,Lecture 1
What is consumer behavior?
Processes involved in selecting, buying, using or disposing of products, services, ideas and
experiences to satisfy needs and wants. Thus:
Not everyone is like you (false consensus)
You often don’t even know what you would know (affective forecasting)
Day-care center case
Parents are late too to pick their kids up
You will get a fine when you are too late – however this does not always work, people still come late,
because parents see it as extra money they have to pay for the extra time their child is in daycare
Intuition trap – problems with common sense
- Often wrong – we are even bad in predicting our partner’s choices
- Confirmation bias – we are resistant to changing our prior beliefs
- Your preferences are not representative – projection bias
- Limited theories
- Make decisions based on few observations
- Infer causality from correlation
- Overconfidence
Marketing organizations:
To know how to influence consumers:
firm -> consumers
To know what consumers want:
consumers -> firm
Regulate behavior: public policy
- How will consumers react to regulations?
- How will consumers react to market changes?
2
, How study consumer behavior?
Interviews & surveys
- Interviews (qualitative)
- Surveys (quantitative)
- Experimental research
Lecture 2
The wise consumer assumption
- Preferences are clear and accessible in consumers’ minds
- Consumers make tradeoffs between quality and price
- Each product is judged on its merits alone
- Willingness to pay is the result of evaluating the object we are interested in
- Market research instruments accurately tell us what consumers really prefer and what they
want to pay for it
We have the idea that we pay for something that is worth it
There is a preference reversal
Joint evaluation -> you get more so you will
pay more
Separate evaluation -> people are willing to
pay more for the right cup because it looks
fuller
It is only when the two cups are together that
we notice that the left one is fuller
When asked about the last two digits of your phone number and then the willingness to pay for a
certain product, you will choose an amount around the last two digits -> anchoring effect
Compromise effect: the share of a product increases when it is the intermediate option but decreases
when it is an extreme option
The ownership determines the value attached to a product
Endowment effect: owners assign greater value to a product than non-owners
Preferences are typically constructed, not revealed
- Every valuation is relative - It is reference dependence
- People don’t know what they want until they see it - It is context dependence
- It is description dependence
Rationality in economics -> consumers want “value for money”
Setting prices
- Pay 1c for hersheys or 16c for lindt chocolate -> 75% are willing to pay for the lindt
chocolate
- Pay nothing for hersheys or 15c for lindt chocolate -> the previous experiment states that
people are willing to pay 15c more, however now 69% of the people chose the hersheys
truffle
3
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