480(0.3M EZ)3:2 4608 x 3072 (14M)16:9 4608 x 2592 (12M)

Optical Zoom 26x 30xDigital Zoom 4xWide Angle 28mm

Focal Lengthf=4.7 - 23.5mmApprox. 26 - 130mm (35mm-Film Equivalent)

f=5-40mm (28-224mm in 35mm equiv.)

Aperture F2.8(W) - F6.5(T) F3.3 - 5.9/ 2-Step (F3.3 - 10 (W) / F5.9 - 18 (T))

Shutter Type CCD electronic shutter and mechanical shutter

Shutter Speed Auto: 1/2 - 1/2000 secondNight Scene: 4 - 1/2000 second

Still: approx. 8 - 1/1600 sec Starry Sky Mode : 15, 30, 60sec.

Self-timer 10 seconds, 2 seconds, Triple Self-timer 2s or 10s

Focus Type Contrast Detection Auto Focus Auto Focus Yes

Focus Modes Auto Focus, Macro, Super Macro, Infinity mode, Manual focus

Normal / Macro, Zoom Macro, Quick AF (Always On), AF Tracking

Focus Area/Point AF Area: Spot, Multi, Tracking

Manual FocusApprox. 5.9055” - Infinity (W)* Using optical zoom causes the aperture to change

Macro Focus Range

Approx. 1.9685” - 19.685” (W) (Third step from widest setting)

Wide 5 cm - infinity / Tele 100cm - infinity

Flash Mode Auto, Flash off, Flash on, Red eye reduction

Auto, Auto/Red-eye Reduction, Slow Sync./Red-eye Reduction, Forced On, Forced Off

Flash Range

Normal: 0.5ft (*2) - 9.4ft (W)Approx. 1.3ft - 4ft (T)* Range is affected by optical zoom*2 Macro Focus

0.6 - 5.8m (Wide/I.ISO), 1.0 - 3.2m (Tele/I.ISO)

Exposure Control Program AE Program AE

Exposure Compensation -2EV to +2EV (in 1/3EV steps) 1/3 EV step, +/-2 EV

Metering System

Multi pattern, (center weighted for some BS scenes) by CCD Intelligent Multiple

Sensitivity Auto/ ISO64/ ISO100/ ISO200/ ISO400/ ISO800/ ISO1600

I.ISO / 100 / 200 / 400 / 800 / 1600 High Sensitivity mode (ISO 1600-6400)

White BalanceAuto WB, Daylight, Overcast, Shade, Day White Fluorescent, Daylight Fluorescent, Tungsten, Manual WB

Auto / Daylight / Cloudy / Shade / Incandescent / White Set

Viewfinder LCD monitor LCD 2.7" 2.7"

PlaybackPlayback Zoom(8X), 25-image Screen, Start-up Images, Rotate, Re-size, Trimming, Copy, BGM Slideshow, Red Eye Correction

Normal Playback, Slideshow, Filtering Playback(Category Playback), Calendar Playback

File Formats JPEG (Exif Ver. 2.3), DCF2.0, DPOF JPEG (DCF / Exif2.3)

Internal Memory 14.2MB approx. 70MB

Storage Media SD / SDHC / SDXC Card SD / SDHC / SDXC Card

Movie Format Motion JPEG, AVI format, IMA-ADPCM (monaural) MOV (QuickTime Motion JPEG)

Movie Recording Yes

VGA: 640 x 480 pixels, 30fps (Motion JPEG) QVGA: 320 x 240 pixels, 30 fps (Motion JPEG)1280x720 pixels, 24fps (Motion JPEG)

Max. Recording Resolution 848 x 480

USB Yes Yes A/V Out Yes Yes Mic Yes

Battery Rechargeable lithium ion battery (NP-80)

Li-ion Battery Pack (3.6V, Minimum: 660mAh) (Included)

FeaturesFace Detectioneasy Mode and 23 BEST SHOT ModesOptimized for Eye-Fi

Image Stabilization MEGA O.I.S. (Off / On)

Normal Focus Range Wide 50 cm - infinity / Tele 200

cm - infinity

Scene Modes

Portrait, Soft Skin, Transform, Self-Portrait, Scenery, Panorama Assist, Sports, Night Portrait, Night Scenery, Food, Party, Candle Light, Baby1, Baby2, Pet, Sunset, High Sensitivity, Hi-Speed Burst, Flash Burst, Starry Sky, Fireworks, Beach, Snow, Aerial Photo, Pin Hole, Film Grain, High Dynamic(Standard, Art, B&W), Photo Frame

Color Mode Standard, Vivid, Natural, Black & White, Sepia, Cool, Warm, Happy (only in iA Mode)

Parts 1 year limited Labor 1 year limited Notes & Disclaimers

Limited Replacement Only Return Policy Standard Return Policy

Casio EX-ZS5BK Black 14.1 MP 2.7" LCD 26X Optical Zoom

26mm Wide Angle Digital Camera

$260.00

Panasonic DMC-FH25K Black 14.1 MP 2.7" 230k LCD 30X

Optical Zoom 28mm Wide Angle

$300.00

In Stock Yes Yes Item# N82E16830124205 N82E16830180374 Model# EX-ZS5BK DMC-FH25K Brand Casio Panasonic Series Exilim Color Black Dimensions (WxHxD)

3.8”(W) x 2.2”(H) x 0.82”(D) (excluding projections; 0.76”) 3.9" x 2.2" x 1.1"

Weight

Approximately 5.0oz (Including Battery and Memory Card*)Approximately 4.2oz (Excluding Battery and Memory Card)* 1GB : When using Panasonic Pro High Speed 1GB SD Memory Card

Approx. 152g with Battery and SD Memory Card (0.33 lb) Approx. 135g without Battery and SD Memory Card (0.30 lb)

Type Compact Compact Image Sensor 1/2.3" CCD Effective Pixels 14.1 MP 14.1 MP

Resolution

14M(4320x3240)/3:2(4320x2880)/16:9(4320x2432)/10M(3648x2736)/6M(2816x2112)/3M(2048x1536)/VGA(640x480)

4:3 4608x3456(16M) / 3648x2736(10M EZ) / 2560x1920(5M EZ) / 2048X1536(3M EZ) / 640X480(0.3M EZ)3:2 4608 x 3072 (14M)16:9 4608 x 2592 (12M)

Optical Zoom 26x 30xDigital Zoom 4xWide Angle 28mm

Focal Lengthf=4.7 - 23.5mmApprox. 26 - 130mm (35mm-Film Equivalent)

f=5-40mm (28-224mm in 35mm equiv.)

Aperture F2.8(W) - F6.5(T) F3.3 - 5.9/ 2-Step (F3.3 - 10 (W) / F5.9 - 18 (T))

Shutter Type CCD electronic shutter and mechanical shutter

Shutter Speed Auto: 1/2 - 1/2000 secondNight Scene: 4 - 1/2000 second

Still: approx. 8 - 1/1600 sec Starry Sky Mode : 15, 30, 60sec.

Self-timer 10 seconds, 2 seconds, Triple Self-timer 2s or 10s

Focus Type Contrast Detection Auto Focus Auto Focus Yes

Focus Modes Auto Focus, Macro, Super Macro, Infinity mode, Manual focus

Normal / Macro, Zoom Macro, Quick AF (Always On), AF Tracking

Focus Area/Point AF Area: Spot, Multi, Tracking

Manual FocusApprox. 5.9055” - Infinity (W)* Using optical zoom causes the aperture to change

Macro Focus Range

Approx. 1.9685” - 19.685” (W) (Third step from widest setting)

Wide 5 cm - infinity / Tele 100cm - infinity

Flash Mode Auto, Flash off, Flash on, Red eye reduction

Auto, Auto/Red-eye Reduction, Slow Sync./Red-eye Reduction, Forced On, Forced Off

Flash Range

Normal: 0.5ft (*2) - 9.4ft (W)Approx. 1.3ft - 4ft (T)* Range is affected by optical zoom*2 Macro Focus

0.6 - 5.8m (Wide/I.ISO), 1.0 - 3.2m (Tele/I.ISO)

Exposure Control Program AE Program AE

Exposure Compensation -2EV to +2EV (in 1/3EV steps) 1/3 EV step, +/-2 EV

Metering System

Multi pattern, (center weighted for some BS scenes) by CCD Intelligent Multiple

Sensitivity Auto/ ISO64/ ISO100/ ISO200/ ISO400/ ISO800/ ISO1600

I.ISO / 100 / 200 / 400 / 800 / 1600 High Sensitivity mode (ISO 1600-6400)

White BalanceAuto WB, Daylight, Overcast, Shade, Day White Fluorescent, Daylight Fluorescent, Tungsten, Manual WB

Auto / Daylight / Cloudy / Shade / Incandescent / White Set

Viewfinder LCD monitor LCD 2.7" 2.7"

PlaybackPlayback Zoom(8X), 25-image Screen, Start-up Images, Rotate, Re-size, Trimming, Copy, BGM Slideshow, Red Eye Correction

Normal Playback, Slideshow, Filtering Playback(Category Playback), Calendar Playback

File Formats JPEG (Exif Ver. 2.3), DCF2.0, DPOF JPEG (DCF / Exif2.3)

Internal Memory 14.2MB approx. 70MB

Storage Media SD / SDHC / SDXC Card SD / SDHC / SDXC Card

Movie Format Motion JPEG, AVI format, IMA-ADPCM (monaural) MOV (QuickTime Motion JPEG)

Movie Recording Yes

VGA: 640 x 480 pixels, 30fps (Motion JPEG) QVGA: 320 x 240 pixels, 30 fps (Motion JPEG)1280x720 pixels, 24fps (Motion JPEG)

Max. Recording Resolution 848 x 480

USB Yes Yes A/V Out Yes Yes Mic Yes

Battery Rechargeable lithium ion battery (NP-80)

Li-ion Battery Pack (3.6V, Minimum: 660mAh) (Included)

FeaturesFace Detectioneasy Mode and 23 BEST SHOT ModesOptimized for Eye-Fi

Image Stabilization MEGA O.I.S. (Off / On)

Normal Focus Range Wide 50 cm - infinity / Tele 200

cm - infinity

Scene Modes

Portrait, Soft Skin, Transform, Self-Portrait, Scenery, Panorama Assist, Sports, Night Portrait, Night Scenery, Food, Party, Candle Light, Baby1, Baby2, Pet, Sunset, High Sensitivity, Hi-Speed Burst, Flash Burst, Starry Sky, Fireworks, Beach, Snow, Aerial Photo, Pin Hole, Film Grain, High Dynamic(Standard, Art, B&W), Photo Frame

Color Mode Standard, Vivid, Natural, Black & White, Sepia, Cool, Warm, Happy (only in iA Mode)

Parts 1 year limited Labor 1 year limited Notes & Disclaimers

Limited Replacement Only Return Policy Standard Return Policy

Jam Man in Bar Coffee Sizes River Length

Cognitive Comparisons

Cognitive Comparisons

Cognitive Comparisons

Choice Justification

Cognitive Comparisons

Cognitive Comparisons

Cognitive Comparisons

Higher Profit

Margin

Cognitive Comparisons

Engagement

24%

Conversions

+12.8%

Presented by Paul M. CohenFounder & CEO of Cognection

Behavioral Economics + Online Retail

CONFIDENTIAL | Do Not Distribute