How we systematically make

certain mistakes?
Dr Yamini S.
Faculty of Operations and Analytics
Department of Management Studies, NIT
Trichy
 Non-transparent dominance
In visual illusions, it is easy to
demonstrate a mistake. In
cognitive illusions, it is very difficult
to demonstrate a mistake

25 June 2023 Yamini | Behavioural Dynamics in Decision Making

Whirlpool 7 kg Semi-Automatic Top Loading Whirlpool 6.2 kg Fully-Automatic Top Loading Washing
Washing Machine (Superb Atom 70S, Grey) Machine (White magic Classic 621S, Grey)
Rs.
Rs. 9490
13,490

25 June 2023 Yamini | Behavioural Dynamics in Decision Making

25 June 2023 Yamini | Behavioural Dynamics in Decision Making
 The truth about relativity
• Humans rarely choose things in absolute terms, they make decisions
based on comparisons
• We don’t have an internal value meter that tells us how much things
are worth, rather we focus on the advantages of one thing over
another
• Most people don't know what they want unless they see it in context
• The relativity trap is also apparent when making comparisons across
dissimilar groups
• People avoid comparing things that cannot be compared easily

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 The truth about relativity
Choice overload bias
• We tend to have difficulty making a choice if presented with
numerous options
• People prefer fewer choices rather than having more options
• People have a perception of overload when there are number
of options and attributes, time constraints, decision
accountability, alignability and complementarity of options,
consumers’ preference uncertainty

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 The truth about relativity
• It may end up in consequences such as fatigue, choosing the
default, deferring the choice and unhappiness
• Specifically in the context of sales: less is more
• Greater choice should be offered in product domains in which
people tend to feel ignorant; whereas less choice should be
provided in domains in which people tend to feel
knowledgeable
• Even when there are more choices. People want confidence in
the choices made
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 The truth about relativity
Many people think that if there are more options provided to the
customers there will be provision of more flexibility. This aspect helps the
company to provide more and better features to grab the attention of the
customers. But there are negative aspects like
Analysis paralysis
Overthinking and over-analysing the available options and can lead to
confusion
Buyer’s remorse
Sense of regret after making a purchase. If the buyer makes difficult
decision by selecting between two similar appealing alternatives

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25 June 2023 Yamini | Behavioural Dynamics in Decision Making
 Choice overload bias Examples
When consumer has no
preference /
preference uncertainty

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 Choice overload bias Examples
Differentiate the product
attributes and benefits

25 June 2023 Yamini | Behavioural Dynamics in Decision Making

 Choice overload bias Examples
When choice set is complex,
where there is slight
difference

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 Choice overload bias Examples
Poor presentation

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 How to ease the effects of choice overload
• Make the decision less painful
• Give enough time to process information
• Group / organise products in logical way
• Present limited assortment
• Shed light on products to lessen the complexity of choices
• Use triggers, heuristics and provide accessible information

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 Marketing examples of decoy effect

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 How shutter stock uses the decoy?

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 Marketing examples of decoy effect
The attraction effect occurs
only if the consumer prefer
both dimensions of the
products to be as important
as each other

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 Product pricing - Apple

25 June 2023 Yamini | Behavioural Dynamics in Decision Making

 Decoy Effect as a secret agent
• It is popularly known as asymmetrical dominance effect
• The tendency to have a change in preference between two options
when presented with a third option that is asymmetrically dominated
• It plays a crucial role in making decisions. Even the most valuable brands
in the world resort to this strategy while positioning their products
during product launch
• The decoy effect encourages the consumers to go for expensive option
over cheap option, when the price of the decoy is close to the high-end
product
• It even helps in deciding whom to date, whom to marry

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 How to Implement The Decoy Effect?
• Choose your key product
The one you want to sell more of. Make sure it is popular with your customers

• Structure your key product

Remember, your key product should contain more benefits than the other products, and higher priced

• Create a decoy
Your goal is to make the decoy asymmetrically dominated by your key product and to increase your key product
attractiveness as a result

• Have at least three offers (recommended)

However, don’t add more than five (beware of the choice overload bias)

• Price the decoy close to your key product (the high-priced option)
Choose same or a slightly lower price

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 Downsides of relativity
• Your happiness is not derived with respect to what you have; but it is compared with
respect to what others have
• It can also make us downright miserable, because jealousy and envy spring from
comparing our lot in life with that of others
• Rich now envy the superrich
• We can sometimes control the “circles” around us, moving toward smaller circles that
boost our relative happiness by changing our focus from narrow to broad
• We look at our decisions in a relative way and compare them locally to the available
alternative; we should change our focus from narrow to broad
• The more we have, the more we want. The cure is to break the cycle of relativity

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 Free of cost
• Have you ever grabbed for a coupon offering a FREE!
• What about the worthless FREE! stuff you have accumulated?
• Why does FREE! makes us so happy? After all, FREE! can lead us into
trouble: things that we would never consider purchasing become incredibly
appealing as soon as they are FREE!
• Most of the times we give up a better deal and settle for something that
was not what we wanted, just because we were lured by the FREE!
• What is it about FREE! That’s so enticing? Why do we have an irrational
urge to jump for a FREE! Item, even when it’s not what we really want?

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 What is your choice?

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25 June 2023 Yamini | Behavioural Dynamics in Decision Making
 Experiment conducted with Halloween kids

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Experiment conducted with Halloween kids

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 How it works in shopping

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 The cost of zero cost
• In the land of pricing, zero is not just another price. Zero is not just another
discount. Nothing beats the emotional surge of FREE!
• Zero price effect is an emotive hot button - a source of irrational excitement, when
we buy something for nothing
• When choosing between two products, we often overreact to the FREE one
• Zero affects all forms of purchases, which increases the feeling that you’re doing
the right thing – What bias plays a role here?
• We only see the benefits, not the costs of things that are FREE
• The concept of ZERO also applies to time. Time spent on one activity is time taken
away from another

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 FREE is a special price

• FREE! is like an ace in the hand of policy strategists, it can have a great
deal of power to drive social policy
• We should make FREE if we want to incentivise people to behave in a
certain way
• Want to draw a crowd? Make something FREE!
• Want to sell more products? Make part of the purchase FREE!
• What are the ways in which you can manage a restaurant bill with
your friends?

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 Why are we happy to do things, but not when
we are paid to do them?
• We live simultaneously in two different worlds, one where social norms
prevail, and the other where market norm rules. Hidden forces pushing
and pulling us into each world drive behaviour, emotions, and thoughts
✓The social norms include the friendly requests that people make of
one another, it provides pleasure, and reciprocity is not immediately
required
✓In case of market norms, the exchanges are sharp-edged: wages,
prices, rents, interest and costs-and-benefits
• People will work more for a cause than for cash. What is going on here?
How could zero be more than the monetary income?

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 Social Norms Market Norms
Warm and Fuzzy Cold and clear
No instant payback or reciprocity Immediate exchange of equal value
is required items
Friends and family Business transaction
No money involved Money always involved
Only few contributors, but the More contributors, but low quality
quality is high

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 When social and market norms collide, trouble
sets in
• But, what would happen if we mix the signals for the two types of
norms?
• People react to the explicitly priced gift in exactly the way they react to
cash, and the gift is no longer invoked social norms
• The moment we mention money, people will look at it as a market
norm. When money is not mentioned, people use social norms and
were willing to volunteer their time
• People are willing to work for free, and they are willing to work for a
reasonable wage; but offer them just a small payment and they will
walk away
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 Gifts in social context and business context

• Gifts are in social domain

• Social norms often dictate when
money is an appropriate gift
• It also suggests all efficient ways
of gifting

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 Differentiating market and social norms
• No one is offended by a small gift, because even small gifts keep us in
the social exchange world and away from market norms
• Market norms are not just about efforts - they relate to a broad range
of behaviours, including self-reliance, helping, and individualism
• Even thinking about money in some form makes people more selfish,
self-reliant. Hence, introducing market norms into social exchanges,
violates the social norms and hurts the relationships
• When a social norm collides with a market norm, the social norm goes
away for a long time and it is difficult to re-establish

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 Finding the delegate balance between social
and market norms
• In the last few decades markets have tried to market themselves as social
companions, as they are the makers of intangibles and creativity counts the most
• No matter how long the companies establish social relationships with customers,
even one violation of the social norm means that the customer is back to the
market exchange
• If organisations make the social norms stronger than market norms, they can
build loyalty, flexibility, concern and willingness to pitch in
• Market norms can erode the pride and meaning people get from work. To create
a healthy working environment, businesses must instil a sense of purpose and
mission in job roles

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 Finding the delegate balance between social
and market norms
• Though employees prefer cash than gifts, gifts is a symbolic gesture that
provides a boost to the social relationship between employee and
employer
• Salary alone will not motivate people to risk their lives
• The most difficult part is to maintain the relationship under all
circumstances. It can be done by explicitly stating what you give and what
you expect in return
• Stay in the social exchange and witness the benefits of the social norm

25 June 2023 Yamini | Behavioural Dynamics in Decision Making