1. User Summit 2018 Decision Psychology Thursday, October 25, 2018
Richard Wahlund
The Bonnier Family Professor in Business Administration,
especially Media
Stockholm School of Economics
Department of Marketing and Strategy
Center for Media and Economic Psychology

2. The decision problem
Imagine that you are responsible for some asset management at your company. You have just realized that this management will cost 300,000 Euros more than budgeted this year. You have figured out two options to countervail these higher costs. The estimated consequences of these options are shown below. Chose ONE of the two options. The amounts concern the 300,000 Euros at stake.

3. The decision problem Option 1: My company will save 100,000 Euros.
Imagine that you are responsible for some asset management at your company. You have just realized that this management will cost 300,000 Euros more than budgeted this year. You have figured out two options to countervail these higher costs. The estimated consequences of these options are shown below. Chose ONE of the two options. The amounts concern the 300,000 Euros at stake.
Option 1: My company will save 100,000 Euros.
Option 2: With 1/3:rd probability my company will
save 300,000 Euros and with 2/3:rd proba-
bility my company will save nothing.

4. The decision problem YOU OTHERS
Imagine that you are responsible for some asset management at your company. You have just realized that this management will cost 300,000 Euros more than budgeted this year. You have figured out two options to countervail these higher costs. The estimated consequences of these options are shown below. Chose ONE of the two options. The amounts concern the 300,000 Euros at stake.
YOU OTHERS
Option 1: My company will save 100,000 Euros.
Option 2: With 1/3:rd probability my company will
save 300,000 Euros and with 2/3:rd proba-
bility my company will save nothing.
Option 1: My company will lose 200,000 Euros.
lose nothing and with 2/3:rd probability
my company will lose 300,000 Euro.

5. The decision problem YOU OTHERS
Imagine that you are responsible for some asset management at your company. You have just realized that this management will cost 300,000 Euros more than budgeted this year. You have figured out two options to countervail these higher costs. The estimated consequences of these options are shown below. Chose ONE of the two options. The amounts concern the 300,000 Euros at stake.
YOU OTHERS
Option 1: My company will save 100,000 Euros % %
Option 2: With 1/3:rd probability my company will
save 300,000 Euros and with 2/3:rd proba % %
bility my company will save nothing.
Option 1: My company will lose 200,000 Euros % %
lose nothing and with 2/3:rd probability % %
my company will lose 300,000 Euro.

6. CEO:s in Swedish banks
You has just been informed that the bank, due to increased competition, will need to reduce certain fees. This will cost the bank 300,000 Euro per year. You have considered two alternative actions to reduce these increa-sed costs. The estimated consequences of these actions are the following (the amounts concern the 300,000 Euro at stake):
Bank CEO:s
Alternative 1: The bank will save 100,000 Euro %
Alternative 2: With 1/3:s probability the bank will save
300,000 Euro and with 2/3:s probability %
the bank will save nothing.
Alternative 1: The bank will lose 200,000 Euro %
Alternative 2: With 1/3:s probability the bank will lose
nothing and with 2/3:s probability the bank %
will lose 300,000 Euro.

7. Prospect theory
Subjective value (SV)
Gain
Reference point (the frame)

8. Prospect theory Subjective value (SV) Loss Gain
Reference point (the frame)

9. Prospect theory
Subjective value (SV)
Gain
Reference point (the frame)

10. Prospect theory
Subjective value (SV)
Gain
Reference point (the frame)

11. Prospect theory
Subjective value (SV)
Gain
Reference point (the frame)

12. Prospect theory Subjective value (SV) Loss Gain
Reference point (the frame)

13. Prospect theory Subjective value (SV) Loss Gain
Reference point (the frame)

14. Prospect theory Subjective value (SV) Loss Gain
Reference point (the frame)

15. Prospect theory Subjective value (SV) Loss Gain
When talking about saving money …
SV(300’) x 1/3
300’
200’
Loss
Gain
100’
300’

16. Prospect theory Subjective value (SV) Loss Gain
When talking about saving money …
SV(300’) x 1/3
300’
200’
Loss
Gain
100’
300’
When talking about losing money …
SV(-300’) x 2/3

17. i.e. took great risks when he shouldn’t.
”He made new deals to
win back lost money”,
i.e. took great risks when he shouldn’t.

20. Other effects of loss aversion
What happens if you start saving money today?
This is how much your savings will be worth when you turn 65.
If saving …
Age
200 SEK/month
400 SEK/month
600 SEK/month

21. Other effects of loss aversion
Foregone or opportunity income: Missing out – a loss.

22. TIME LIMITED OFFER

23. cars left
cars left

24. Other effects of loss aversion
Foregone or opportunity income: Missing out – a loss.
Limited time, availability or feature –> scarcity: You risk a loss.

25. Other effects of loss aversion
Foregone or opportunity income: Missing out – a loss.
Limited time, availability or feature –> scarcity: You risk a loss.
Endowment effect 1 – commitment: Care about sunk costs.

26. Other effects of loss aversion
Foregone or opportunity income: Missing out – a loss.
Limited time, availability or feature –> scarcity: You risk a loss.
Endowment effect 1 – commitment: Care about sunk costs.
Endowment effect 2 – consistency or status quo bias: e.g. customer loyalty, aversion against changes in general.

27. Other effects of loss aversion
Foregone or opportunity income: Missing out – a loss.
Limited time, availability or feature –> scarcity: You risk a loss.
Endowment effect 1 – commitment: Care about sunk costs – sticks even to bad solutions.
Endowment effect 2 – consistency or status quo bias: e.g. customer loyalty, aversion against changes in general.
Business goals (R.O.I. etc.) as reference points.

28. Other effects of loss aversion
Foregone or opportunity income: a loss.
Limited time, availability or feature –> scarcity: You risk a loss.
Endowment effect 1 – commitment: Care about sunk costs – sticks even to bad solutions.
Endowment effect 2 – consistency or status quo bias: e.g. customer loyalty, aversion against changes in general.
Business goals (R.O.I. etc.) as reference points.
Debt aversion – reciprocity.

29. Other effects of loss aversion
Foregone or opportunity income: a loss.
Limited time, availability or feature –> scarcity: You risk a loss.
Endowment effect 1 – commitment: Care about sunk costs – sticks even to bad solutions.
Endowment effect 2 – consistency or status quo bias: e.g. customer loyalty, aversion against changes in general.
Business goals (R.O.I. etc.) as reference points.
Debt aversion – reciprocity.
We believe in trends, especially the ones we’re part of.

30. Other effects of loss aversion
Foregone or opportunity income: a loss.
Limited time, availability or feature –> scarcity: You risk a loss.
Endowment effect 1 – commitment: Care about sunk costs – sticks even to bad solutions.
Endowment effect 2 – consistency or status quo bias: e.g. customer loyalty, aversion against changes in general.
Business goals (R.O.I. etc.) as reference points.
Debt aversion – reciprocity.
We believe in trends, especially the ones we’re part of.
We look for confirmatory instead of disconfirma- tory information: We don’t want to be wrong ...

32. Nudging
Nudge theory (or nudging) is a concept in behavioral science, political theory and economics which proposes positive reinforcement and indirect suggestions to try to achieve non-forced compliance to influence the motives, incentives and decision making of groups and individuals (e.g. proposed to be used by public authorities to make general policies effective). But how? By applying well-known psychological mechanisms such as cognitive biases and perceptual mechanisms to inten-tionally influence people.

34. Theory is when you know everything but nothing work.
Practice is when everything work but no one knows why.
Today, theory and practice have been brought together:
Nothing work and no one knows why.

36. A final reminder …
To get a pat on ones shoulder is surely a gain, but remember how easily a gain may turn into a loss …