Consumer decision-making: models and strategies

Psychology A2 · Consumer Psychology. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.

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The idea

Three models describe how consumers choose. Utility theory says people are rational: they weigh every option and pick the one with the highest expected satisfaction. Satisficing (Simon) says people have limited time and information, so they take the first option that is good enough. Prospect theory (Kahneman and Tversky) says people judge outcomes as gains or losses from a reference point, and a loss hurts more than an equal gain pleases.

Strategies describe the method used. In a compensatory strategy a strength on one attribute can make up for a weakness on another. In a non-compensatory strategy it cannot. A partially compensatory strategy mixes the two.

Rules to remember

Utility theory: rational choice of the option with the greatest utility; assumes full information.
Satisficing: accept the first option that meets a minimum standard.
Prospect theory: loss aversion, a reference point, and framing (the same offer feels different as a gain or as a loss).
Compensatory: all attributes are weighed and traded off, e.g. scoring each product and adding up.
Non-compensatory: a cut-off rejects options whatever their other strengths, e.g. 'nothing over my budget'.
Partially compensatory: options are compared on some attributes or in pairs, with only limited trade-offs, e.g. cut-offs first and scoring after.
Jedetski et al. (2002): a website with a tool for comparing products by feature led to more compensatory choosing and higher satisfaction than a site without one; with very many alternatives people used non-compensatory strategies more.

Common mistake

Calling satisficing a search for the best option. Satisficing stops at the first acceptable option; looking for the best possible one is utility theory (maximising).

Worked example

A gym advertises in two ways: (A) 'Join today and save Rs 5,000'; (B) 'Join today or lose your Rs 5,000 discount'. The price is the same. Which is likely to work better, and which model explains it?

Both offers are equal in money, so utility theory predicts no difference.
A is framed as a gain; B is framed as a loss from a reference point.
Prospect theory says a loss is felt more strongly than an equal gain (loss aversion).

Answer: B, the loss frame, is likely to work better; prospect theory explains it.

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