lecture three © copyright ： qinwang 2013 [email protected] shufe school of international...
TRANSCRIPT
Consumer behavior
Rational or irrational
Rational behavior
Individual Decision is about two facets ： In element market ， you are supplier In product market ， you are a consumer
Money is not easy to gain. How to make your consumption decisions to maximize total satisfaction from consuming various goods and services.
1 、 Utility2 、 Budget3 、 consumer decision
Utility
Benefits consumers obtain from goods & services they consume is utility
A utility function shows an individual’s perception of the utility level attained from consuming each conceivable bundle of goods
Budget
Consumers decision is subject to the constraint that spending on goods exactly equals the individual’s money income
Consumer’s Budget Line
Shows all possible commodity bundles that can be purchased at given prices with a fixed money income
X YM P X P Y
X
Y Y
PMY X
P P
or
Quanti
ty o
f Y
Quantity of X
X
Y Y
PMY X
P P
•
•
A
B
Y
MP
X
MP
Indifference Curves
Locus of points representing different bundles of goods, each of which yields the same level of total utility
Negatively sloped & convex
Constrained Utility Maximization
A•
I
C•
•B
II
R
T
Quantity of burgers
Qu
anti
ty o
f piz
zas
0 8020 10040 60
10
20
30
40
50
7010 9030 50
•E
III
•D
IV
45
15
The best choice: Utility Maximization
Consumer allocates income so that the marginal utility per dollar spent on each goods is the same for all commodities purchased
X Y
X Y
MU MU
P P
How to evaluate utility
In 19th century, Jeremy ’s Bentham (English philosopher and sociologist) hoped: if scientist could create a machine to read the happiness of human beings, that is terrific.
Reservation price as utility?
Reservation price: the highest price a buyer is willing to pay for a goods or service. If you prefer chocolate ice-scream rather than Vanilla ic
e Cream, you may want to pay more for chocolate ice-scream
If you like Puxi more better the Pudong, you may want to pay more rent for the house in Puxi.
Reservation price ≠price
Behavior decision
Bees and flies
$2.26 $1.66
Ice-cream experiment
Mental accounting
$100 from salary and $100 from lottery?
What is the difference?
Richard Thaler (1980 )
Tableware
$33 $24
A package with 24 B package with 40
8 dishware plates ： in perfect condition
8 dishware plates ： in perfect condition
8 bowls ： in perfect condition 8 bowls ： in perfect condition
8 dessert plate ： in perfect condition
8 dessert plate ： in perfect condition
8 cups: 2 broken
8 saucer:7 broken
Disaster relief
The island was destroyed by typhoon, UN try to give help.
Island one: There are 1000 families, 90% families are destroyed. How much money should support to island one?
Island two: there are 18000 families, 10% families are destroyed (you do not know island one), how much money should support to island two?
Colonoscopy
1996, Kahneman had a research on 682 patients in Colonoscopy check. Colonoscopy is a terrible experience for the patients. It takes about 1.5 hours.
The patients were divided into two groups: one group were the popular test, after 1.5 hours, draw out the pipe and finished the test; the other group draw out the pipe later, stay the pipe after a while and then draw out.
Marketing test
Simonson&Tversky(1992)have a test on consumers’ decision on microwave buying: One group has two choices: Emerson($109.99), Panasonic($179.99). The other group has three choices: Emerson($109.99), Panasonic($179.99) ，
Panasonic($199.99).
• The result:– When faced two choices, 43% consumers choose to buy
Panasonic($179.99); – When faced three choice: 60% consumers choose to buy
Panasonic($179.99).
Daniel Kahneman
The royal Swedish academy of sciences announced: Daniel Kahneman, from Princeton Univ., winned 2002 Nobel Economics Prize.
for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.
Amos Tversky Traditional economist established their theory system
based on “rational person hypothesis” and use mathematics to construct perfect models. But behavior research try to explain human decision through empirical approach, especially on human’s irrational behavior.
Since 70’s, Kahneman and Tversky have deep research on behavior decision, they found: people’s behavior is not only effect by benefit factors, but also effected by metal factors. Prospect theory combined psychology with economics, explain decision-making under uncertainty, create a new research field.
You may buy some companies shares at stock market. One day, you bought 10000 shares of A company (10 ￥ /share) according to a friend’s suggestion ， but now, the price of A company’s share is falling on to 5 ￥ /share, that means you would loss 50000 yuan. What would you do?
□ sale □hold
Test ： are you rational?
Now there is a call for you and you go out. When you come back, you f
ind that the shares has been sold out. What would you do? Buy the share
s back?
□ yes □no
Rational or irrational ： election
Three candidates: A/B/C; voters:17 First round ： A/6 ， B/6 ， C
/5 Two voters who in first rou
nd vote for B, in second round would vote for A
Three voters who in first round vote for C, in second round would vote for A.
Second round:A/9;B/8 A wins
If A shows a heroic event before the election, that makes somebody changed their decision (two person who vote for B in the first round and would vote for A in second round, now vote for A in the first round)
In first round: A/8, B/4, /C/5 In second round:A/8, C/9
C wins
Irrationality ： sunk cost fallacy
The Trade Union gave you a concert ticket tonight. The price is 500 yuan 。 But wh
en you go out to the concert, the weather is terrible. It rains cats and dogs. Go to the co
ncert or not?
□ go □don’t go
The ticket is not from the trade union, but you bought it yourself, go to the cThe ticket is not from the trade union, but you bought it yourself, go to the c
oncert or notoncert or not ？？□ □ go go □□don’t godon’t go
Conclusion ： people decide to do something not becaus
e of future benefit, but effect by loss for the previous period .
Sunk cost: retrospective (past) costs that have already been incurred and cannot be recovered.
Be bogged down deeper and deeper
You are a manager of a medicine company and you want to research a ne
w analgesic( 止痛药 ). Your competitor has been developed the same analgesic successfully and begins to do marketing. If you invest in the research, it
may cost you 500,000 yuan to develop the medicine. But in the market, some
thing is uncertainty, you may loss 5,000,000(high possibility) ， and you ma
y gain 25,000,000(low possibility) 。 Do it or not?
□ do □give up
The research has processed for some time and you have spent 5,000,000 on i
t, invest more 500000, you may succeed, but in the market, you may loss 5,0
00,000(high possibility) ， and you may gain 25,000,000(low possibility) 。Do it or not?
□ do □give up
Irrationality ： Loss aversion
Suppose you are in a sick, the death possibility of the sick is 1 over
ten thousand. Now there is a medicine can cure it completely. How m
uch money do you want to pay for the medicine? yuan
Suppose you are in health. A company tries to attract some person
to test its new medicine. The death possibility of eating the medicine i
s 1 over ten thousand. How much money do you want to gain from th
e company to test the medicine ： yuan
Conclusion ： people are more sensitive on loss than gain.You may suffer more uncomfortable on some
thing when you loss it than the happiness you get when you hold it.
Endow effect Test on cups
In MBA students
Strategy: Free goods and sample Dan Ariely (Duke university): free goods
Suppose you are a manager of a firm ， you gain 1000000 every
month ， if innovation ， the possibility of success is 50%, then you
may earn 4000000/month ， otherwise you may loss 1000000/month
□ innovation □don’t innovation
status quo bias
Investment adviser A suggested you buy 100 shares of a stock at 10$/share, now the stock have go down to 6$/share. Investment adviser B suggested you sale 100 shares of a stock at 5
$/share. Now the stock is going to 10$/share 。 you may fire one of them, who would be fired?
□ A □B
neglect foregone gain
The doctor told the patient:
（ 1 ） If you perform the operation ， survival rate is inc
reasing 10%.
（ 2 ） If you don’t perform the operation, Mortality rate is increasing 10%.
Semantic effect
Anchoring effect
a cognitive bias that describes the common human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions.
Case: two gruel store --One egg or two eggs?
--Eggs?
Case: iced-beer in 5 star-hotel and in canteen
application
Product concept
Pricing Horse and taxi
Appointment, four condition （ 1 ） you beauty, roommate ugly ； （ 2 ） you ugly, roommate beauty ； （ 3 ） you and roommate, beautiful ； （ 4 ） you and roommate, ugly
Thaler’s rule
Two good news or two prizes
Two bad news or two punishments
A good news and a bad news promotion ＋ loss 100 yuan
A good news and a bad news. Capital stock loss 50000 ＋ win chocola
te
Prospect theory:
a theory that describes decisions between alternatives that involve risk (i.e., alternatives with uncertain outcomes) where the probabilities are known. The model is descriptive: it tries to model
real-life choices, rather than optimal decisions.
Are you happy? What is happy ？
let us have a evaluation of our happiness
If you win a lottery of 5000000 yuan, your happiness ？
1 2 3 4 5
Unhappy Very happy
1 2 3 4 5
unhappy Very happy
Irrationality ： Adaptive bias and contrast bias
Which factors are not easy to be Which factors are not easy to be
adaptive?adaptive?
• Metal Metal
• Good friendsGood friends
• foodfood
• petspets
• hobbyhobby
The factors that are irregularThe factors that are irregular－－ girl friend girl friend ---buy apartment ---buy apartment
8 rules for motivation
“Big in small” and “Small in big” 。 woolen scarf: price is 400 yuan; woolen coat, price is 50
0 yuan
What do you really want? You really want to get money?
Choice VS. no choice TV set or vacation 。
Tell you the prize later or earlier? 。 You are rewarded to travel to Paris
Open wages VS. secret wages equity theory
Little premium VS. no award blood donation ：（ 1 ） unpaid; （ 2 ） 10 yuan f
or 200cc
Award one time or two times
Increasing salary VS. giving premium
Q&A??