My former professor Brian Skurnik won a price with his latest paper on the 'Illusion of Truth' effect. Here's the abstract: "Telling people that a consumer claim is false can make them misremember it as true. In two experiments older adults were especially susceptible to this "illusion of truth" effect. Repeatedly identifying a claim as false helped older adults remember it as false in the short term, but paradoxically made them more likely to remember it as true after a three-day delay. This unintended effect of repetition comes from increased familiarity with the claim itself, but decreased recollection of the claim's original context. Findings provide insight into susceptibility over time to memory distortions and exploitation via repetition of claims in media and advertising."
Showing posts with label Psychology. Show all posts
Showing posts with label Psychology. Show all posts
Saturday, November 01, 2008
Sunday, July 13, 2008
Authors@Google: Dan Ariely
I missed Dan Ariely but thankfully his presentation at Google was recorded on YouTube.
Sunday, July 06, 2008
Why Free! is great
Have you ever grabbed for a coupon offering a free! package of coffee beans—even though you don’t drink coffee and don’t even have a machine with which to brew it? What about all those free! extra helpings you piled on your plate at a buffet, even though your stomach had already started to ache from all the food you had consumed? And what about the worthless free! stuff you’ve accumulated—the promotional T-shirt from the radio station, the teddy bear that came with the box of Valentine chocolates, the magnetic calendar your insurance agent sends you each year?
It’s no secret that getting something free feels very good. Zero is not just another price, it turns out. Zero is an emotional hot button—a source of irrational excitement. Would you buy something if it were discounted from 50 cents to 20 cents? Maybe. Would you buy it if it were discounted from 50 cents to two cents? Maybe. Would you grab it if it were discounted from 50 cents to zero? You bet!
What is it about zero cost that we find so irresistible? Why does free! make us so happy? After all, free! can lead us into trouble: things that we would never consider purchasing become incredibly appealing as soon as they are free! For instance, have you ever gathered up free pencils, key chains, and note pads at a conference, even though you’d have to carry them home and would only throw most of them away? Have you ever stood in line for a very long time (too long), just to get a free cone of Ben and Jerry’s ice cream? Or have you bought two of a product that you wouldn’t have chosen in the first place, just to get the third one for free?
What is it about free! that’s so enticing? Why do we have an irrational urge to jump for a free! item, even when it’s not what we really want?
I believe the answer is this. Most transactions have an upside and a downside, but when something is free! we forget the downside. Free! gives us such an emotional charge
that we perceive what is being offered as immensely more valuable than it really is. Why? I think it’s because humans are intrinsically afraid of loss. The real allure of free! is tied to this fear. There’s no visible possibility of loss when we choose a free! item (it’s free). But suppose we choose the item that’s not free. Uh- oh, now there’s a risk of having made a poor decision—the possibility of a loss. And so, given the choice, we go for what is free.
Source: Daniel Ariery, http://g-ecx.images-amazon.com/images/G/01/books/a-plus/Predictably-Irrational-Excerpt.pdf
Online Dating & Disappointments
Daniel Ariely is closing the gap on why we are more disappointed the more we know about a person.
Saturday, May 24, 2008
Saturday, March 08, 2008
"Expensive" Placebos Work Better Than "Cheap" Ones
A new study published in the American Medical Association has a new and astonishing demonstration of just how much your perception becomes your reality when it comes to prices. People in the study thought they were trying out a new kind of pain med. Instead, they got sugar pills. However, some were told their sugar pills cost $2.50, and the others were told the pills cost $0.10. People with the "pricey" sugar pill had their pain reduced much more than the "cheap" sugar pill. Does this mean that price alone pays for itself?
Source: www.consumerist.com
Source: www.consumerist.com
Monday, February 18, 2008
Beer game psychology
Lessons of the game
During the game emotions run high. Many players report feelings of frustration and helplessness. Many blame their teammates for their problems; occasionally heated arguments break out. After the game I ask the players to sketch their best estimate of the pattern of customer demand, that is, the contents of the customer order deck. Only the retailers have direct knowledge of that demand. The vast majority invariably draw a fluctuating pattern for customer demand, rising from the initial rate of 4 to a peak around 20 cases per week, then plunging.
"After all, it isn't my fault", people tell me, "if a huge surge in demand wiped out my stock and forced me to run a backlog. Then you tricked me - just when the tap began to flow, you made the customers go on the wagon, so I got stuck with all this excess inventory." Blaming the customer for the cycle is plausible. It is psychologically safe. And it is dead wrong. In fact, customer demand begins at four cases per week, then rises to eight cases per week in week five and remains completely constant ever after.
This revelation is often greeted by disbelief. How could the wild oscillations arise when the environment is virtually constant? Since the cycle isn't a consequence of fickle customers, players realize their own actions must have created the cycle. Though each player was free to make their own decisions, the same patterns of behavior emerge in every game, vividly demonstrating the powerful role of the system in shaping our behavior.
Research reported in Sterman (1989) shows how this occurs. Most people do not account well for the impact of their own decisions on their teammates - on the system as a whole. In particular, people have great difficulty appreciating the multiple feedback loops, time delays and nonlinearities in the system, using instead a very simple heuristic to place orders. When customer orders increase unexpectedly, retail inventories fall, since the shipment delays mean deliveries continue for several weeks at the old, lower rate. Faced with a growing backlog, people must order more than demand, often trying to fix the problem quickly by placing huge orders. If there were no time delays, this strategy would work well. But in the game, these large orders stock out the wholesaler. Retailers don't receive the beer they ordered, and grow increasingly anxious as their backlog worsens, leading them to order still more, even though the supply pipe line contains more than enough. Thus the small step in demand from four to eight is amplified and distorted as it is passed to the wholesaler, who reacting in kind, further amplifies the signal as it goes up the chain to the factory. Eventually, of course, the beer is brewed. The players cut orders as inventory builds up, but too late - the beer in the supply line continues to arrive. Inventories always overshoot, peaking at an average of about forty cases.
Faced with what William James called the "bloomin', buzzin' confusion" of events, most people forget they are part of a larger whole. Under pressure, we focus on managing our own piece of the system, trying to keep our own costs low. And when the long-term effects of our short-sighted actions hit home, we blame our customer for ordering erratically, and our supplier for delivering late. Understanding how well intentioned, intelligent people can create an outcome no one expected and no one wants is one of the profound lessons of the game. It is a lesson no lecture can convey.
The patterns of behavior observed in the game - oscillation, amplification, and phase lag - are readily apparent in the real economy (figure 4), from the business cycle to the recent boom and bust in real estate. The persistence of these cycles over decades is a major challenge to educators seeking to teach principles and tools for effective management. Though repeated experience with cycles in the real world should lead to learning and improvement, the duration of the business cycle exceeds the tenure of many managers. In real life the feedback needed to learn is delayed and confounded by change in dozens of other variables. By compressing time and space, and permitting controlled experimentation, management flight simulators can help overcome these impediments to learning from experience.
But the biggest impediments to learning are the mental models through which we construct our understanding of reality. By blaming outside forces we deny ourselves the opportunity to learn - recall that nearly all players conclude their roller coaster ride was caused by fluctuating demand. Focusing on external events leads people to seek better forecasts rather than redesigning the system to be robust in the face of the inevitable forecast errors. The mental models people bring to the understanding of complex dynamics sytematically lead them away from the high leverage point in the system, hindering learning, and reinforcing the belief that we are helpless cogs in an overwhelmingly complex machine.
During the game emotions run high. Many players report feelings of frustration and helplessness. Many blame their teammates for their problems; occasionally heated arguments break out. After the game I ask the players to sketch their best estimate of the pattern of customer demand, that is, the contents of the customer order deck. Only the retailers have direct knowledge of that demand. The vast majority invariably draw a fluctuating pattern for customer demand, rising from the initial rate of 4 to a peak around 20 cases per week, then plunging.
"After all, it isn't my fault", people tell me, "if a huge surge in demand wiped out my stock and forced me to run a backlog. Then you tricked me - just when the tap began to flow, you made the customers go on the wagon, so I got stuck with all this excess inventory." Blaming the customer for the cycle is plausible. It is psychologically safe. And it is dead wrong. In fact, customer demand begins at four cases per week, then rises to eight cases per week in week five and remains completely constant ever after.
This revelation is often greeted by disbelief. How could the wild oscillations arise when the environment is virtually constant? Since the cycle isn't a consequence of fickle customers, players realize their own actions must have created the cycle. Though each player was free to make their own decisions, the same patterns of behavior emerge in every game, vividly demonstrating the powerful role of the system in shaping our behavior.
Research reported in Sterman (1989) shows how this occurs. Most people do not account well for the impact of their own decisions on their teammates - on the system as a whole. In particular, people have great difficulty appreciating the multiple feedback loops, time delays and nonlinearities in the system, using instead a very simple heuristic to place orders. When customer orders increase unexpectedly, retail inventories fall, since the shipment delays mean deliveries continue for several weeks at the old, lower rate. Faced with a growing backlog, people must order more than demand, often trying to fix the problem quickly by placing huge orders. If there were no time delays, this strategy would work well. But in the game, these large orders stock out the wholesaler. Retailers don't receive the beer they ordered, and grow increasingly anxious as their backlog worsens, leading them to order still more, even though the supply pipe line contains more than enough. Thus the small step in demand from four to eight is amplified and distorted as it is passed to the wholesaler, who reacting in kind, further amplifies the signal as it goes up the chain to the factory. Eventually, of course, the beer is brewed. The players cut orders as inventory builds up, but too late - the beer in the supply line continues to arrive. Inventories always overshoot, peaking at an average of about forty cases.
Faced with what William James called the "bloomin', buzzin' confusion" of events, most people forget they are part of a larger whole. Under pressure, we focus on managing our own piece of the system, trying to keep our own costs low. And when the long-term effects of our short-sighted actions hit home, we blame our customer for ordering erratically, and our supplier for delivering late. Understanding how well intentioned, intelligent people can create an outcome no one expected and no one wants is one of the profound lessons of the game. It is a lesson no lecture can convey.
The patterns of behavior observed in the game - oscillation, amplification, and phase lag - are readily apparent in the real economy (figure 4), from the business cycle to the recent boom and bust in real estate. The persistence of these cycles over decades is a major challenge to educators seeking to teach principles and tools for effective management. Though repeated experience with cycles in the real world should lead to learning and improvement, the duration of the business cycle exceeds the tenure of many managers. In real life the feedback needed to learn is delayed and confounded by change in dozens of other variables. By compressing time and space, and permitting controlled experimentation, management flight simulators can help overcome these impediments to learning from experience.
But the biggest impediments to learning are the mental models through which we construct our understanding of reality. By blaming outside forces we deny ourselves the opportunity to learn - recall that nearly all players conclude their roller coaster ride was caused by fluctuating demand. Focusing on external events leads people to seek better forecasts rather than redesigning the system to be robust in the face of the inevitable forecast errors. The mental models people bring to the understanding of complex dynamics sytematically lead them away from the high leverage point in the system, hindering learning, and reinforcing the belief that we are helpless cogs in an overwhelmingly complex machine.
Saturday, February 16, 2008
Threat Rigidity Hypothesi
When organizations are confronted by a threat, the tendency, at all levels, is to centralize decision making and restrict information.
Effects on Individuals
* Cognitive effects: restrictions in information that can be perceived (the individual relies heavily on prior expectations or internal beliefs about the environment, and is not able to process new information; also, one tends to narrow attention to dominant cues and exclude peripheral cues).
* Behavioral effects: individuals fail to pay attention to warnings or follow directions
Effects on Groups
* A threat leads to an increase in intragroup relationships and a decrease in intergroup ties.
* If a threat is attributed to an external source and it is expected that the group will meet it successfully, then increased cohesiveness, seeking for consensus, leadership support, and pressure for uniformity is predicted. Reaching consensus, however, will often involve the restriction of information, ignoring divergent solutions, downplaying the role of deviant positions, constriction of control (more influence for the dominant members). This may lead to faulty group decision making (Groupthink).
Organizational level effects
* At the organizational level, threats result from resource scarcity, competition, or reduction in market size. Organizations respond by:
o Reduced information processing (caused by overloaded communications channels), reliance on prior knowledge, and a reduction in communication complexity.
o Constriction of control through centralization of authority and increased formalization of procedures.
o Increased focus on conserving resources through cost-cutting and efficiency improvements
Source: Staw, Sandelands, and Dutton (1981) – Threat-rigidity effects in organizational behavior: A multilevel analysis
Effects on Individuals
* Cognitive effects: restrictions in information that can be perceived (the individual relies heavily on prior expectations or internal beliefs about the environment, and is not able to process new information; also, one tends to narrow attention to dominant cues and exclude peripheral cues).
* Behavioral effects: individuals fail to pay attention to warnings or follow directions
Effects on Groups
* A threat leads to an increase in intragroup relationships and a decrease in intergroup ties.
* If a threat is attributed to an external source and it is expected that the group will meet it successfully, then increased cohesiveness, seeking for consensus, leadership support, and pressure for uniformity is predicted. Reaching consensus, however, will often involve the restriction of information, ignoring divergent solutions, downplaying the role of deviant positions, constriction of control (more influence for the dominant members). This may lead to faulty group decision making (Groupthink).
Organizational level effects
* At the organizational level, threats result from resource scarcity, competition, or reduction in market size. Organizations respond by:
o Reduced information processing (caused by overloaded communications channels), reliance on prior knowledge, and a reduction in communication complexity.
o Constriction of control through centralization of authority and increased formalization of procedures.
o Increased focus on conserving resources through cost-cutting and efficiency improvements
Source: Staw, Sandelands, and Dutton (1981) – Threat-rigidity effects in organizational behavior: A multilevel analysis
Thursday, January 31, 2008
"Bonus" and "Rebate"
Think of a "Bonus" as a "Rebate" to Save More
Tax rebates, year-end bonuses, mail-in savings—they're all just money coming in, but the difference in labels can have a serious impact on what we do with it, according to a Harvard researcher quoted in today's New York Times. In a study, half of the participants were given $50 and told it was a "bonus," and the other half received a "rebate." The results:
When unexpectedly contacted one week later, participants who got a "rebate" reported spending less than half of what those who got a "bonus" reported spending ($9.55 versus $22.04, respectively).
Tax rebates, year-end bonuses, mail-in savings—they're all just money coming in, but the difference in labels can have a serious impact on what we do with it, according to a Harvard researcher quoted in today's New York Times. In a study, half of the participants were given $50 and told it was a "bonus," and the other half received a "rebate." The results:
When unexpectedly contacted one week later, participants who got a "rebate" reported spending less than half of what those who got a "bonus" reported spending ($9.55 versus $22.04, respectively).
Thursday, August 16, 2007
7.49 < 5.69: The Right Digit Effect
Based on research from Coulter is appears that consumers experience price-discounts greater based on the right digits of the price even in cases where the overall price might be higher:
We use four experiments to examine consumers' processing of comparative regular and sale price information in advertisements. Consistent with our hypothesized right digit effect, we find that, when consumers view regular and sale prices with identical left digits, they perceive larger price discounts when the right digits are "small" (i.e., less than 5) than when they are "large" (i.e., greater than 5). As a result, they may attribute greater value and increased purchase likelihood to higher-priced, lower-discounted items. We examine alternate processing explanations for this right digit effect, as well as the moderating impact of price presentation format.
KEITH S. COULTER, Journal of consumer research
We use four experiments to examine consumers' processing of comparative regular and sale price information in advertisements. Consistent with our hypothesized right digit effect, we find that, when consumers view regular and sale prices with identical left digits, they perceive larger price discounts when the right digits are "small" (i.e., less than 5) than when they are "large" (i.e., greater than 5). As a result, they may attribute greater value and increased purchase likelihood to higher-priced, lower-discounted items. We examine alternate processing explanations for this right digit effect, as well as the moderating impact of price presentation format.
KEITH S. COULTER, Journal of consumer research
Wednesday, August 15, 2007
"Illusion of truth" effect
Telling people that a consumer claim is false can make them misremember it as true. In two experiments, older adults were especially susceptible to this "illusion of truth" effect. Repeatedly identifying a claim as false helped older adults remember it as false in the short term but paradoxically made them more likely to remember it as true after a 3 day delay. This unintended effect of repetition comes from increased familiarity with the claim itself but decreased recollection of the claim's original context. Findings provide insight into susceptibility over time to memory distortions and exploitation via repetition of claims in media and advertising.
Source: Ian Skurnik, Darden faculty
Source: Ian Skurnik, Darden faculty
Thursday, July 12, 2007
Cookies and What-you-see-is-what-you-get
Jean Piaget noticed in 1920 that children often fail to distinguish between perception of an object and the object's actual properties. When a two-year old child sees her playmate leave the room, and then sees and adult remove a cookie from a cookie jar and hide it in a drawer, she expects that her playmate will later look for the cookie in the drawer - despite the fact that her playmate was not in the room when the adult moved the cookie to the drawer from the jar. Why? Because the two-year old child knows the cookie is in the drawer and thus expects that everyone else knows this as well. Without a distinction between things in the world and things in the mind, the child cannot understand how different minds can contain different things. Piaget concluded that "the child is a realist in its thought" and that "its progress consists in riddling itself of this initial realism." Children come to realize that perceptions are merely points of view, that what they see is not necessarily what there is, and that two people may thus have different perceptions of or beliefs about the same thing.
Q: Are you aware of different perceptions?
Source: Stumbling on happiness, 2007.
Q: Are you aware of different perceptions?
Source: Stumbling on happiness, 2007.
Monday, June 04, 2007
Sunday, May 27, 2007
Learned helplessness
Learned helplessness is a psychological condition in which an animal has learned to believe that it is helpless. It has come to believe that it has no control over its situation and that whatever it does is futile. As a result, the animal will stay passive in the face of an unpleasant, harmful or damaging situation, even when it does actually have the power to change its circumstances. Learned helplessness theory is the view that depression results from a perceived lack of control over the events in one's life, which may result from prior exposure to (actually or apparently) uncontrollable negative events.
Source: Wikipedia
Favorite readings
These are some of my favorite readings and those that I have collected over time:
American Law in a global context
Bargaining for advantage
Clausewitz on strategy
Cashflow quadrant
Deals from Hell
First things first
Getting to Yes
Good to great
Mergers and Acquisitions (Brunner)
Business readings
Rich dad poor dad
The five dysfunctions of a team
The paradox of choice
In search of excellence
Principles of General Management
The fifths element
The Winner-Take-All-Society
Why smart executives fail
A Short History of Nearly Everything
Blink
Driven: How Human Nature Shapes Our Choices
Influence: The Psychology of Persuasion
The Tipping Point
The end of poverty
The elegant universe
The Evolution of Cooperation
All I could get
The namesake
Never let me go
Authentic Happiness
A user’s guide to the brain
Choice theory
Level three leadership
Man’s search for meaning
Primal leadership
Social Intelligence
The principles of psychology
The evolving self
Why we do what we do
Why we buy
Thursday, August 10, 2006
Negotiation tip
Which of these scenarios would make you happier?
Scenario A:
While walking down the street, you find a $20 bill.
Scenario B:
While walking down the street, you find a $10 bill. The next day, on a different street, you find another $10 bill.
The total amount of money found is the same in each scenario—yet the vast majority of people report that Scenario B would make them happier. More generally, extensive research (beginning with the work of the late Stanford University professor Amos Tversky and the Princeton University professor and Nobel laureate Daniel Kahneman in the 1970s) demonstrates that while most of us prefer to get bad news all at once, we prefer to get good news in installments.
Monday, July 31, 2006
Playing for money
From Dr. David Newbourgh:
An older guy was disturbed by playing kids in the yards every day who were playing football for fun. He went out and said: "I give you 5 cents each day if you come - but you must play." The kids came and played. After some time the kids came and said, they will only come if they get 10 cents a day. The guy gave them the money and after some time the kids came back and asked for 25 cents to play each day. The old guy gave the kids the money. After a while the kids came again and said they they can only come every day if they got 1 USD. The guy stopped giving them the money and the kids never came back to play again.
Lesson learned: at the beginning the kids played just for fun and for no money. They got used to the money and changed playing for different reasons. That went on until they only played for the money. At the end they stopped playing altogether. Apply to work situations.
An older guy was disturbed by playing kids in the yards every day who were playing football for fun. He went out and said: "I give you 5 cents each day if you come - but you must play." The kids came and played. After some time the kids came and said, they will only come if they get 10 cents a day. The guy gave them the money and after some time the kids came back and asked for 25 cents to play each day. The old guy gave the kids the money. After a while the kids came again and said they they can only come every day if they got 1 USD. The guy stopped giving them the money and the kids never came back to play again.
Lesson learned: at the beginning the kids played just for fun and for no money. They got used to the money and changed playing for different reasons. That went on until they only played for the money. At the end they stopped playing altogether. Apply to work situations.
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