Consumer not always rational
Posted: Sun Dec 22, 2024 4:43 am
If you are a completely rational player, you will accept any bid. So also a bid of 0.01 euro. One cent is more than nothing. In reality, we only see that almost nobody accepts such a bid. We do not think this is fair. Normally, people make an offer around 50/50 and refuse low bids.
1. Prospect theory
In 1992, psychologists Daniel Kahneman and Amos Tversky developed the prospect theory . Kahneman won the Nobel Prize in Economics for this in 2002, his partner Tversky did not, because he died in 1996. This theory states that people who can earn money are risk-averse and people who can lose money are risk-seeking. They explained this using a series of scenarios in which people could win or lose money. To illustrate:
A: You have a 100% chance of winning €100
B: You have a 50% chance of winning €200 or a 50% chance of winning €0.
In such a situation, people seem to predominantly choose option A. A situation in which people can lose money:
A: You will lose €100 with 100% certainty
B: You have a 50% chance of losing €200 or a 50% chance of no loss
Here people mainly choose option B, in which they seek risk. The graph below shows why people act differently in both situations. On the x-axis you see the objective value (money) and on the y-axis the subjective value (how much value you attach to the amount).
The curve is steep at the beginning and then uk whatsapp number flattens out. This is why we attach more value to an increase in our annual income from €20,000 to €40,000 than from €100,000 to €120,000 (the absolute value increases by the same amount).
The graph also shows that the extra value we attach to €200 compared to €100 is not twice as great, and therefore not worth the risk of going from 100% certainty to 50% certainty. In the loss situation, the average subjective value of €200 loss and no loss is better than losing €100 with certainty.
Losses outweigh gains
In addition, you can see in the same graph that the curve in the negative domain remains steeper for longer than in the positive domain. This is because we weigh losses more heavily than gains. The negative emotion we experience when losing €100 is comparatively stronger than the positive emotion we experience when winning €100.
A practical implication for the marketing department is to emphasize what the visitor misses out on if he doesn't choose product X, rather than emphasizing what he gets in return.
1. Prospect theory
In 1992, psychologists Daniel Kahneman and Amos Tversky developed the prospect theory . Kahneman won the Nobel Prize in Economics for this in 2002, his partner Tversky did not, because he died in 1996. This theory states that people who can earn money are risk-averse and people who can lose money are risk-seeking. They explained this using a series of scenarios in which people could win or lose money. To illustrate:
A: You have a 100% chance of winning €100
B: You have a 50% chance of winning €200 or a 50% chance of winning €0.
In such a situation, people seem to predominantly choose option A. A situation in which people can lose money:
A: You will lose €100 with 100% certainty
B: You have a 50% chance of losing €200 or a 50% chance of no loss
Here people mainly choose option B, in which they seek risk. The graph below shows why people act differently in both situations. On the x-axis you see the objective value (money) and on the y-axis the subjective value (how much value you attach to the amount).
The curve is steep at the beginning and then uk whatsapp number flattens out. This is why we attach more value to an increase in our annual income from €20,000 to €40,000 than from €100,000 to €120,000 (the absolute value increases by the same amount).
The graph also shows that the extra value we attach to €200 compared to €100 is not twice as great, and therefore not worth the risk of going from 100% certainty to 50% certainty. In the loss situation, the average subjective value of €200 loss and no loss is better than losing €100 with certainty.
Losses outweigh gains
In addition, you can see in the same graph that the curve in the negative domain remains steeper for longer than in the positive domain. This is because we weigh losses more heavily than gains. The negative emotion we experience when losing €100 is comparatively stronger than the positive emotion we experience when winning €100.
A practical implication for the marketing department is to emphasize what the visitor misses out on if he doesn't choose product X, rather than emphasizing what he gets in return.