answers to biases_exercise #4

answers to biases_exercise #4 - CONSUMER BEHAVIOR Exercise...

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CONSUMER BEHAVIOR Exercise 4: Biases in Judgment DUE: Tues. 9/18 Below are various marketing actions/decisions that capitalize on biases in consumer judgment. For each, identify/name the bias that it capitalizes on the most and describe how the action affects consumers. A bias may be used more than once. (a) Rather than reduce prices by $500 a car manufacturer offers a $500 rebate on all cars sold during a promotion period. Name of bias : Integration bias – segregate gains & silver linings How action affects consumers : “A small reduction (in the absolute value of) a loss should be segregated (silver lining)” because the psychological impact of a small reduction in a loss is very small while the psychological impact of a comparable small gain is relatively large. This means that people will enjoy the $500 rebate more than the $500 price reduction and will be more likely to buy a car. [Note: What I said in class about loss aversion applying here was wrong! I do not know what I was thinking. Forget that I said it.]
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