Lecture 16 Menu Effects
- Menu Effects
- Type of FE which refers to how people choose from several options in a menu (rather than description)
- Different types of ME, all involve choice heuristics
Types of ME¶
- Attraction or Decoy Effect
- Principle of reference dependence
- Dan Ariely #psychologist (author of Predictably Irrational) calls it decoy effect* (in marketing)
- Subscription of economist magazine (100 MIT Sloan's students)
- 1-year online subscription: $59 (16 students)
- 1-year print subscription: $125 (0 students)
- 1-year online and print subscription: $125 (84 students)
- When only two options were present, outcome was
- 1-year online subscription: $59 (68 students)
- 1-year online and print subscription: $125 (32 students)
- Reasoning
- All three options, Option 3 offers more quality \(3 \succ 2\)
- But when only 1 and 3, there is confusion about tradeoff and thus prefer the cheaper and less profitable option 1.
- The second option is the decoy
- \(\implies\) Example of PR
- Marketing implications. Firms offer decoys that they don't really intend them to buy
- Firm has two main offerings on the table. \(A\) and \(B\).
- But, \(A\) is more profitable. To encourage them to buy it...
- Provide a decoy \(A-\) which is inferior to \(A\) so that people choose it.
- Preference for the salient
- People simplify a complex decision by choosing a salient option1
- e.g. Supermarket shoppers, a large shelf filled with different brands. Thought factor of limited attention is also important
- 2008 #study: investors prefer to buy stocks in the news even if the news is bad.
- Being first on the list is often a considerable advantage
- 1981 American Airlines: travel agents booked the first flight that appeared on their computer screen: 53%
- somewhere on the first screen: 92%
- \(\implies\)The airline manipulated the order of flights as they appeared in the booking system, to increase profits.
- Ultimately led to complaints from other airlines, and intervention from federal government.
- 1981 American Airlines: travel agents booked the first flight that appeared on their computer screen: 53%
- "First on the list" heuristic in political arena
- 2008 study: first candidate on the list got advantage, especially for a minor party
- \(\implies\) voters use irrelevant information when they lack other informational cues.
- Order of items can be relevant in complex ways
- e.g. 2012 study: mixed-brand options. Descending price order \(\implies\) people tend to choose higher-priced items... and vice-versa
- Reason:
- association between price and perceived quality
- reference dependence (comparison with other items on the list)
- Compromise Effect
- People frequently choose the middle option to represent a compromise (trade-off)
- Results from Extremeness Aversion: avoid options at the extremes of relevant dimension
- High-end brand (like apple) may increase sell of expensive products
- By introducing super-expensive products
- The expensive ones seem like a good compromise between the cheaper and the super-expensive ones
- Low-end brands tend to do the same By introducing super-cheap products
- \(\implies\) Diamond-studded swimsuits on one end and swimsuits that are made of degradable materials.
- Choice avoidance
- Counterintuitive: Paradox of choice
- Marketing managers: "We offer a wide variety of choices, so it must be good for the consumers". \(\implies\) Consumers: Mendokse, I won't buy anything here.
- 2000 #study: opportunity to taste 6 jams vs 24 jams (simple- vs difficult-choice treatment)
- Findings: more consumers stop to sample jams in difficult-choice treatment. Fewer actually buy them (4/31)
- 2010 #study: inexperienced investors invested less when many choices were presented. And vice-versa for experienced investors.
- Making complex choice decisions is stressful. Avoid stress!
- 2007 #study: Post-decisional regret: compasion between alternative chosen and the union of the positive attributes of alternatives rejected. (more the number, higher the regret)
- \(\implies\) contradiction SM's view of opportunity cost, compare only the NEXT BEST OPTION.
- Another paradox: People are averse to single-option offers
- 2013 #study: when only single DVD player was offered, people deferred the purchase
- Momentum Effect
- Initial purchase \(\implies\) enhances the purchase of a second, unrelated product (PSYCHOLOGICAL IMPULSE)
- 2007 #study: Purchase likelihood of key chain increased with the purchase of an unrelated "driver" item (educational CD)
- The two goods were not complementary
- No reduction in transaction costs by buying both
- Vicarious2 consumption effect
- A #study related to choice of food items: more healthy items on the list \(\implies\) choose less healthy food items than otherwise
- "mere presence of healthy food option" vicariously fulfils nutrition-related goals and allows them to indulge.
- A #study related to choice of food items: more healthy items on the list \(\implies\) choose less healthy food items than otherwise
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Confusion
- Not a preference. But an effect of cognitive failure
- e.g. Mistaken trade of stock. MCI instead of MCIC
- e.g. Voting for candidates mistakenly, cause there names were next to the intended candidate.
-
Expectations Effects
- Expectation of happiness can lead to disappointment
- 2003 #study People's plan for millennium celebration of 2000.
- People who spent the most time, effort and money tend to be the least satisfied
- Reference point phenomena
- Lower utility after the event, may be offset by the higher utility with the anticipation of the event. \(\implies\) anticipatory utility.
- People may defer pleasurable experience in order to prolong the anticipatory utility
- 2013 #study "When wanting is better than having"
- Materialistic people
- Hedonic high before the purchase "This product will change my life..."
- Hedonic decline after "..."
- Such pattern in utility was not found in people low in materialism
- Another aspect in Predictably Irrational #book:
- Our behavior and Utility we drive from activities and consumption depend on our expectations
- When we think "It will be good", it will actually be good, and vice versa
- 1996 #study
- After a world-unscrambling task, involving words related to old people
- They themselves started walking slower than the control group (not primed with such words)
- \(\implies\) Subliminal messages are important in prompting expectations, as well as expectations on behavior.
- 2008 #study Placebo for reducing pain (self-report of pain is subjective)
- Subjects administered electric shocks in two consecutive treatments
- Given a placebo "drug" purported to be a painkiller before the second.
- Reported less pain in the second. The "drug" was a Vitamin C capsule.
- More interestingly, when they were told the painkiller costs $2.5, almost all subjects felt pain relief. But at a discounted 10 cents price, only half of them did.
- 2005 #study (objective way to determine effect of price)
- Energy Drink SoBe Adrenaline Rush
- Performance: ability to solve anagram word puzzles
- Students at the regular-priced beverage reported less fatigue subjectively, and also performed better (objective) than those who were given at one-third the price,
- Regular-priced... students didn't perform any better than the control group who didn't consume the drink.
- (No Drink \(=\) High Drink) \(\gt\) Discounted drink
- 2015 #study (Performance of branded products)
- Use of brand status, improved performance by consumers
- Twist: Consumers took the credit of improved performance themselves (overconfidence)
- Author: Brand status \(\implies\) self-esteem \(\implies\) task-induced stress \(\implies\) improved performance
- 2013 #study (conflicts the previous study)
- thought consumers rate branded products highly, and prepared to pay more... their performance may be lower
- Consumers rate their performance relative to other uses
- Reference point: abilities of high-status brand consumers
- \(\implies\) Lower expectation regarding one's own abilities