Survey Results Exam Easiness Teaching Satisfaction Studying for

Survey Results Exam Easiness Teaching Satisfaction Studying for Exam Satisfaction n n Means 4. 5 5. 4 4. 3 3 Exam Satisfaction Exam Easiness Teaching Satisfaction. 441*. 642**. 722** Exam Easiness 1 1. 238. 337 Studying Exam for Exam Satisfaction. 642**. 722**. 238 1. 666** Easiness Teaching Satisfaction Studying for Exam . 015**. 782 Teaching Satisfaction Studying for Exam . 337. 666** 1 . 038* . 056* . 001** 1

Perception – Part 2 Framing Consumer Behavior Fall 2009 2

Framing Effects n Rule #1: People act differently when something is framed as a loss vs. a gain q Example: Deal or No-deal show Losses loom larger than gains! 3

It’s All About the Frame! n Wording as Gains vs. Losses q q How do you frame the price for an extended warranty price (extra cost or one time insurance premium)? Government protection or interference? n q Tobacco companies Politics n n pro-life vs. pro-death Marriage penalty vs. single deduction q q Rent allowance in Kuwait What’s in a Name? n Dried Plum vs. Prunes 4

Experiment Time!! Right side - heads down Left side – heads up 5

Scenario #1 (left side) A flu epidemic has broken out in a town of 600 people. You have a choice between two vaccines. If a vaccine is effective, the people live. If it is ineffective, the people die. Vaccine A: 200 people will be saved Vaccine B: 33% chance of being effective (or else everyone dies) _____ A _____ B 6

Scenario #2 (right side) A flu epidemic has broken out in a town of 600 people. You have a choice between two vaccines. If a vaccine is effective, the people live. If it is ineffective, the people die. Vaccine A: 400 people will die Vaccine B: 33% chance that no one will die _____ A _____ B 7

Framing Effects n Rule #1: People act differently when something is framed as a loss vs. a gain n Rule #2: People are risk seeking for losses and risk averse for gains 8

Mr. A vs. Mr. B You are about to see four pairs of scenarios. In each case two events occur in Mr. A’s life and one event occurs in Mr. B’s life. You are asked to judge whether Mr. A or Mr. B is happier. Would most people rather be Mr. A or Mr. B? If you think the two scenarios are emotionally equivalent, indicate “no difference. ” In all cases the events are intended to be financially equivalent. 9

#1. Mr. A vs. Mr. B Mr. A was given tickets to lotteries. He won KD 50 in one lottery and KD 25 in the other. Mr. B was given a ticket to a single, larger lottery. He won KD 75. Who was happier? ____ Mr. A ____ Mr. B ____ no difference 10

#2. Mr. A vs. Mr. B Mr. A bought his first lottery ticket and won KD 30. Also, in a freak accident, he damaged a chair at a restaurant and had to pay KD 10 to fix the chair. Mr. B bought his first lottery ticket and won KD 20. Who is happier? ____ Mr A ____ Mr. B ____ no difference 11

#3. Mr. A vs. Mr. B Mr. A’s car was damaged in a parking lot. He had to spend KD 200 to repair the damage. The same day the car was damaged, he won KD 25 in a lottery. Mr. B’s car was damaged in a parking lot. He had to spend KD 175 to repair the damage. Who was more upset? ____ Mr A ____ Mr. B ____ no difference 12

Framing Effects n Rule #1: People act differently when something is framed as a loss vs. a gain n Rule #2: People are risk seeking for losses and risk averse for gains n Rule #3: Evaluations are driven by individual events, not total outcomes Implication: separate gains, combine losses 13

Prospect Theory Kahneman & Tversky 14

MARKETING Implications of Prospect Theory: n Segregate gains q n Integrate losses q q n Car descriptions list out attributes separately Computer dealers list price in one lump sum Why we hate phone bills, itemized tuition bills Silver lining effect q Separate out small gain from big loss n n KD 500 cash back when you buy a new Nissan vs. reducing price Gifts with purchase 15

Anchor and Adjustment n Real estate q q n Show overpriced first… (assimilation) Show bad first… (contrast) Sale! 6 for KD 3 (vs. . 500 KD a piece) 16

Cloud 9 n 80% of all retail food prices end in. 999 or. 995 q q n Encoded as sale! Encoded as less! Court Fines – how much? KD 5, 001 17

Everyone has heard of the three most important things in real estate… Location, Location!! What are three most important things in Marketing? Perception, Perception! Okay, that might be an overstatement, but… 18