1. Winner’s Curse 2. Status Quo Bias 3. Hyperbolic Discounting 4. The Cognitive
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Question
1. Winner’s Curse
2. Status Quo Bias
3. Hyperbolic Discounting
4. The Cognitive Miser
5. The Framing Effect
6. Confirmation Bias
7. Norm of Reciprocity
8. The Illusory Truth Effect
9. Altruism
10. Analysis Paralysis
11. Omission Neglect
12. Anchoring Effect
Your task is this:
Research all 12 of the above Consumer Behavior anomalies. Keep notes containing the information you collect on each. Pay particular attention to not only their definitions, but their causes, and ways to overcome them (if appropriate). You should acquire as much additional information as you see fit.
Explanation / Answer
CONSUMER BEHAVIOR ANOMALIES
WINNER’S CURSE
According to the anomaly of Winner’s Curse, a consumer who is actually a winner become a loser, by his or her tendency to miscalculate and misinterpret the value of a purchase which was bought in a common value auction. In a common value auction, the bidders almost calculate similar value for the product before purchase but they have different details about the value of the item.
Factors like emotions, lack of information, competition among bidders often prevent the bidders from determining the actual value of the product. As a result, a product may be overvalued leading to winning the auction.
STATUS QUO BIAS
According to status quo bias, people tend to continue buy an item without collecting new details and information of the product and which the decision to buy the product was made much before. There seems to be an inertia in the consumer to switch to another product. This kind of behavior is mostly prevalent when the transaction cost involved in the purchase is much small and there is not much loss by making such a decision. Also, the decision seems to be right to the consumer.
HYPERBOLIC DISCOUNTING
In hyperbolic discounting, the decision is based on immediate benefit rather than a later benefit. It is a bias in thought process where people prefer lesser and immediate benefits rather than big and delayed rewards.
For example, in such decisions a consumer value receiving ten dollars immediately than receiving twenty dollars after one month. In such a decision, individuals value the immediate benefits rather than a higher benefit later. Immediate time is given priority rather than value of money.
THE COGNITIVE MISER
A cognitive miser behavior happens when a consumer doesn’t collect much information and not much thoughts are involved while making a purchase decision. If at all any cognitive or thought processes are involved, it would be based on earlier information rather than new or relevant details.
THE FRAMING EFFECT
In a Framing effect, people respond to a choice based on how it is presented or how the details are framed. When the details are framed in a positive manner, people tend to avoid risk and pursue risk, when it is presented in a negative manner. In short, the decision may lead to a loss or a gain based on the way it is presented or framed.
CONFIRMATION BIAS
Confirmation bias happens when people tend to gather information through different channels like searching internet, seek from others, or recollect information that confirm the existing decision, notions or assumptions. This type of bias happens when people collect information selectively and they tend to be subjective based on the information they gather selectively leading to bias.
NORM OF RECIPROCITY
Norm of reciprocity happens when helps people to return the favor. Norm of reciprocity can be seen as concessions in sales techniques. Sales people make concessions to customers to buy products. These concessions are expected to be reciprocated as a favor in the form of a sales. Sometimes it may turn out to be of disadvantage to the customers. This technique is usually employed when sales person tries to sell expensive products. They offer a discount or a concession without even waiting for a rejection. If the customer rejects an expensive item that the sales people are trying to sell, then the customers are directed to a less cheap item.
THE ILLUSORY TRUTH EFFECT
According to the illusory truth effect, an information tends to appear as a truth or right one after repetition for a number of times. This is often used when marketers try to sell the product through multiple media. Repetition makes the information more reliable and people tend to believe that the information is true. This could lead to a biased decision when people tend to buy such products.
ALTRUISM
Altruism is a behavior which is based on unselfishness and concern for others without bounded by any form of obligation, sense of duty etc. In the case of customers, an altruism based purchase decision can occur when a sales person or customer service employee shows concern for the aged customers by offering any help to walk or open the doors etc. Sometimes the altruistic purchases are to donate to charities to help people suffering from natural disasters like flood, earthquake etc.
ANALYSIS PARALYSIS
Analysis-paralysis is a state when overanalyzing of information happens which leads to a situation where an outcome never happens. Overthinking or over analysis led to paralysis of the situation. In this case, a potential customer who intends to buy a product never buys that product after over analyzing the details of the product.
OMISSION NEGLECT
Omission neglect happens when people are neglect the required information and are insensitive to collecting the details that are required for making a decision. These may be the product features, reviews, substitute products which have similar features and are offered at lesser prices, competition products and their prices etc. People tend to neglect vital information that are required before a purchase, and regret later after making the purchase.
ANCHORING EFFECT
Anchoring effect is the tendency to rely too much on a particular detail or feature of a product while making purchase decisions. For example, as a result of anchoring effect people tend to get fooled by a psychological pricing which shows a lower or price like 99.99 which is almost 100, neglecting the features of the product. Another example is while making purchases like that of a car, people tend to focus too much on year of making or the distance ran and use it as a criterion for purchase value. Rather, it should be based on the efficiency of the engine or maintenance of transmission.
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