Sunday, October 21, 2007

Cognitive And Personal Biases in Decision Making

It is generally agreed that biases can creep into our decision making processes, calling into question the correctness of a decision. Below is a list of some of the more common cognitive biases.

  • Selective search for evidence - We tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.
  • Premature termination of search for evidence - We tend to accept the first alternative that looks like it might work.
  • Conservatism and inertia - Unwillingness to change thought patterns that we have used in the past in the face of new circumstances.
  • Experiential limitations - Unwillingness or inability to look beyond the scope of our past experiences; rejection of the unfamiliar.
  • Selective perception - We actively screen-out information that we do not think is salient.
  • Wishful thinking or optimism - We tend to want to see things in a positive light and this can distort our perception and thinking.
  • Recency - We tend to place more attention on more recent information and either ignore or forget more distant information.
  • Repetition bias - A willingness to believe what we have been told most often and by the greatest number of different of sources.
  • Anchoring - Decisions are unduly influenced by initial information that shapes our view of subsequent information.
  • Group think - Peer pressure to conform to the opinions held by the group.
  • Source credibility bias - We reject something if we have a bias against the person, organization, or group to which the person belongs: We are inclined to accept a statement by someone we like.
  • Incremental decision making and escalating commitment - We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This can be contrasted with zero-based decision making.
  • Inconsistency - The unwillingness to apply the same decision criteria in similar situations.
  • Attribution asymmetry - We tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other's success to good luck, and their failures to their mistakes.
  • Role fulfillment - We conform to the decision making expectations that others have of someone in our position.
  • Underestimating uncertainty and the illusion of control - We tend to underestimate future uncertainty because we tend to believe we have more control over events than we really do.
  • Faulty generalizations - In order to simplify an extremely complex world, we tend to group things and people. These simplifying generalizations can bias decision making processes.
  • Ascription of causality - We tend to ascribe causation even when the evidence only suggests correlation. Just because birds fly to the equatorial regions when the trees lose their leaves, does not mean that the birds migrate because the trees lose their leaves.

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Buyer ( Consumer) Decision Processes

Buyer decision processes are the decision making processes undertaken by consumers in regard to a potential market transaction before, during, and after the purchase of a product or service.

More generally, decision making is the cognitive process of selecting a course of action from among multiple alternatives.
Common examples include shopping, deciding what to eat. Decision making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behaviour that a decision has been made. Therefore we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to effect the action.


In general there are three ways of analysing consumer buying decisions. They are:
  • Economic models - These models are largely quantitative and are based on the assumptions of rationality and near perfect knowledge. The consumer is seen to maximize their utility. See consumer theory. Game theory can also be used in some circumstances.
  • Psychological models - These models concentrate on psychological and cognitive processes such as motivation and need reduction. They are qualitative rather than quantitative and build on sociological factors like cultural influences and family influences.
  • Consumer behaviour models - These are practical models used by marketers. They typically blend both economic and psychological models.
Nobel laureate Herbert Simon sees economic decision making as a vain attempt to be rational. He claims (in 1947 and 1957) that if a complete analysis is to be done, a decision will be immensely complex. He also says that peoples' information processing ability is very limited. The assumption of a perfectly rational economic actor is unrealistic. Often we are influenced by emotional and non-rational considerations. When we try to be rational we are at best only partially successful.

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Consumer Baheviour Marketing Research

Consumer behaviour is key to the impact that society is having on the environment.As well as what people consume directly in the home and elsewhere, our fulfilment of needs and wants lies behind many of the activities that create environmental impacts, such as the production of food and other goods.While new and more sustainable technologies offer great promise, they cannot in themselves ensure sustainability. Only people's choices can lead us away from unsustainable patterns of consumption.

But there are many conflicting explanations as to why people consume:
  • some economic (to do with prices and technology)
  • some environmental (fulfilling physical needs such as shelter and food)
  • and some cultural (consumption as central to social identity).

Methodologically, consumer behaviour research uses the following types of research designs:
Based on questioning:
  • Qualitative marketing research - generally used for exploratory purposes - small number of respondents - not generalizable to the whole population - statistical significance and confidence not calculated - examples include focus groups, in-depth interviews, and projective techniques
  • Quantitative marketing research - generally used to draw conclusions - tests a specific hypothesis - uses random sampling techniques so as to infer from the sample to the population - involves a large number of respondents - examples include surveys and questionnaires
Based on observations:
  • Ethnographic studies -, by nature qualitative, the researcher observes social phenomena in their natural setting - observations can occur cross-sectionally (observations made at one time) or longitudinally (observations occur over several time-periods) - examples include product-use analysis and computer cookie traces
  • Experimental techniques -, by nature quantitative, the researcher creates a quasi-artificial environment to try to control spurious factors, then manipulates at least one of the variables - examples include purchase laboratories and test markets
Researchers often use more than one research design. They may start with secondary research to get background information, then conduct a focus group (qualitative research design) to explore the issues. Finally they might do a full nation-wide survey (quantitative research design) in order to devise specific recommendations for the client.

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Marketing ethics

Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. Some areas of marketing ethics (ethics of advertising and promotion) overlap with media ethics.

Ethics are a collection of principles of right conduct that shape the decisions people or organizations make. Practicing ethics in marketing means deliberately applying standards of fairness, or moral rights and wrongs, to marketing decision making, behavior, and practice in the organization.

In a market economy, a business may be expected to act in what it believes to be its own best interest. The purpose of marketing is to create a competitive advantage. An organization achieves an advantage when it does a better job than its competitors at satisfying the product and service requirements of its target markets. Those organizations that develop a competitive advantage are able to satisfy the needs of both customers and the organization.

As our economic system has become more successful at providing for needs and wants, there has been greater focus on organizations' adhering to ethical values rather than simply providing products. This focus has come about for two reasons.
  • First, when an organization behaves ethically, customers develop more positive attitudes about the firm, its products, and its services. When marketing practices depart from standards that society considers acceptable, the market process becomes less efficient—sometimes it is even interrupted. Not employing ethical marketing practices may lead to dissatisfied customers, bad publicity, a lack of trust, lost business, or, sometimes, legal action. thus most organizations are very sensitive to the needs and opinions of their customers and look for ways to protect their long-term interests.
  • Second, ethical abuses frequently lead to pressure (social or government) for institutions to assume greater responsibility for their actions. Since abuses do occur, some people believe that questionable business practices abound. As a result, consumer interest groups, professional associations, and self-regulatory groups exert considerable influence on marketing. Calls for social responsibility have also subjected marketing practices to a wide range of federal and state regulations designed to either protect consumer rights or to stimulate trade




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Consumer Behavior and Marketing Strateg

The study of consumers helps firms and organizations improve their marketing strategies by understanding issues such as how
  • The psychology of how consumers think, feel, reason, and select between different alternatives (e.g., brands, products);
  • The the psychology of how the consumer is influenced by his or her environment (e.g., culture, family, signs, media);
  • The behavior of consumers while shopping or making other marketing decisions;
  • Limitations in consumer knowledge or information processing abilities influence decisions and marketing outcome;
  • How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer; and
  • How marketers can adapt and improve their marketing campaigns and marketing strategies to more effectively reach the consumer.
Understanding these issues helps us adapt our strategies by taking the consumer into consideration. For example, by understanding that a number of different messages compete for our potential customers’ attention, we learn that to be effective, advertisements must usually be repeated extensively. We also learn that consumers will sometimes be persuaded more by logical arguments, but at other times will be persuaded more by emotional or symbolic appeals. By understanding the consumer, we will be able to make a more informed decision as to which strategy to e

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Consumer Behaviour

Consumer behaviour is the study of how people buy, what they buy, when they buy and why they buy. It blends elements from psychology, sociology, sociopsychology, anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups.

Consumer Behaviour studies characteristics of individual consumers such as demographics, psychographics, and behavioural variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general.

Belch and Belch define consumer behaviour as 'the process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires'.

Consumer behaviour also called as Consumer Psychology is a branch of applied Psychology, marketing and Organizational Behaviour. It examines consumer decision making process and ways in which they gather and analyze information from the environment. Consumer behaviour is a multidisciplinary field which is integral to Industrial Psychology and aspects of household economy studied in microeconomics.

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Theory and Application in Marketting Strategy