BUSML 4201 Final Midterm Study Guide Decision Making 1 Five step decision making process a Problem recognition motivation b Information search learning memory beliefs i Massive ii Lots of options and uncertainty iii Uncertainty is decreased by beliefs and values c Evaluation of alternatives values feelings d Choice no choice integration e Feedback learning 2 Decision Making a Large amount of purposeful effortful thinking compared to non decision making b Aka problem solving 3 Characteristics of decision making a Controlled and on purpose b Happens in the short term memory c Effortful d Objective i More careful less errors and bias e Adaptive f Scarce i More likely to lead to reward i Limited due to short term memory capacity 4 Problem recognition a Significant difference between desired state and actual state b Causes i Falling raising appetites of homeostatic needs ii Consumption depletion of products iii Growth and maturation iv Unrealistic beliefs flawed internal model c How to trigger problem recognition in others i Highlight ideal state ii Highlight inadequacies in actual state 5 Info Search a Establish alternatives i Consideration set based on what can fix the problem and usually based on memory b Establish salient evaluative criteria i What features of a target object are important ii Dependent on current needs iii Used to judge options iv Marketers often use this c Assess info based on evaluative criteria Internal search beliefs and attitudes in memory i ii External search acquiring new info 1 Recall discussion about how the expert actually has more of an external search 6 Evaluate alternatives a Use as many decision rules as possible b Attitude referral i Which do you like best ii Easiest fastest c Calculate expected value i Compensatory model 7 Choice 1 Good criteria can compensate for bad criteria d Conjunctive rule e Disjunctive rule f Lexicon rule i Minimum cutoffs for most important criteria i Acceptable values for most important single criteria i Rank alternatives based on most important criteria and only rank the other criteria if there is a tie a Overt behavior of decision maker b Procurement of selected alternative c Recall discussion on how people actually decide to make no choice when there are too many options to choose from choice overload i Decision paralysis ii Greater post purchase regret iii Less satisfaction with choice process iv Wrong choice produces more regret than failing to make a 8 Feedback choice a Choice provides direct feedback b Satisfied if meets surpasses expectations c Feedback bias i Cognitive consistency ii Biased memory Non Decision Making 9 Non decision making a Mental shortcuts not controlled not effortful don t realize we are doing it 10 Theory of information processing parsimony a People are lazy with mental efforts b We have a slow and fast thinking pattern but we use fast whenever we can 11 Feel without thinking a Feel act b Implicit unrecognized decision to sacrifice benefits of reasoning or speed Trusting your gut c d Three examples include i Attitudes 1 Automated feelings 2 Predisposition to respond 3 No expected value calculation 4 Not situational sensitive ii Emotions iii Reactance 1 Direct behavior without thought 2 Evolved for world that no longer exists 3 Often punished 1 Motivational state of a person who perceives his freedom of choice has been threatened from influence of others 2 Boomerang effect less interested in forced alternatives 3 Two required conditions for reactance a Prior expectation of freedom b Perceived loss of freedom must relate to something with consequence or was important 4 Doesn t calculate expected value 5 Marketing implications a People don t respond to the hard sell b Product scarcity increases desire i Actions prefaced with minimal thinking b Scripted behaviors i Prescribed behavior patterns enacted on cue with minimal thinking to recognize the cue ii Situation insensitive iii Motivation for scripts 1 Behaviors don t require ongoing analysis 2 Allows for multitasking 3 Thinking involves effort iv Formation of scripts 1 Begin as careful evaluations and actively processed before transferred to the long term memory and generalized v Types of scripts 1 Causal ID cause and effect relationships fill in missing info with guesses and assumptions 2 Role behaviors based on your role 12 Act with minimal thinking a Think feel act 3 Decision heuristics decision rule of thumb shortcut make life easier and biases use of heuristic leads to systematically poor choice problems if we over apply heuristic that leads to poor judgment 4 Availability heuristic a Making decisions based on what comes to mind If it s more available in memory it s viewed as b more likely to occur i Such as warranties on certain consumer 5 Sunk cost effect products a Don t chase bad money with good money b Costs already incurred can t be recovered and shouldn t influence decisions a If one attribute is good it is assumed that all other attributes are good as well 6 Halo effect 7 Horns Effect a Same as Halo Effect but for bad traits c Self positivity bias i Thinking bad thinks happen to other people and not to us 1 This is why people text and drive smoke ect ii Marketing implication 1 Have to convince people that they are equally at risk 2 Have people calculate the population risk friends risk d Hindsight bias and then their own i Tendency to look back at past events and believe that you correctly predicted the outcome ii Marketing implication 1 Leads to overconfidence in making marketing decisions 2 Can t always just trust your gut a Acting with minimal thinking b Behavior enacted without careful problem definition or evaluation c Spur of the moment d Problem is usually recognized based on seeing the alternative solution i Ex seeing something and buying it at the grocery store 13 Impulsive behaviors 14 Habits a Acting without thinking b Behavior pattern fully automated i Ex smoking or pattern of brushing your teeth c Routine temporal timetable for habits d NOTE habits typically don t require a cue whereas scripts do e Acquisition of habits Feeling shortcuts 15 Acting without feeling i Learning with awareness conscious effort to acquire habit 1 Ex practicing free throws ii Learning without awareness classical operant conditioning to create a habit f Consequences of habits i PROS free up limited short term memory space can be useful ii CONS maladaptive smoking hard to identify as a problem diminishing returns non thinking mode of response a