How Consumers Decide II

The decoy effect



Car Ride Quality MPG
A 83 24
B 73 33

The decoy effect



Car Ride Quality MPG
A 83 24
B 73 33
C 70 33

Asymmetric dominance

Adding Adding an asymmetrically dominated option to the choice set shifts the choice preferences in favor of the dominating option

The decoy effect

16% 0% 84%

The decoy effect

68% 32%

The compromise effect



Car Ride Quality MPG
A 83 24
B 73 33

The compromise effect



Car Ride Quality MPG
A 83 24
B 73 33
C 93 18

The compromise effect

The compromise effect

The compromise effect

Reason-based choice


Imagine that you serve on the jury of an only-child sole-custody case following a relatively messy divorce. The facts of the case are complicated by ambiguous economic, social, and emotional considerations, and you decide to base your decision entirely on the following few observations. To which parent would you award sole custody of the child?

36% 64%

Reason-based choice


Imagine that you serve on the jury of an only-child sole-custody case following a relatively messy divorce. The facts of the case are complicated by ambiguous economic, social, and emotional considerations, and you decide to base your decision entirely on the following few observations. To which parent would you deny sole custody of the child?

45% 55%

Reason-based choice - Irrelevant reasons

Reason-based choice


Imagine that you have just taken a tough qualifying examination. It is the end of the fall semester, you feel tired and run-down, and you are not sure that you passed the exam. In case you failed you have to take the exam again in a couple of months – after the Christmas holidays. You now have the opportunity to buy a very attractive 5-day vacation package in Hawaii at an exceptionally low price. The special offer expires tomorrow, while exam grade will not be available until the following day. Would you?

  1. Buy the vacation package
  2. Not buy the vacation package
  3. Pay a $5 non-refundable fee in order to retain the rights to buy the vacation package at the same exceptional price the day after tomorrow – after the exam grades are posted

32% 7% 61%

Reason-based choice


Imagine that you have just taken a tough qualifying examination. It is the end of the fall semester, you feel tired and run-down, and find out that you passed the exam. You now have the opportunity to buy a very attractive 5-day vacation package in Hawaii at an exceptionally low price. The special offer expires tomorrow, while exam grade will not be available until the following day. Would you?


  1. Buy the vacation package
  2. Not buy the vacation package
  3. Pay a $5 non-refundable fee in order to retain the rights to buy the vacation package at the same exceptional price the day after tomorrow – after the exam grades are posted

56% 16% 30%

Reason-based choice


Imagine that you have just taken a tough qualifying examination. It is the end of the fall semester, you feel tired and run-down, and find out that you failed the exam. You now have the opportunity to buy a very attractive 5-day vacation package in Hawaii at an exceptionally low price. The special offer expires tomorrow, while exam grade will not be available until the following day. Would you?


  1. Buy the vacation package
  2. Not buy the vacation package
  3. Pay a $5 non-refundable fee in order to retain the rights to buy the vacation package at the same exceptional price the day after tomorrow – after the exam grades are posted

57% 12% 31%

The paradox of choice

How do consumers make satisfaction judgments?

Decisions Across Time

Predicting pleasure and pain


What would you choose?

  • Option 1: Submerge your hand in very cold water for 60 seconds

  • Option 2: Submerge your hand in very cold water for 60 seconds, and then in mildly cold water for 30 seconds

The peak-end rule

Temporal discounting


What would you rather have?

  • $100 today

  • $105 in a week


Temporal discounting of future money implies that the utility of money decreases with time.

Why we discount



  • Delayed outcomes can be risky outcomes

  • Immediate outcomes are tempting

  • Difficult to imagine future self

Normative theory of discounting

Money should be discounted at a constant rate over time

Preferences will be consistent over time

Exponential discount function

Discount functions

Hyperbolic discounting

Hyperbolic discounting

Hyperbolic discounting

Temporal discounting

If you were deciding today, would you choose fruit or chocolate for next week

74% chose fruit

Temporal discounting

If you were deciding today, would you choose fruit or chocolate for today

70% chose chocolate

Now vs. later


What People want NOW often conflicts with long-term goals

  • Buy now vs. save for the future

  • Dessert now vs. weight loss and longevity

  • Party now vs. good grades later

The marshmallow study

Self-control failure




  • Why do we fail at self-control?

  • How can we avoid self-control failure?

Self-control failure

  • When goals are vague
  • When we’re in a bad mood - sadness, stress, etc.
  • When we’re not monitoring our behaviour
    • Mindless eating in front of TV
    • No budget
    • Under the influence
  • When our capacity to exert self-control is depleted

Self-control as a limited resource

  • Self-control works like a muscle

    • It can only be taxed to a certain point
    • It can be strengthened with work/effort

  • Self-control is weakened by prior acts of volition

  • Prediction: after exerting self-control in situation A, it is more difficult to do so in situation B

Chocolate and radishes

  • Lab room set-up with fresh-baked chocolate chip cookies and radishes

  • Participants were instructed to eat either radishes or chocolate chip cookies

  • Participants were then asked to solve impossible puzzle

Puzzle results



Choice depletes willpower

Controlling for time spent shopping and other demographic factors, shoppers who made a lot of choices that day spent less time on the math problems and got fewer correct answers.

Pre-commitment devices


Sometimes people pre-commit to avoid temptation

  • Placing alarm clock across the room
  • Staying out of bars
  • Individual snack packs
  • ATM limits

Commitment is an old idea