Behavioral economics and decision making

Yemisi Lewu #2

October 2nd, 2009 at 23:57

In conclusion, we are predictable. Dan’s presentation put me in the position of a bystander watching my own decision making processes.  Many of the decisions we make and the decision processes we take are automated and follow the same pattern, but we, or I such say I, have never stop to analyze such patterns as Dan has.

I found it interesting that he questioned if we really knew our preferences by stating that our preferences aren’t truly defined, but relied on advice or a form of guidance.

Dan also made a point on decision illusion by citing the example of the organ plot. Depending on how the question was worded, our perception of how often we floss changed. This reminds me of how prices are presented. Here in Brazil, you have self service restaurants everywhere and most of the prices are presented according to the kilo amount you eat, for example R$15.99/kilo (of food). Other places in which the price tag is considered a bit high in terms of kilo, present their prices in terms of grams, therefore $15.99/kilo would then be presented as R$1.59/100grams (of course 100 grams written in small letters). At first glance the former seems more expensive, but in reality the prices are the same. Consequently, we are able see the power of perception in marketing.

 I found unusual though, that there was no mentioning on the influence of culture, background, upbringing, and realized that these decision making processes may not directly be linked to these factors and perhaps are independent processes pertaining mostly to individuals in the face of society and not society against society.  Again another advantage for marketers!

Regarding some of the readings on wiki , the text on framing brought up the example of a PR ‘firm advises clients to use “bridging language” that uses a strategy of answering questions with specific terms or ideas in order to shift the discourse from an uncomfortable topic to a more comfortable one.[12] Practitioners of this strategy might attempt to draw attention away from one frame in order to focus on another.’ We can relate this to the recent emphasis on the ‘cap and trade’ bill or as now referred to as “Pollution Reduction and Investment” program; the billed was renamed. Senator John Kerry, the lead sponsor of the Clean Energy Jobs and American Power Act, never used the term “cap and trade” in the new bill the democarats have set to fight global warming. It is a clear shift in discourse to highlight individual investing on climate change.  We are yet to see the consequences of evaluaed the bill from this angle alone.

 In the end, I wonder if everything were revealed to us, as to how the act of framing, our knowledge of the endowment effect, decision illuson, etc not only influenced our decisions, but were the basis of which we made them, would we change, would and could we “correct” our system?

3 Responses to “Yemisi Lewu #2”

  1. kristinehoward_p2pu Says:

    Hi, Yemisi. I also wonder about the influence of culture, background, etc. I believe that the combination of who you are and your current situation will affect decisions. “Who you are” is developed over the years from both genetics and experience (I think the scientists are saying 50/50 these days for nature and nurture) that includes your culture, background, family, etc. and adds up to your personality, which drives your typical behavioral patterns for thinking, communicating, relating to others, etc. The “situation” would include things like what type of decision it is, how much is at stake, in which culture are you now making the decision, how motivated you are to do one thing versus another, etc. Fascinating and complicated stuff!

    Good example about the shift in language. Very much like the “death tax.” Makes me think of Noam Chomsky and the linguists.

    As for could we/would we correct–great question! In learning, especially workplace learning, we try everything we can to overcome perceptual phenomena and memory shortcomings and other cognitive deficits. We give them the information structured in a way that is easy to understand, leave out the non-critical to focus on a minimum amount of critical information, we present it in logical ways that build from easy to complex or give a whole picture to present the lay of the land before deep dives into specific elements, set up exercises and activities to help them process and use the information so it makes more sense and gets incorporated into memory, and basically help them through the process of handling the information and applying it in very way we can based on these things we know about behavior. We’re still not that good at. Performance is normally distributed, so half the people who are not very good at their job! I can also say that I’ve been aware of a lot of these phenomena for some time and I probably am no better at avoiding their negative impacts for it! As far as systems, there are certainly things we can do. I think we could certainly try to outlaw certain types of “framing” in certain types of conditions–and we have done so in areas like advertising (back when cigarettes were advertised in this country, they outlawed using cartoon mascots to attract the attention of children and turn them into smokers) and tried to do so in credit card disclosures (though you can comply with the letter but not the spirit of the law and there is still plenty of room for people not to understand your truthful financial disclosures if you are a company out to maximize your profits through crazy charges that consumers don’t anticipate they’ll get hit with). The ingenuity of human beings is amazing. Come up with a good system, and someone will figure out how to bypass it. If we could harness the creative power of criminals and degenerates who bilk the many systems in this society we could possibly channel it toward something where they could make a legitimate living!

  2. kristinehoward_p2pu Says:

    Came across this today: the British Psychological Association invites leading psychologists to share what they still don’t understand about themselves. Several responses were about how they can’t detect their own biases, even knowing exactly how they work, and can’t seem to apply their own research to their personal lives. http://www.mindhacks.com/blog/2009/10/one_nagging_thing.html

  3. behavioral-economics Says:

    There was another good example about if you call something a tax republicans hate it but if you change the name to something else (I can’t remember) they like it! We’re so easily swayed by language. Good pt about culture. A lot of these studies are hard to run, so getting results cross culturally is very desirable but often not possible.

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