What are we up against? How can marketing help?

October 27, 2010

Overview

• People make suboptimal choices because…– They aren’t strictly rational– They are stuck in the present– Wants and needs aren’t the same thing

• Marketing can help! (Management too!)– Marketing has a lot of influence– Marketing can guide choices

Consumers aren’t always rational…

• They aren’t always good at assessing their abilities

• They take mental shortcuts• They work on autopilot• They’re swayed by their emotions

Overconfidence

• “That is the biggest fool thing we have ever done. The bomb will never go off, and I speak as an expert in explosives.” – Admiral William Leahy, to President Truman, 1945

• “The odds of a meltdown are 1 in 10,000 years.” – Vitaly Skylarov, Minister of Power and Electrification in

the Ukraine, two months before the Chernobyl disaster• “Heavier than air flying machines are impossible.” – Lord Kelvin, president of the British Royal Society

• “A severe depression like that of 1920-21 is outside the range of possibility.” – Harvard Economics Society, November 16, 1929

Overconfidence in social predictions

• Would the target person…– Prefer to subscribe to Playboy or the New York Review of

Books?– Describe his/her lecture notes as neat or messy?– Say s/he would pocket or turn in $5 found on the ground?– Object when the experimenter referred to him/her by the

wrong name?– Comb his/her hair before posing for a photograph in the

lab?• How confident are you in your answer (50-100%)?• Mean confidence: 75.7%• Mean accuracy: 60.8%– When 100% confident, accuracy = 78.5%!

Dunning et al., 1990

Overconfidence in self predictions• Will you…– Visit San Francisco more than 3 times this year?– Participate in the dorm play?– Drop a course?– Question your decision to attend Stanford?– Become best friends with your roommate?– Visit a friend more than 100 miles away?– Get a new boy/girlfriend?

• Overall confidence: 82.3%• Overall accuracy: 68.2%– When participants were 100% confident, they were

correct only 77.4% of the time!Vallone et al., 1990

False hope syndrome

• People make the same New Year’s resolution 10 times in a row, on average

• Why do they keep trying?• False hope syndrome = “the cycle of failure,

interpretation, and renewed effort” that characterizes self-change efforts– They interpret failures in such a way as to either

explain them away, or make them seem like they were almost successful

Polivy & Herman, 2002

The planning fallacy

• When the people in Sydney, Australia, decided in 1957 to build their now famous opera house, they estimated it would be completed by 1963 and cost 7 million dollars

• It opened in 1973 and cost 102 million dollars

Planning fallacy• When we predict how long it will take us to

complete a task, we base that prediction on when we intend to finish the task– We’re more accurate in predicting when others’

completion times– We don’t know others’ intentions, so we don’t factor

them in—we focus more on base rates and past behavior

• When we do fail to meet our self-imposed deadlines, we attribute our failure to external, transient factors rather than ourselves

Buehler et al., 1994

Mental shortcuts

• Heuristic: “Mental shortcut” used in judgment and decision making– Essential for living in an uncertain world– But they can lead to faulty beliefs and suboptimal

decisions– By looking at errors and biases, we can learn how

people are reasoning under uncertainty

Representativeness• Determining class inclusion or likelihood by

similarity:– A member ought to resemble the overall category– An effect ought to resemble or be similar to the cause– An outcome ought to resemble the process that

produced it• Like goes with like• Often easier to assess similarity than probability– Does he look like an engineer?– Does it look like it could cause a clogged artery?– Does it look like a random sequence?

Conjunction fallacy

• How much would you be willing to pay for a new insurance policy that would cover hospitalization for:

• 1. Any disease or accident– Mean = $89.10

• 2. Any reason– Mean = $41.53

Johnson et al., 1993

Conjunction fallacy

• How much would you be willing to pay for flight insurance (1 flight to London) that covers death due to:

• 1. Any act of terrorism– Mean = $14.12

• 2. Any reason– Mean = $12.03

Johnson et al., 1993

The affect heuristic

• ## migrating birds die each year by drowning in uncovered oil ponds, which the birds mistake for bodies of water. Covering the ponds with nets could prevent these deaths. How much money would you be willing to pay to provide the needed nets?

• 2,000 birds -- $80• 20,000 birds -- $78• 200,000 birds -- $88

The identifiable victim effect

• “A death of a single Russian solder is a tragedy. A million deaths is a statistic.” – Joseph Stalin

Affect

• Judgments of life happiness:• People asked 2 questions:– 1) How satisfied are you with your life these days?– 2) How many dates have you had in the last month?

• Correlation = -.12• Another group asked in opposite order – 2), then

1)• Correlation = .66

Strack et al., 1993

Autopilot

• We take good cues and over rely on them

• Which choice is harder?

– Paper or plastic?

• OR

– Paper or plastic?

Priming with products

How do we perceive?

• One commonly-held view– Realism: We see the world as it is. We simply

register sensory inputs and report them back.

• Another (more accurate) view:– Naïve realism: We believe we see the world as it

is. Perception is an active, constructive process. We use prior information, as well as current expectations, goals and desires when interpreting incoming information.

We don’t always perceive things as they are

• Is seeing believing? Or is believing seeing?

• Belief about a product can influence perception of the product– New Coke, same old 7-up– Coors “banquet beer” versus “original draft”– “Chocolate” pudding flavors– Light-colored appliances

“Labels” matter

The future is much later…

• Consumers make predictions based on the present

• The future is worth less than the present

Presentism

• People tend to assume that the world as it is right now reflects what it was like in the past and what it will be like in the future

• You can see this in fictional depictions of the future

The future is now• Grocery shoppers purchase more food when they

are hungry than when they shop full• Participants were to answer a series of trivia

questions, for a prize:– They could learn what the correct answers are, or– They could get a candy bar and never learn the

answers• Those who chose before they answered the

questions were more likely to choose the candy bar than those whose curiosity had been piqued by the questions

Visceral states

• Imagine that you go hiking with some friends, and you get lost in the woods. You’re running low on food and water.

• Which would you rather have more of?• Does it matter when we ask you?

Visceral states

Van Boven & Loewenstein, 2003

Snack predictions

• People who just ate an unhealthy snack believe that they will want a healthy snack in a week, but they will really want an unhealthy snack when they’re hungry

Read & Van Leeuwen, 1998

Focalism• We make predictions of happiness based on our

reactions to a focal event, without regard to the fact that other things will be happening that will mute that reaction

• Students at UVA were asked to predict how they would feel after their football team own or lost a game against UNC in a week– Half were asked to describe the events of a typical

day, half were not• Those who didn’t describe a day were more likely

to overestimate their reaction to the win or loss

Focalism and the weather

• People tend to think that living in California would make them very happy

• But people in California are no happier than people living elsewhere

• Why? Because climate is only one factor that affects happiness, and California has other drawbacks that compensate for any climate benefit

Which would you rather have?

$100 today or

$125 in six weeks?

Which would you rather have?

$100 on 10/27/11 or

$125 on 12/1/11?

Temporal discounting

• Money is just worth less in the future– People want things NOW

• You can measure their impatience – How much would you need to get in the future to

make it worth the wait? • They discount other things, too– Chocolate– Their health– The environment

Want vs. Should

• The things people want to do often conflict with the things they should do

• People are more inclined to do the should thing when it will happen more distantly in the future– Want things are more appealing in the present

• Think about Netflix– People rent should DVDs before want ones, but then

watch the want ones first– People choose want DVDs in sequential choice, but

should DVDs in simultaneous choice

Want vs. Should

• People are more likely to choose should options in joint evaluation situations than separate evaluation situations– People prefer to give money to a baby polar bear

charity when they see it alone, but a malaria prevention charity when they see they both together

• Temporal construal level is an influence– When you think about distant choices, the WHYs

win out, so shoulds do too

So what can marketing do?• Well, it does a lot

• “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

• Marketing is involved with just about everything we do, eat, wear, use, or otherwise consume

• Just think in terms of advertisements:– We see hundreds, if not thousands, per day

How do we tip the balance?

• …so that more of consumers’ choices are in their best interest, or will more efficiently make their own and others’ lives better?

• In the next part of the course, we’ll be talking about ways to overcome or take advantage of the mental quirks we just talked about

Next time…

• What’s the best way to provide consumers with information about what choices to make?