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How BE shapes decision making
 

How BE shapes decision making

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Some of the everyday principles of behavioural economics can be learnt by applying them to your own decision-making. Here is my example.

Some of the everyday principles of behavioural economics can be learnt by applying them to your own decision-making. Here is my example.

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    How BE shapes decision making How BE shapes decision making Presentation Transcript

    • How BE shapesdecision-making OR How I bought a new set of Christmas tree lights Joanna Chrzanowska FMRS
    • Notice that a symbolic, social andcultural context frames my decision I want to celebrate Christmas because I believe in it, its an important social occasion, and I want to do it in a style of which others will approve
    • Notice that a symbolic, social andcultural context frames my decision I DO NOT want over the top bad taste as I feel it is of a lower class than the one I aspire to. I therefore decide I will buy only warm white lights for my Christmas tree and will avoid icicles and reindeer. However I will put the tree in the window where it can be seen from the outside.
    • My problem:I last bought them 10 years ago and now large sections don‟twork. I need some new lights for the Christmas tree.
    • Where do I start looking and why?• Impressions formed without conscious Saw last Driving by awareness prime feelings year and create familiarity bias Get a delivery from Amazon Advertising• Repeated impressions create validity bias Looks like Homebase is the place to go. I‟ll try Amazon too.• Authority/ social proof “ I got mine from the Garden Centre on the A24” (posh neighbour) Read somewhere that Homebase sold more lights than any other retailer last Christmas• Confirmation bias – Homebase will probably be cheaper – that garden centre is usually choose info that fits with overpriced ( and I hate the A24) what you already know• Ambiguity aversion Look on Amazon and cannot work out why prices vary so much for 200 lights – I am missing some information about quality, so I give up. The reviews are mixed positive and negative. I check the reviews trying to work out if there is anyone who has the• In-group same needs and criteria as I have. I would trust those reviews more.
    • How am I choosing in the shop? (1) I suddenly decide I must have LED lightsAvailability bias because there is a cool kitchen display I learn from reading a box that LED lights never need replacing so myFraming purchase turns from a distress purchase to an „investment‟. 240 warm white lights are £60!!!! I was thinking they would beAnchoring about £20… I am sure I never paid more than that.Loss aversion I need two sets so if I spend £120 I can‟t afford my new party dress But I already bought a new tree last year so I can‟t have a tree withSunk cost effect no lightsPoor affective How will I feel going to the party in an old dress? Will that be worseforecasts than having old rubbish lights on my tree? I can‟t decide.
    • How am I choosing in the shop? (2) Why am I looking only at warm white LED lights? I could get oldChoice Bracketing fashioned fairy lights…. It‟s what I had before. I have two choices.Choice Wait a minute! A pack of 480 light on the bottom of the shelf is halfArchitecture price – so I can get the equivalent of two packs for only £60! No they are all half price today- I just saw the sign. I was too focused on getting warm white instead of bright white. So I could get two packs of 240 or even 4 packs of 160 which would give me even moreChoice Paralysis lights for not much more money. Or would it? I can‟t work it out. Damn, I‟m stuck. Is it better to have separate strings of lights in case one fails or easier to have one big one?Cognitive My brain hurts and I‟m fed up of staring at this fixture.depletion I don‟t do satisfycing – the first satisfactory alternative. I always worry there might have been a better one. I don‟t maxi-min – minimiseCommon unfavourable consequences. I am positive so I usually maxi-max,heuristics choose the one with most advantages. But today I‟m optimising: I will get two packs to give me some flexibility but not 4 x 160s as that might be a hassle with too many plugs.
    • After my purchase Oops – I spent some of my party dress budget! Not clever. But I am sureCognitive nobody will remember what I wore last year, and if I have a different top on, itdissonance will be alright.Endowment Considering I have a full and perfect set of lights for my tree that I will nevereffect need to replace I reckon they are worth about £100 I‟ve always had classy lights on my tree. My daughter must be mistaken inSelf-consistency remembering a set of multi-coloured chasing lights… Everyone who comes to the house will think my tree is the best and most stylish.Egocentricity I think I am a good shopper. The neighbour who criticised my tree last year has always been jealous of me.Attribution She is a very jealous person and can‟t stand to see anyone do better than sheerror has. I don‟t think her being drunk at the time had anything to do with it.Reciprocity She‟s invited us over for cocktails so we‟ll have to invite them back.
    • Summary of the biases and effectsBefore During After• Impressions formed without • Availability bias • Cognitive dissonance conscious awareness prime • Framing • Endowment effect feelings and create • Anchoring • Self-consistency familiarity bias • Loss aversion • Egocentricity• Validity bias • Sunk cost effect • Attribution error• Authority/ social proof • Poor affective forecasts • Reciprocity• Confirmation bias • Choice architecture and• Ambiguity aversion Bracketing• In-group bias • Possibility of Choice Paralysis • Cognitive depletion • Common heuristics 9