12 December 2012

Rules of Choice and Goals of Choosing

Throughout several posts I have presented psychological effects that occur while people make choices. Some of them are the compromise effect or Not too…. But not too… , the default option effect or Just leave it like that  and the attraction effect or This One is Clearly Better than That One. These effects are robust and they play major roles in how people make choices. At the same time they are not the only “rules” that people use to make choices. In this post, I present other “rules of choice” and their underlying psychological mechanisms.

First, let’s think about thecompromise effect or Not too…. But not too… . In all the studies in which it was investigated the choice set is composed out of three options. In real life, however, there are situations in which a person has to make a choice out of a larger set of options. One thing that might happen is that the person will focus on only some options thus restricting her consideration set of options. Another thing that might happen is an altered version of the compromise effect.

In this altered version of the compromised effect the person ignores the extreme options. One very good example is a wine list ordered by price. Imagine a gentleman who is picking a wine at a restaurant to enjoy with his date or just friend. For sure he will not choose the cheapest wine. Nor will he choose the most expensive wine. At the same time the wine list has more than three options. 

What happens here is that the gentleman in our story ignores the top and bottom 10% of wines and the choice will be made out of the remainder of 80% of wines on the list.  The interesting thing is that the imaginary gentleman will also ignore the middle chunk of wines on the list. The reason for this is that he does not want to appear (feel) dull. If he chooses for example the fourth most expensive wine, he makes statement about himself regarding his wealth but at the same time he is not showing opulence. If the chooses the fifth cheapest wine, he makes a different statement about himself showing moderation but at the same time not looking cheap.

In case you are selling wine, guess where you should be on the menu…

Another choice rule that people might use is to avoid extremes. The rationale behind avoiding extremes (or extremeness aversion in more scientific terms) is that all options come with advantages or disadvantages. We know that losses are perceived stronger than gains (loss aversion), thus the emphasis falls on disadvantages because they are perceived as potential losses. Extreme options are perceived as risky options in the sense that big advantages might come along with big disadvantages and disadvantages are perceived as more important. The response to this risk is to go more for the middle options which have smaller advantages and subsequently less potential disadvantages (perceived as losses).

One example of choosing a less risky option is the rule “buy the second cheapest”. People who allocate little money for some purchases such as floor detergent or kitchen paper towels might apply a rule such as “buy the second cheapest” because they want to spend little on these products and at the same time they don’t want to be disappointed by what they buy. At the other end of the continuum is a rule on buying the second most expensive. In this case a consumer might simply want a good quality but does not necessarily want to pay for opulence, thus applies a rule that reduces the risk of paying for something that she does not need nor want.

In some particular cases people might apply rules that in fact go for the extreme options. Let’s call these rules “take the best”. When it comes to “take the best” rules, there is an indissoluble link with a specific attribute of the option. For example “Take the best” might mean choosing the most expensive or the cheapest. It can also mean choose the option which scores best on another attribute such as number of washing programs for a washing machine (by the way… you will not use more than 2-3 programs anyway).

In order to have a better understanding of choice rules used by people we must know that when making a decision a person has (unconsciously) four goals, namely: (1) maximizing accuracy, (2) minimizing cognitive effort, (3) minimizing experiencing negative emotions, (4) maximize the ease of justifying the decision.

In the classical view of rational choice theory only the first goal – maximizing accuracy is taken into account. At the same time, in human decision making the other three goals play a huge role. People engage in reasoning and at the same time want to think as little as possible. People want to avoid or minimize negative emotions related to choice such as regret. Moreover, people are social creatures and we have an inherent need to justify our actions to others and most importantly to ourselves. Our actions must make sense to ourselves and for this we need to be able to come up with reasons.   

To conclude this post I would like to point out two things. First, apart from established psychological effects in making choices, people use other “rules of thumb” when choosing from a set of options. These rules of thumb are almost always dependent on the composition of the choice set. For example “take the second cheapest” is a reasonable rule, but my question is “who decides which is the second cheapest option?”.

Second, when choosing, people have goals that have to be achieved and balanced among themselves.

Note: This post is partly documented from: Bettman, J. R., Luce, M. F., & Payne, J. W. (1998). "Constructive consumer choice processes." Journal of Consumer Research, 25, 187-217.

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