Behavioral Biases in Marketing

Psychology and economics (the mixture of which is known as behavioral economics) are two fundamental disciplines underlying marketing. Various marketing studies document the non-rational behavior of consumers, even though behavioral biases might not always be consistently termed or formally described. In this review, we identify empirical research that studies behavioral biases in marketing. We summarize the key findings according to three classes of deviations (i.e., non-standard preferences, non-standard beliefs, and non-standard decision-making) and the marketing mix instruments (i.e., product, price, place, and promotion). We thereby introduce marketing researchers to the theoretical foundation of and terminology used in behavioral economics. For scholars from behavioral economics, we provide ready access to the rich empirical, applied marketing literature. We conclude with important managerial implications resulting from the behavioral biases of consumers, and we present avenues for future research

A Multi-Level Theory Approach to Understanding Price Rigidity in Internet Retailing

Price rigidity involves prices that do not change with the regularity predicted by standard economic theory, and is of long-standing interest to firms and industries, and our understanding of the economy as a whole. The previous IS literature has failed to identify the central role of IT and Internet retailing-related technologies to explain the rigidity of prices on the Internet. Instead, it has offered only limited explanations, such as menu costs and tacit collusion. These ideas, and quite a few other key theoretical perspectives were formulated in disciplines other than ours. Thus, the issue of price rigidity and price adjustment in Internet retailing should be given more scrutiny than the literature has provided to date. We review and synthesize what we know about price rigidity in non-electronic retailing contexts using a multi-level theory approach that identifies three unique levels of analysis: the firm-specific level, the firm-to-consumer level, and the firm-to-market level. We evaluate to what extent this knowledge is applicable to explain price-setting and price adjustment on the Internet. We conclude that there should not be less price rigidity in Internet retailing than in traditional retailing – even though the Internet is involved. To this end, we recommend a multi-level variance theory of Internet-based price rigidity. This study provides a foundation for the development of new theoretical perspectives at the crossroads of the academic disciplines of marketing, economics and IS. It encourages research that is able to probe for a deeper understanding of new economic phenomena associated with the digital economy’s growth

Experiments on consumer preferences and decision making

Consumers are not as rational as assumed by conventional economic theories. The present thesis reports three studies of consumers’ bounded rationality. It has three chapters. In Chapter 1, I investigate the effects of a range of different types of anchor on WTP and WTA valuations of familiar consumer products, elicited through individuals’ buying or selling decisions at given prices. I find anchoring effects only when the anchor value is framed as a plausible price for the good for which the individual is a potential buyer or seller. Anchoring effects are stronger for WTA than for WTP. I conclude that anchoring effects can affect market behaviour, but that not all anchors are equally effective. In Chapter 2, I demonstrate a set of three experiments and find that consumers are likely to stick to defaults and achieve suboptimal outcomes. I unpack two key psychological reasons why they do this - complexity (in terms of non-linearity, number and bundling of tariffs) and consumer inattention. The complexity induced by product bundling, non-linearity and number of tariffs has an important role, but this is overstated if the explanatory power of inattention is neglected. I show that a ‘smart nudge’ policy of automatically switching default tariffs can be used to exploit inattention-based consumer inertia to achieve better consumer outcomes. In Chapter 3, I report an experiment in which participants faced purchasing decisions involving complexity and common standards. The majority of participants employed the "dominance editing" (DE) heuristic. However, for cognitively constrained participants, the DE heuristic is less efficient than an alternative shortlisting heuristic - the "largest common standard" (LCS)

Search, Obfuscation, and Price Elasticities on the Internet

We examine the competition between a group of Internet retailers that operate in an environment where a price search engine plays a dominant role. We show that for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation---practices that frustrate consumer search or make it less damaging to firms---resulting in much less price sensitivity on other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically. Observed markups are adequate to allow efficient online retailers to survive.

Attention and Saliency on the Internet: Evidence from an online recommendation system

Using high-frequency transaction-level data from an online retail store, we examine whether consumer choices on the internet are consistent with models of limited attention. We test whether consumers are more likely to buy products that receive a saliency shock when they are recommended by new products. To identify the saliency effect, we rely on i) the timing of new product arrivals, ii) the fact that new products are per se highly salient upon arrival, drawing more attention and iii) regional variation in the composition of recommendation sets. We find a sharp and robust 6% increase in the aggregate sales of existing products after they are recommended by a new product. To structurally disentangle the effect of saliency on a consumer's consideration and choice decision, we use data on individual transactions to estimate a probabilistic choice set model. We find that the saliency effect is driven largely by an expansion of consumers' consideration sets

High or low initial setting price?: Initial setting price as prediction of intention to bid in on line auctions

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Management from the NOVA – School of Business and Economic

Adopting the UNESCO Ethics Model to Critique Disease Mongering

The question this dissertation seeks to address is if the process of disease mongering can be ethically assessed. Chapter one provides a broad scope of the ethical challenge of disease mongering, UNESCO model framework, ADHD and PMDD. Chapter two examines disease mongering and its driving forces in detail. Chapter three provides an overview of the UNESCO model framework. Chapter four ethically examines disease mongering in conjunction with Attention Deficit Hyperactivity Disorder (ADHD). Chapter five examines disease mongering in association with Premenstrual Dysphoric Disorder (PMDD). Chapter six concludes that examined through the UNESCO model ethical framework disease mongering is occurring for both ADHD and PMDD, and provides remarks for the addressing this in the future

Three Essays on Macroeconomics and Laboratory Experiments

This dissertation examines two prominent macroeconomic models and their behavioral underpinnings in a laboratory setting. The first is that of state-dependent pricing models (i.e., “menu cost” models). Comparisons were made between laboratory results and a computer- simulated optimal behavior, and results indicate that subjects update prices too frequently resulting in statistically suboptimal profits due to subjects’ inability to clearly ascertain the optimal threshold at which to update prices. Second, the consumption predictions made under rational inattention theory were examined via a laboratory experiment. Results indicate that subjects’ behavior aligns well with predictions in that they consume stochastically, yet adjust their consumption and attention according to variations in the economic environment. Subjects also respond more quickly and in higher magnitude to negative income shocks compared to positive. Finally, the experiments provided two use cases that enabled the evaluation of how coding environments and demands on versatility of laboratory of experiments have evolved. Performance comparisons were made between two novel coding environments and the most commonly used experimental platform, z-Tree. Results indicate that while environments other than z-Tree oer substantially more flexibility and performance enhancements, these benefits can come at the cost of nontrivial software engineering resources

Is digital advertising effective under conditions of low attention? : the impact of low attention processing on consumer brand consideration and choice : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Marketing at Massey University, Palmerston North, New Zealand

A crucial task for digital advertising is to influence choice despite consumers' lack of attention. Although lack of attention can reduce advertising effectiveness, recent research suggests that incidental exposure to ads while accessing digital content can lead to some outcome for the exposed ads. This evidence prompts four critical questions: (1) is digital advertising effective if processed at low attention; (2) can low attention processing increase brand consideration and choice; (3) what specific brand/product characteristics embedded in the ads are likely to influence the effect; and (4) what measures are appropriate to capture the low attention effects. To address the questions, three experimental studies (n = 1,423) were conducted in laboratory and online settings. The research manipulates two conditions for low attention processing, namely divided attention and incidental attention. The results show that, at least in the Twitter environment, advertising is effective even under conditions of low attention. Although focused attention still drives the greatest impact, low attention significantly increases the likelihood of target brands being included in the brand consideration and selected as preferred brand choice more than ‘no exposure’. The low attention effects were obtained without subsequent correct respondent recognition. This shows that brand consideration and choice measures were capable of capturing the low attention effects that the recognition measure failed to do. However, the results for source factors – factors that can moderate the effect of stimuli on the outcome – are more nuanced. Brand familiarity, utilitarian/hedonic products, rational/emotional appeals, and (mis)matching between appeals and brands affect the results in some unexpected ways when they interact with low attention. The thesis makes substantive contributions to the application of attention theory in advertising research, testing methodology for ads that are not actively processed, and design of advertising that can work at low attention. The findings are particularly relevant to address current phenomena such as multitasking, multiscreening, and ad avoidance behaviour. Unless advertisers understand how to make advertising work at low attention, the practice of bombarding consumers with attention-grabbing ads will continue to rise, and ad avoidance will accelerate, which in turn, will put advertising at a greater risk of being wasted