Psychology Data and Research

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PsychOfChoice

Psychology of Choice: How We Assess Risk When Buying Products

I started playing piano in first grade, and when I started, I was obsessed with piano. I loved the new instrument and couldn’t wait to get home from school to tinker with it and practice my newly learned pieces. Eventually, that fervent enthusiasm diminished and my mom struggled to get me to practice. She brought the matter up with my instructor who suggested an interesting solution: if I completed 15 minutes of practice on the pieces I was supposed to be working on, I could then choose to practice any of the songs in the book and show my instructor the following week. I ended up enthusiastically and diligently practicing for those 15 minutes, just so I could play what I wanted after. When I was being forced to practice, I had significantly less enthusiasm than when given the chance to exert my own will and choice. By giving me a choice about my actions, my teacher re-sparked my piano-playing interest. This phenomenon – that when given a choice of doing something, people are more likely to want to do that thing. The Psychology of Choice has important implications for marketing.

The Decoy Effect on Pricing Choices

When given a choice, individuals feel powerful and in control. Feelings of power can spark irrationality when it comes to decision making and render individuals more susceptible to grandiose claims and seemingly ‘good deals.’ Furthermore, what additional choices are given can have a large impact on what choice is made. The decoy effect is a good example of this. Imagine that a local newspaper has two purchasing option bundles:

(A) E-reader version for $200/year

(B) Print and E-Reader version for $300/year.

You might imagine that given this break down, the number of each bundle purchased would be about equal, or swayed slightly in one direction by consumer preferences/demand for the print version. However, this local newspaper would surely like to be selling a whole lot more of  bundle B, as it nets an extra $100 per bundle purchased! Consider the following options:

(A) Print version for $300/year

(B) E-Reader version for $200/year

(C) Print + E-Reader version for $300/year

If you’re like most rational people you see option (A) and you see option (C) and you think, “Wow! Why purchase A when I can pay the same price and get an E-Reader version for free!” Indeed, when this pricing schema is tested in the real world, virtually no one chooses option B anymore.

This is a classic example of how the illusion of choice and control can be manipulated. Neiman Marcus uses this phenomenon in their Christmas Catalog by placing fantasy gifts, like a $350,000 limited edition McLaren 12C Spider sports car and a walk-on role in Broadway’s Annie: The Musical, next to a $350 sweater. The sweater seems like a steal! 

Opt-in vs Opt-out

Another interesting framing phenomenon to consider is the opt-in versus opt-out paradigm. When you go to get your Driver’s License here in the US, you must explicitly check a box and fill out paperwork to become an organ donor. Countries that share this policy tend to have abysmally low participation rates: Germany comes in at 12 percent and Denmark doesn’t even reach five percent. By contrast, countries with an opt-out scheme (i.e. you are an organ donor by default, and only fill out paperwork if you don’t want to participate) have participation rates pushing 100 percent!

We are all familiar with those pesky check boxes at the bottom of online forms that are magically pre-clicked, tricking us into subscribing to seemingly dozens of pointless daily newsletters. This is an example of an opt-out choice: the individual has to personally unclick the box to opt out of an additional service and often will not take the time to do so, or not realize they even have the choice. While the success rates of these types of marketing manipulations are disputed, this provides another example of how the manner in which a choice is presented can influence said choice. Strategists can capitalize on the human tendency to choose the default option to sway individuals in one direction or another.

How we assess risk when we assess decisions

In a 1981 study, Kahnemann and Tversky presented the following question to university students:

Imagine that the U.S. is preparing for the outbreak of a disease which is expected to kill 600 people. Consider the following programs to combat the disease and choose the one you favor:

(A) 200 people will be saved

(B) There is a 1/3 probability that 600 people will be saved and a 2/3 probability that no people will be saved.

When presented with these choices, 72 percent of participants chose (A) and 28 percent selected (B). Now, consider the following, noting these are the exact same choices worded in a different manner. That is, instead of saying how many will be saved, this wording points out how many will die:

(C) 400 people will die

(D) There is a 1/3 probability that nobody will die and 2/3 probability that 600 people will die

When presented in this way, 22 percent chose option (C) and 78 percent chose option (D) – the preferences were completely reversed, just by simply altering the wording!

This example reveals an interesting insight into human psychology: when the choice is framed in terms of gains (i.e. people saved), we are more risk averse, and want to choose the ‘sure thing’ (i.e. option A). But when the choice is framed in terms of losses (i.e. people who will die), we are more risk-taking. Essentially we want to avoid losing ‘positive’ things, but if we’re already going to lose, we’re willing to gamble to try to lose less. A simple change of framing, from gains to losses, can completely alter the decision making process.

The context in which individuals are given a choice can drastically influence the outcome of the decision. The way in which something is presented has an extraordinary impact on our perception of that product or problem, and the implications of just that, as we have seen, can be immense. As marketers, it’s important to take the principles of psychology and apply them to not only, cleverly getting your seven-year-old to practice piano, but to integrate these principles into our daily marketing routines and increase the productivity of the time and spend being used. Techniques like framing and competing choices -- can be used to influence consumer behavior in the world of marketing is indeed a powerful one.

 

Psychology of Music

 

 


segmentation packaging pricing product-market fit target audience Nonconscious Motivations Research Traits and Scales Psychology and Marketing Research Methods

Posted by Madeline Ford on May 22, 2013

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