understand how consumers make decisions physiological basis psychological basis understand...
TRANSCRIPT
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MARK 5342 Advanced TopicsNeuro-Science and Decision-Making Module
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Overview
Understand how consumers make decisions Physiological basis Psychological basis
Understand implications of these strategies on marketing methods Satisfaction Loyalty Brand attachment
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Physiology and Psychology of Decision-Making
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Classical view of decision-making
Pitched battle between reason and emotion
Reason often wins This view goes back to Plato Freud – multiple theories of the brain
Id – raw emotion Ego – conscious and rational self
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William James, 1890
The Principles of Psychology Rejected Plato’s view of the rational
brain as the controller and emotions as evil impulses
Emotions provide a rich context of habits, pattern-seeking, and valence to decisions
Decision-making is selecting which of the two systems to utilize in specific situations
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Evolution over the past 100,000 years
Primitive man had only the amygdala to drive two primary emotional urges Reproduction Flight or fight
Over time, the cortex evolved Center for higher thought▪ Future planning, develop and use language,
create and utilize tools, reflect on decisions, create ethics
Layered on top of existing brain structures
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Major Structures of the Brain
Central Core – regulates basic life processes
Limbic structures – emotions and memory Amygdala, hippocampus, hypothalamus
Cortex – higher cognitive and emotional functions Frontal, occipital, parietal, and temporal
lobes
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Structure of the Brain
The Human Brain.exe
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Pattern seeking
Subconscious is good at seeking patterns
When a pattern it likes emerges, a positive signal is sent; when a negative pattern emerges, a negative signal is sent
We know this as “gut feel” Zaltman estimates that up to 95% of
purchasing decisions are made this way
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Dopamine
Neurotransmitter molecule (Dopamine DHD9) in the brain that brain cells use to communicate with each other
Stimulation of nucleus accumbens (NAcc) releases dopamine, which produces a pleasurable feeling
Dopamine neurons activate as predictors using stored patterns
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Error-identification
When Dopamine neurons are wrong, they fire an error signal to the anterior cingulate cortex (ACC)
This error signal forces a person to notice the unexpected event Conscious notice Hypothalamus speeds up heart rate,
produces adrenaline Uses spindle cell neurons to convey
emotion
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Parkinson’s Disease
Dopamine neurons begin to die in the brain
These neurons control movement in the body
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Memory and Processing
Two types of memory Verbatim – short term, vivid, detailed Gist – long term, vague, reconstructed
Impact of trigger words on reconstruction Loftus, 1974 Automobile accident recall
Memory with affective impact recalled more readily
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Simultaneous Decision Processes
• The brain utilizes two simultaneous decision processes– Cognitive – deliberate, reasoned, unemotional– Affective – impulse, heuristic, highly emotional
• These two decisions race, and often conflict• For simple decisions, affect often wins• Even with complex decisions, there is an affective element• Up to 95% of our decisions are affectively driven– Made in the subconscious– This means we don’t know and often can’t tell why we made the
decisions we made
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Simplified Decision Process
OriginationOrigination
Information GatheringInformation Gathering
EvaluationEvaluation
Purchase DecisionPurchase Decision
Postpurchase Evaluation and Behavior
Postpurchase Evaluation and Behavior
Pre-purchase
Purchase
Post-purchase
What prompts the customer to action?
What factors influence the customer’s decision?
What attributes of the product does the customer consider?
What options does the customer identify?What decision(s) does he make?
What does the customer do about his decision?
Because value creation is basedon understandingand meeting customer needs.
Because value creation is basedon understandingand meeting customer needs.
Source: Alba, Hutchinson, and Lynch (1990), “Memory and Decision Making,” Handbook of Consumer Theory and Research, Englewood Cliffs, NJ: Prentice-Hall, 1-49.
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Affect and Decision-Making
Isen, 2005 Affect impacts cognitive decisions
Positive affect leads to generosity, helping, understanding
Affect impacts employee morale and satisfaction, which leads to impacts on customer satisfaction and loyalty
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Impacts on Decision-Making
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Damasio and Decision-making
1982 Patient had tumor removed from
cortex Result was a patient who could not
make even the simplest of decisions Cortical section involved was orbital
frontal cortex (OFC) which is the center for decision-making and incorporating emotions into decisions
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Iowa Gambling Task
Damasio and Bechara, 2005 4 decks of cards – 2 low risk, 2 high
risk After about 80 cards, players could
emotionally develop high payout strategies of only drawing from 2 low risk decks
When testing patients with damaged OFC, those patients were unable to develop any strategies
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Intelligence versus Effort
Dweck, 2006 12 NYC schools, about 400 fifth
graders Simple test of non-verbal puzzles Half of students praised for
“intelligence” Half of students praised for “effort” “Effort” students selected harder
subsequent test; “Intelligent” students selected easier subsequent test
Fear of failure inhibited learning
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Random processes
Dopamine neurons try to find patterns that don’t exist
Can lead to faulty conclusions like “hot hand” or “slot machine payoff”
TV Show Deal or No Deal – when emotions can lead the decision-maker astray
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Asian Disease Problem
Classic exercise in loss aversion Two choices presented to
respondents They had to choose option A or
option B
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First Scenario
The United States is preparing for the outbreak of an unusual Asian disease, which is expected to kill six hundred people. If program A is adopted, two hundred people will be saved; if program B is adopted, there is a one-third probability that six hundred people will be saved and a two-thirds probability that no people will be saved. Which program do you favor?
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When asked of physicians, 72% chose option A, the safe-and-sure strategy
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Second Scenario
The United States is preparing for the outbreak of an unusual Asian disease, which is expected to kill six hundred people. If program C is adopted, four hundred people will die. If program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability that six hundred will die. Which of the two programs do you favor?
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When described in terms of deaths rather than lives saved, physicians reversed their choices, with 78% selecting option D, the risky strategy
Both scenarios are identical in lives lost or saved
Loss aversion is a way of skipping the math and using emotion to make the decision
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Gains and Losses
Prospect theory, Kahneman and Tversky, 1979
Losses loom larger than gains Damasio and Loewenstein investing game
In each round, subject decides to invest $1 or invest nothing
No invest, subject keeps dollar Invest, researcher flips coin for $1 loss or
$2.50 gain Rational investors should always choose to
invest
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Rationality and the Cortex
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Rationality
Logical thinking Prefrontal cortex Metacognition – ability to reflect on
one’s own mind and thus regulate (to a degree) the emotions
Monitors emotions and decides what to take seriously and what to ignore
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Marshmallow test of Self Control
Walter Mischel, 1970’s Four year olds Eat one marshmallow or wait a few
minutes to get two marshmallows Most kids couldn’t resist for long Kids who can’t resist tend to exhibit
behavioral problems later in life Tends to stabilize after the teen
years
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Overthinking a Problem
Claude Steele Stanford sophomores took the
Graduate Record Exam (GRE) White students performed
significantly better than black students
Called the Achievement gap When students told it was just a
preparatory drill, no difference in scores
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Placebo Effect
Power of prefrontal cortex to modulate most body signals, like pain
Fake pain-relieving cream provided relief
Electric shocks mitigated Sobe Adrenaline Rush – lower price
seen as producing less effective in problem solving
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Fooling the Senses
CalTech and Stanford wine tasting experiment
Three levels of wine - $5, $45, $90 With blind testing, respondents could
sort them out fairly accurately When asked to take a short survey
about the wine characteristics, they became confused and selected incorrectly
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Mental Accounting
Brian Wansink, Cornell Bottomless bowl of soup Whatever people see on their plate,
they eat They keep track by counting plates,
or scoops of M&M’s, not actual food
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Anchoring Effect
Daniel Kahneman Random number generated by
roulette wheel and shown to respondents
Estimate the number of African countries in the United Nations
Those who saw higher roulette number guessed higher number of African countries, and those who saw lower roulette number guessed lower number of African countries
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Social Impacts
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Morality and the Cortex
Moral decisions tend to be regulated by emotions
Reason is invented as logical support for the emotional decision
Moral decisions require taking other people into account, not just oneself
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Experiment in Morality
Scenario 1: You are the driver of a runaway trolley. The brakes have failed. If you do nothing, five maintenance workers will die. If you swerve, one maintenance worker will die.
Scenario 2: You are standing on a footbridge over a trolley track. Unless the trolley can be stopped, five maintenance workers will die. Standing next to you is a large man, who if you push over the bridge, will fall on the track and stop the trolley, but the large man will die.
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Results
In scenario 1, when you are the driver, 95% of respondents agree it is better to swerve and save five men with one other man dying. This is a personal moral situation.
In scenario 2, almost nobody is willing to push the man over the edge, resulting in five people dying. This is an impersonal moral decision, and activates different parts of the brain.
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Morality and Brain Regions For personal moral decisions, a rational
moral decision process activates to generate an optimal decision – one death is better than five other deaths
For impersonal moral decisions, the area responsible for thinking about other people (superior temporal suculus, posterior cingulate, and medial frontal cortex) activate and produce confusion and a sub-optimal decision – one death is capital murder
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Sympathy and Fairness
The ultimatum game Two respondents One gets $10 and decides how to divide it The other decides to accept the offer or reject, in
which case both get nothing Economists thought most people would offer a
nominal amount like $1 and keep the rest The logical response is to accept any offer Most people rejected low offers as “unfair” and
walked away with nothing Proposers anticipated this response, and actually
made “fair” offers in the area of $5
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Altruism versus Autism
The desire to help others The brain rewards altruism with a
pleasurable feeling Autism – people who can’t engage in
or understand social interactions with others
Results in inability to sympathize with others
Mirror neurons aren’t developed
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Resulting Decisions
Decisions feel “unanimous” to us However, most decisions are the
result of weighing multiple conflicting factors
Stimulate the NAcc and pacify the insula Prime with highly coveted items Use promotional stickers to make the
deal seem like a good deal Credit cards are less like “real money,”
therefore result in more purchasing
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Silencing Cognitive Dissonance
Brock and Balloun, late 1960’s Two groups – regular churchgoers,
committed atheists Played tape recorded message
attacking Christianity, with annoying static added
Listeners able to press button and remove static
Atheists removed the static, churchgoers did not - they each heard what they wanted
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Bias for Certainty
Confidence in decisions is comforting That can lead to disastrously wrong
decisions Counter that by paying attention to
the details that don’t fit the overall pattern
George Day’s “small voices”
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Limitations of the Cortex
Cortex can only handle about seven data elements at once
Car buying involves dozens of features, options, etc.
Dijksterhuis categorized products with a complexity score Simple things like simple kitchen tools
(oven mitts) and home accessories (light bulbs) are easy
Complex things like furniture is very hard
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Results
With complex decisions, the longer people ponder them, the less satisfied they are with their decisions
The optimal strategy – use your rational mind to gather needed information, then don’t think about it – let your subconscious arrive at a good decision
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Decision Guidelines
Simple problems require reason Novel problems require reason Embrace uncertainty You know more than you know Think about thinking
(Lehrer pp. 244-250)