1. JUDGMENT AND DECISION MAKING BASED ON HIGH AND LOW EFFORT

2. Judgment and Effort Effort is a continuum Need for efficiency
In time-pressed situation
Relative to other demands on consumer’s attention over time
The amount of effort can be adjusted to the perceived importance of the issue
Consumer may misjudge significance
Cumulative importance of frequently used product category may be under-estimated
Effort may be spread between individual decisions and periodic overviews and re-evaluations

3. Daniel Kahneman: Thinking Systems 1 and 2
Fast, intuitive, unconscious
There may be conscious knowledge of judgment, but the reasoning underlying it will be less well known
Judgment may be present before it reaches consciousness (e.g., hesitation in computer game experiences before clicking on suboptimal choice)
“Gut” feelings
Accurate under some circumstances—especially when quick decisions are needed
An individual will not generally be aware of when System 1 decisions are accurate and when they are not
System 2
Slower, more analytical and conscious
Explicit calculations and reasoning

4. Judgments Types Anchoring and adjustment processes Likelihood
Goodness/badness
Anchoring and adjustment processes
Anchoring: Basic value against which other examples are judged (e.g., price of gasoline)
Adjustment process: Based on repeated experiences, initial values may be updated.

5. Social Proof: Looking For the “Wisdom of the Masses”
Restaurants with long lines outside are likely to attract more business
Apple iPod wearers became walking advertisements
Incoming USC architecture majors are advised to buy Windows computers which can run needed software but end up buying Apple because they see so many others have that brand

6. Mental Accounting
Consumers tend to see their spending as from “accounts” in a budget
The way an opportunity is categorized may affect a decision—e.g., “dining out” budget has been spent but “entertainment” budget has not
Something received as gift from a spouse may be cause of happiness even if the person would not have spent the same amount of money himself/herself.
“Emotional accounting”

7. Biases in Judgment Confirmation bias Self-positivity
Negativity: Negative info is viewed as more “diagnostic” and weighted more heavily
Mood induced
Prior brand evaluations and experience (discounting or rejecting of new info)
Distortions due to calculation difficulty

8. Decision Sets
Consideration set—possibilities that may be activity considered
Inept set—seen as unacceptable
Inert—seen with indifference
Attractiveness effect: Poor brands make brands in consideration set look better

9. Issues in Selecting Decision Criteria
Goals
Time point
Construal theory: More abstract judgments are made about possible future decisions; decisions about actual impending purchases tend to be based on more concrete issues
Framing

10. Compensatory vs. Non-Compensatory Decisions
Compensatory: Decision based on overall value of alternatives (good attribute can outweigh bad ones)
Non-compensatory: Absolutely must meet at least one important criterion (e.g., car must have automatic transmission)

11. Brand vs. Attribute Based Processing
Brand based: Each brand is considered as a whole to be compared against other brands
Attribute based: Attributes are generally selected in order of importance, with the most important attribute considered for each brand, followed by the consideration of less important attributes

12. Brand Based Models Multiattribute Model (Expectancy-Value)
Conjunctive model: Each brand must meet a minimum cutoff on each attribute to remain “in the running”
Disjunctive model
Decision based on the most important variables rather than all
Consideration of both absolute minimum and “good” levels

13. Multiattribute Models of Attitude and Judgment--Review
Attitude computed as a function of multiple attributes weighted for importance:
Ab= attitude toward brand b
Wi: weight of attribute I
Xib: belief about brand b’s performance on attribute I
Model assumes rationality
Calculations will not be required on the exam. You should know conceptually what this involves conceptually—i.e., weighing importance and intensity of feeling.

14. Attribute Based Models
Additive difference model: Brands are compared two at a time on all attributes—thus, there is some tradeoff between attributes
Lexicographic: A comparison is made based on the most important attribute, with lower importance attributes used for tie-breaking
Elimination by aspects: Brands with attributes below acceptable levels on attributes are sequentially eliminated, starting with the most important attribute

15. Decisions Based on Gains and Losses
Consumers tend to be more sensitive to perceived “losses” rather than gains
A $1 price increase is worse than a $1 price cut is good
Framing effects—attractiveness of an option will be judged based on whether framed as a “gain” or “loss”
“Gain” framing
“Regular price, $7.99; sale, $4.99”
“An extra four ounces free!”
“Loss” framing
“$9.99 plus shipping and handling” (not that this may be deemphasized in infomercials)
The “Endowment” Effect and Windfalls
People are more likely to spend a “windfall” they just received even though their overall situation has not changed much

16. Other Issues in High Effort Decisions
Decision delay—more difficult decisions
Take longer
Get put off
May result in more input and soul searching
Must appear to be taken seriously and not made too easily
Non-comparable options: Generally, the more different the alternatives, the more abstract the standards of evaluation
“Utility”
Pleasure
Convenience
Security

17. Affect and Social Context
Affect is a strong component of motivation
Long vs. short term outcomes

18. Usefulness of Low Effort Judgments
Low effort judgments are not necessarily a bad thing
Need to focus energy and mental resources on more important decisions
Where more is at stake
Where making a better decision will have more of an impact
Larger differences among brands or other alternatives
Less obvious what to go with
Low effort judgments will, of course, tend to be less accurate.

19. Heuristics Simplified rules for making decisions
Intended for quick but not necessarily optimal decisions
Often used unconsciously—the consumer may not be aware that a shortcut is being taken
Some specific heuristics
Representativeness (comparison to prototype)
Availability heuristic (easiest to bring to mind examples or information control)

20. Biases in Heuristics
Ignoring baseline information and focusing on vivid examples that easily come to memory (ready availability)--e.g.,
How likely is a refrigerator to break down? (Implications for extended warranties)
How likely is Bob to be a librarian? (People are asked how likely it is that Bob is a librarian vs. a sales person, given information about his personality. This description fits the stereotype of a librarian, but there are many more sales people than librarians.
How likely is Jennifer to be a “bank teller” vs. a “feminist bank teller?” (The probability of the former has to be higher than the latter)
Law of Small Numbers—extrapolation from small sample sizes

21. Unconscious Decision Making
In some cases, decisions may be made unconsciously
Significant underlying information may actually be used
Some factors
Attitudes
Beliefs (simple or complex)
Affect (e.g., associations from classical conditioning)
Past behavior
Body may give cues to decisions based on learning (e.g., hesitation, discomfort)

22. Some Additional Simplified Decision Strategies
Satisficing: Searching only until an acceptable alternative is found
Specific tactics
Price
Affect (“Like”)
Performance
Normative (expectations of others)

23. Learning and Future Decision Making
BACKGROUND
(KNOWLEDGE, OPINIONS, SITUATION ASSESSMENT/ CONTEXT, ATTITUDES, PREDISPOSITIONS)
EVALUATION
(UPDATING; HIGH OR LOW INVOLVEMENT; CONSCIOUS OR UNCONSCIOUS)
DECISION
(EXPLICIT OR IMPLICIT)
TRIAL/
EXPERIENCE
(NOVEL OR REPETITION)
LEARNING
(UPDATING; HIGH OR LOW INVOLVEMENT; CONSCIOUS OR UNCONSCIOUS)
This model is not intended to be taken overly literally. Sequences may vary depending on context.

24. Learning Two types of conditioning:
Classical (Pavlov): The consumer learns to associate two events
Operant (Skinner): Consumer learns that behavior has consequences
Reward (Positive reinforcement): Behavior  positive consequences  behavior is more likely to be repeated
Punishment: Behavior  Negative consequences  behavior is less likely to be repeated (at least under some circumstances)
Negative Reinforcement (not the same as punishment!): Aversive situation followed by behavior by the consumer  Cessation of aversive situation  Behavior more likely during aversive situation in the future

25. Consumer price response
Zone of acceptance (range of prices considered acceptable)
Asymmetry for discounts (“gains”) and price increases (“losses”)
Deal prone consumers and bargain hunters
Transaction utility: Pleasure from getting a deal rather than from obtaining the product itself