Online Consumer Decision Making-2

1. Online Consumer Decision Making-2 • Mishra, S., & Olshavsky, R. (2005). Rationality Unbounded: The Internet and Its Effect on Consumer Decision Making. Chapter 17 of Online Consumer Psychology. • Course Portal: http://www.itu.dk/~rkva/2011-Spring-EB22 • Facebook: http://www.facebook.com/group.php?gid=133258548012 • Etherpad: http://ietherpad.com/7y3drhMCnq • Thursday, 03-Mar-2011 • EB22: Online Marketing: Lecture 13 • Auditorium 4, ITU, Copenhagen, Denmark

2. Neoclassical Rational Model of the Consumer Three main assumptions: Perfect knowledge about possibility sets Transitivity of preferences Existence of a scheme of preferences for all available alternatives

3. Simon’s Bounded Rationality Decision-making is Satisficing rather than Optimizing Three main assumptions: Limited Knowledge Information is costly to collect and store Economic behavior requires trail-and-error search process

4. Consequences of Bounded Rationality Cognitive Effort vs. Decision Accuracy tradeoffs Less-accurate heuristics over optimal choice rules Task Effects Time pressure Number of alternatives and number of attributes Response modes Context Effects Similarity of alternatives

5. Decision Heuristics Weighted Additive Rule (WADD) Equal Weight Rule (EQW) Elimination-By-Aspects (EBA) Lexicographic (LEX)

6. Weighted Additive Rule (WADD): Example Textbook: Table 17.2 (p. 365) Alternative A: (6x4) + (4x7) + (2x4) = (24) + (28) + (8) = 60 Alternative B = 44 Alternative C = 54

7. Equal Weight Rule (EQW): Example Same as Weighted Additive Rule (WADD) but with Equal Weights Alternative A = 4 + 7 + 4 = 15 Alternative B = 2 + 7 + 2= 11 Alternative C = 4 + 6 + 3 = 13

8. Elimination By Aspects (EBA): Example Form cutoffs for the most important attribute Eliminate all products with attributes not meeting the cutoff Repeat till only one product remains Select Picture Quality First Alternative B is eliminated Select Versatility Next Alternative C is eliminated and Alternative A is selected

9. Lexicographic (LEX): Example Select most important attribute Select the product with the best value on the attribute Resolve ties by selecting the next important attribute Select Picture Quality First Alternative A and Alternative C are selected Select Versatility Next Alternative C is eliminated and Alternative A is selected

10. WADD & EQW Compensatory Utility loss in one attribute can be traded off with utility gain in another attribute of the same product Alternative-based All alternatives are considered

11. EBA & LEX Non-Compensatory Utility loss in one attribute CAN NOT be traded off with utility gain in another attribute of the same product Attribute-based Only specific set of attributes are considered

12. EBA & LEX Non-Compensatory Utility loss in one attribute CAN NOT be traded off with utility gain in another attribute of the same product Attribute-based Only specific set of attributes are considered

13. Internet’s Effect on Decision Heuristics Impact on all Four Components of Consumers’ Choice Space: Evaluation Strategies Evaluative Criteria Consideration Set Image of Alternatives within the Consideration Set

14. (Un)Bounded Rationality Authors’ Claim: The Three main assumptions might not be valid Limited Knowledge Information is costly to collect and store Economic behavior requires trail-and-error search process

15. Discussion Exercise 11: In-class small group exercise http://cat.xula.edu/thinker/decisions/heuristics/ Post on Etherpad: http://etherpad.com/DqW4MqxTK4