Psychology (9990) | Consumer decision-making

Introduction: Why Do We Buy What We Buy?

Welcome to the fascinating world of Consumer Decision-Making! This chapter sits within Consumer Psychology and explores the core question: How do we, as consumers, decide which products or services to purchase?

Don't worry if the theories sound complicated at first. Psychologists study decision-making to understand the strategies, shortcuts, and even the mistakes people make when spending money. By the end of these notes, you’ll be able to explain the psychology behind everything from choosing a new phone to grabbing a snack at the checkout counter.

2.3.1 Models and Strategies of Consumer Decision-Making

Psychologists use models to understand the different ways we approach a choice, and strategies to describe the methods we use to narrow down our options.

Models of Decision-Making

These models attempt to describe the underlying motivations and calculations behind a choice.

1. Utility Theory

The traditional economic model, which assumes consumers are rational decision-makers.

• Explanation: A consumer seeks to maximize their utility (satisfaction or value) and minimize cost.
• Example: A student needing a laptop carefully researches five different models, creating a mental checklist of price, battery life, and processing speed. They choose the one that offers the best objective value for the price.

2. Satisficing

Developed by Herbert Simon (1956), this model suggests we often settle for the option that is "good enough," rather than spending time finding the absolute best option.

• Explanation: This is a combination of the words "satisfy" and "suffice." We stop searching once we find an option that meets our minimum requirements.
• Example: You are hungry and need a quick lunch. You don't browse five restaurants; you choose the first sandwich shop you see because it meets the requirement of being quick and edible.
• Memory Aid: Think of a fast-food trip – you satisfice because time (and mental effort) is more valuable than finding the perfect meal.

3. Prospect Theory

Developed by Kahneman and Tversky, this model explains why real human decisions often violate the assumptions of Utility Theory (i.e., why we are often *not* purely rational).

• Explanation: Decisions are framed in terms of potential losses and potential gains. Crucially, people tend to be loss averse – the psychological impact of a loss is about twice as powerful as the impact of an equivalent gain.
• Example: You are more motivated to avoid a $100 penalty than you are motivated to gain a $100 bonus. This explains why people buy insurance (avoiding loss) even if the mathematical odds suggest it's a poor utility choice.

Strategies of Decision-Making

These are the concrete mental steps we take when comparing options.

1. Compensatory Strategy

• Explanation: A consumer allows a positive attribute to compensate for a negative attribute. All attributes are weighed against each other to find the overall best option.
• Example: You are buying a car. It is very expensive (negative), but its safety rating and excellent fuel economy (positives) make up for the high price.

2. Non-Compensatory Strategy

• Explanation: The consumer establishes strict cut-offs. If an option fails to meet a cut-off point on even one important attribute, it is immediately rejected, regardless of its positive aspects.
• Example: You decide that a smartphone must have a camera better than 12 megapixels. If a phone has an excellent battery but a 10MP camera, you reject it instantly.

3. Partially Compensatory Strategy

• Explanation: A mix of the two above. Consumers may start with non-compensatory filters (e.g., minimum price cut-off) and then switch to a compensatory strategy (weighing trade-offs) among the remaining few options.

Application to Internet Shopping (Jedetski et al., 2002)

Decision strategies are heavily influenced by the shopping environment. On the internet, the design of the website is crucial.

• Website Design: Features like clear navigation, effective search filters, and concise product information help consumers use their preferred decision strategies more easily.
• Finding the Balance: If a website provides too much complicated information, consumers are likely to switch to a simpler satisficing or non-compensatory strategy just to cope with the information overload. Good design aims to simplify the cognitive process.

Key Takeaway (2.3.1): Whether we are quick (Satisficing) or rational (Utility Theory), our decisions involve weighing pros and cons, especially when trying to avoid losses (Prospect Theory).

2.3.2 Choice Heuristics: Mental Shortcuts

When facing countless choices, humans rely on mental shortcuts called heuristics. These are rules of thumb that allow us to make quick, efficient decisions, even if they sometimes lead to mistakes.

Types of Heuristics

1. Availability Heuristic

• Explanation: We estimate the likelihood or frequency of an event based on how easily examples come to mind (are 'available' in memory).
• Example: After seeing a product recall scandal repeatedly reported in the news, you assume that brand is frequently unreliable, even if statistics show otherwise.

2. Representativeness Heuristic

• Explanation: We judge something based on how similar (representative) it is to a typical case or stereotype.
• Example: Choosing a high-priced bottle of olive oil because you assume that anything expensive and imported must be of better quality than the cheaper domestic option.

3. Recognition Heuristic

• Explanation: If one item is recognized and another is not, we infer that the recognized item has greater value or frequency.
• Example: You choose Brand A cereal because you recognize its logo from years of advertising, even though Brand B has slightly better ingredients and a lower price. This is incredibly powerful in branding.

4. Take-the-Best Heuristic

• Explanation: We base the decision purely on the first piece of information (the one cue) that differentiates the options, ignoring all other cues.
• Example: A person buying detergent only looks at which option is advertised as "eco-friendly," ignoring price, size, and scent.

5. Anchoring Heuristic

• Explanation: We rely too heavily on the first piece of information offered (the 'anchor') when making decisions, even if it is irrelevant.
• Example: A retailer lists a jacket price as $300 (the anchor) and then immediately offers it at a "sale price" of $150. The $150 seems like a great deal, even if its actual value is only $100, because the $300 anchor set a high expectation.

Point of Purchase (POP) Decisions

Heuristics are often exploited at the physical point of purchase (like near the checkout or in-store displays).

Multiple Unit Pricing:

• Concept: Offering products in bundles (e.g., "5 for $5" or "Buy 3, Get 1 Free").
• Psychology: This creates a perception of better value (an anchoring effect) and encourages consumption.
• Study Example (Wansink et al., 1998): Wansink’s research shows that multiple unit pricing significantly increases the quantity purchased, even if there is no genuine price discount. People tend to buy more because the quantity itself acts as a behavioral norm.

Suggestive Selling:

• Concept: Techniques used by salespeople to suggest related or complementary products.
• Example: "Would you like fries with that?" or displaying batteries next to children’s toys. This takes advantage of the consumer’s tendency to use the Take-the-Best heuristic (since the suggestion is easy and low effort).

Key Takeaway (2.3.2): Heuristics help us make rapid decisions (like grabbing a recognizable brand), but marketers can leverage these shortcuts, particularly through pricing strategies at the Point of Purchase.

2.3.3 Mistakes in Decision-Making

While heuristics are usually helpful, they can lead to predictable mistakes. Psychology identifies several cognitive errors that influence consumer choice.

Thinking Fast and Thinking Slow (System 1 and System 2)

Nobel laureate Daniel Kahneman described two distinct systems of thought, often used to explain why we make impulsive vs. rational choices (Shleifer, 2012).

System 1: Thinking Fast

• Description: Operates automatically, quickly, and with little effort or voluntary control. This is the system that uses heuristics.
• Characteristics: Emotional, intuitive, prone to errors and biases.
• Example: Slamming on the brakes when a traffic light turns red; immediately trusting a familiar brand name.

System 2: Thinking Slow

• Description: Allocates attention to effortful mental activities, including complex computations.
• Characteristics: Logical, calculating, effortful, necessary for complex Compensatory strategies.
• Example: Filling out your tax return; comparing the warranties and technical specifications of five different washing machines.

Common Mistake: We often rely on System 1 (fast) for tasks that should require System 2 (slow), leading to purchasing errors.

Key Study: Choice Blindness (Hall et al., 2010)

This key study investigates how people react when their memory and perception of a choice are manipulated—specifically, their tendency toward choice blindness and their efforts to defend a choice they didn't actually make.

Aim

To investigate the phenomenon of choice blindness in a realistic consumption setting (tasting food items).

Design and Procedure

• Context: Participants were asked to taste two different types of jam (A and B) or tea (A and B) and state which one they preferred.
• Manipulation: The experimenters used sleight-of-hand magic techniques to secretly switch the two samples on a minority of trials. For example, a participant who chose Jam A was handed Jam B (which they had explicitly rejected moments before) and asked to explain *why* they chose it.

Results and Conclusions

• Choice Blindness: In approximately 90% of the manipulated trials, participants did not notice the swap. They were "blind" to the fact that the item they were now holding was the one they had just rejected.
• Defending the Choice: When asked to explain their preference for the (swapped) item, participants confidently provided detailed, coherent, and positive reasons for their choice, often focusing on characteristics they had previously criticized.
• Conclusion: This shows that the act of choosing (or believing you chose) creates a preference, which is then constructed and justified after the fact. People are generally unaware when their fundamental preferences have been manipulated or swapped.

Consumer Memory and Interference

Advertising aims to ensure that consumers remember their product at the point of decision. However, memory is vulnerable to interference.

Interference occurs when learning new information disrupts the recall of previous information, or vice versa.

1. Proactive Interference (Burke and Srull, 1988)

• Explanation: Old memories or learning interfere with the recall of new memories.
• Consumer Example: If a brand (Brand X) has used the same advertising jingle for 10 years, and then tries to launch a new jingle, consumers may struggle to remember the new jingle because the old one keeps "popping up" and blocking it.

2. Retroactive Interference (Burke and Srull, 1988)

• Explanation: New memories or learning interfere with the recall of old memories.
• Consumer Example: You see an advertisement for a competitor's product (New Ad). This exposure makes it harder for you to recall the features of the original product you were planning to buy (Old Memory).

Key Takeaway (2.3.3): Decision errors arise from relying on System 1 when System 2 is needed, being blind to changes in our own choices (Hall et al., 2010), and having our advertising memories blocked by interference.