Decision-making can be a complex process for consumers. Outline your understanding of both biases and heuristics in this decision making process.
Discuss the strategic implications for marketing of both biases and heuristics in the decision -making process-using examples from class to support you...
Decision-making can be a complex process for consumers. Outline your understanding of
both biases and heuristics in this decision making process.
(70 Marks)
There are three different types of decision-making processes. These processes are cognitive, habitual
and affective. Understanding the factors that influence the decision-making process is important in
understanding how decisions are made.
Cognitive Decision-Making Process
Problem recognition happens if we observe major differences in our current circumstances
and the circumstances we would like.
Information search is the method we use to observe the environment for internal and external
information to make a logical decision.
Evaluation of alternatives is where a consumer considers all of their product or brand offerings by
measuring the attributes and which would have the ability to deliver the benefit that they are
looking for. In order to maximize the probability that their brand will be part of the evoked collection
for other customers, a marketing company has to consider what advantages customers are pursuing
and, more importantly, what qualities will have the most effect on their decision-making process.
Product choice is the stage in the consumer process where they make their decision because they
have evaluated all the options and identified the value that it will offer them.
Biases
In decision making, biases affects people by making them focus more on or have more confidence in
expected results and prior knowledge, while ignoring information or findings that are viewed as
undetermined, without focusing on the grand scheme. Although this impact can often contribute to
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, bad decisions, biases helps individuals to make competent decisions with the aid of heuristics (Shah
& Oppenheimer, 2008).
Mental accounting applies to the various values a person places on money, based on individual
judgement, which often has negative effects. Mental accounting sometimes causes individuals to
make unreasonable investment choices and act in a financially detrimental or negative way, such as
opening a savings account for a vacation while having high credit card debt.
Individuals commit the sunk cost fallacy because they are reluctant to waste something they have
invested time, money or some resources in. For example, people often stay in unhappy relationships
because they have invested in it. A lot of people get stuck in this psychological trap because they try
to reassure themselves that they've managed to regain the deficit. Many people get caught in this
psychological trap because they want to convince themselves that they’ve managed to recover the
loss.
Loss aversion for people explains that psychologically, the strain of losing is almost twice as strong as
the satisfaction of gaining. For example, loosing €50 feels worse than gaining €50.
Prospect theory suggests that losses and gains are perceived separately, and so people make choices
centred on perceived gains rather than perceived losses. For example, if the final result is getting
€30. One way is being given the €30 outright. The other choice is to gain €60 and then loose €30.
The €30 is the same in both possibilities. However, people are more inclined to want to be given the
€30 outright as a single gain because it is usually considered to be more desirable than originally
having more money and then experiencing a loss.
Heuristics
Heuristics are basic decision-making techniques that individuals use formed from minimal but very
frequently accurate information; heuristics are alternative mental strategies that decrease the
cognitive strain of decision-making (Shah & Oppenheimer, 2008). Heuristics provides the individual
with the opportunity to examine several signals and different options in making decisions. Heuristics
also decreases the function of finding and storing information in memory, by making the decision
making the process more efficient as it decreases the amount of information needed to evaluate or
make the decision(Shah & Oppenheimer, 2008).
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