International Marketing Decisions

Decisions, Decisions, Decisions!

Moha Ghaderi IBE 2023

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Which Treatment?
HEADS TAILS
600 people in a small village are infected with a deadly disease. There are two types of treatments
available: treatment A and treatment B. 600 people in a small village are infected with a deadly disease.
There are two types of treatments available: treatment A and
Treatment A saves 200 lives.
treatment B.
If we adopt treatment B, there is a 33% chance of saving everyone.
With treatment A, 400 people will die.
Which of the two treatments would you recommend to the policy makers?
If we adopt treatment B, there is a 67% chance that all the 600
people will die.

Which of the two treatments would you recommend to the policy

makers?
Framing Effects
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Our decisions are

influenced by the way
information is presented
 We Bet?
HEADS TAILS
You are given $2,000 for sure. Which of the following two options would you prefer?
You are given $1,000 for sure. Which of the following two options
a. to lose $500 for sure;
would you prefer?
b. to lose $1,000 with probability 50%, and otherwise – to lose nothing.

a. to get additional $500 for sure;

b. to get another $1,000 with probability 50%, and otherwise –

nothing more (and be left with the first $1,000).
Loss Aversion
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The pain of losing is

psychologically stronger
than the pleasure of
acquiring equivalent gains.
People (non-specialists) have been found to
be reluctant to sell equities that went down
in value (hoping that the price will rise again
and compensate the loss.

Is this a “rational” behavior?

 Disposition Effect
Related to: sunk-cost fallacy; loss aversion; and regret
 Movie Time!
HEADS TAILS

You go to a movie. It was supposed to be good, but it turns out to Your friend had a ticket to a movie. She couldn’t make it, and gave
be boring. Would you leave in the middle and do something else you the ticket “instead of just throwing it away”. The movie was
instead? supposed to be good, but it turns out to be boring. Would you leave
in the middle and do something else instead?
Sunk Cost Fallacy
Tendency to follow through
on an endeavor if we have
already invested time, effort,
or money into it, whether or
not the current costs
outweigh the benefits.
 Movie time, a second look!
HEADS TAILS

You go to a movie. It was supposed to be good, but it turns out to Your friend had a ticket to a movie. She couldn’t make it, and gave
be boring. Would you leave in the middle and do something else you the ticket “instead of just throwing it away”. The movie was
instead? supposed to be good, but it turns out to be boring. Would you leave
in the middle and do something else instead?
 14

Concert Time!
You’ve spent $100 on a concert ticket, which
you bought several months in advance. On
the day of the concert, you find out that you
have lost the ticket, but still there are tickets
available at the same price. Will you buy
another one?
Mental Accounting
Tendency to give money
mental labels
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Starting Salary
HEADS TAILS

A newly hired engineer for a computer firm in Melbourne has A newly hired engineer for a computer firm in Melbourne has four
four years of experience and good all-around qualifications. years of experience and good all-around qualifications.

Do you think that her annual salary is above or below Do you think that her annual salary is above or below $135,000?
$65,000?

What is your estimate? What is your estimate?

Anchoring
• People were asked for the last two digits of their social security number.
• Next, they were shown a number of different products, including things like computer
equipment, bottles of wine, and boxes of chocolate.
• For each item, participants indicated whether they would be willing to pay the amount of
money formed by their two digits. For example, if somebody’s number ended in 34, they
would say whether or not they would pay $34 for each item.
• After that, the researchers asked what the maximum amount was that the participants
would be willing to pay.

• People whose digits amounted to a higher number were willing to pay significantly
more for the same products, compared to those with lower numbers.

• The effect persisted even when researchers remind people that the anchor is
irrelevant!
Relying heavily on the
first piece of information
we are given, even when
they’re completely
irrelevant.
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Decoy Effect
Design of the menu,
specifically the presence
or absence of an inferior
option can influence our
perception of the original
two choices.
 Decoy as a nudge!

àThey make the choice less overwhelming!

àThey capitalize on loss-aversion

à BE AWARE OF SETS OF THREE!

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Meet Linda!
Linda is 31 years old, single, outspoken, and very bright. She
majored in philosophy. As a student, she was deeply concerned
with issues of discrimination and social justice, and she
participated in anti-nuclear demonstrations.
Rank order the following eight descriptions in terms of the
probability (likelihood) that they describe Linda:

a) Linda is a teacher in an elementary school

b) Linda works in a bookstore and takes yoga classes
c) Linda is active in a feminist movement
d) Linda is a psychiatric social worker
e) Linda is a member of the League of Women Voters
f) Linda is a bank teller
g) Linda is an insurance salesperson
h) Linda is a bank teller who is active in a feminist movement
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Meet Linda!
Did you rank

f) Linda is a bank teller

Below

h) Linda is a bank teller who is active in a feminist movement ?

The Conjunction Fallacy
a result of the representativeness heuristic
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A conjunction (such as h) cannot

be more likely than any of the
conjuncts (here f and c)
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Organ Donation Rates

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Organ Donation Rates

 Status Quo Bias
People’s preference for the default option over its alternatives
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Is having more choices really better?

Considering too many options available to us:
• is so taxing on our cognitive systems
• leads to decreased satisfaction lowers
• confidence in our choice increases the
• chance that we will regret our decision
Choice Overload
Tendency to get
overwhelmed and have a
harder time choosing
from a larger array of
options, combined with a
lesser
post-”consumption”
satisfaction.
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Choice Overload and

cultural differences
In some cultures the freedom to make decisions for oneself is considered
essential à more likely to experience choice overload

In some other cultures, people may feel more comfortable to deleage the
difficult decisions to others.

Any connection to any of the Hofstede’s model dimension?

 36

Caña, copa, or jarra?

Extremeness Aversion
The tendency to avoid the extreme options
à an inclination towards the middle options; habitually seeking the middle
ground
à As a result of human desire to compromise.
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Examples

• In a row of four bathroom stalls, 60% of people choose the middle two
• Retailers found that moving toothbrushes from the top shelf to a middle shelf led
to an 8% increase in sales
• Even on game shows, contestants who are seated in the middle are more likely
to advance in the game and win. Over 20 episodes of The Weakest Link, players
in the center positions reached the final round 42.5% of the time, while players at
the edge made it only 17.5% of the time.
• In a normal four-option multiple choice tests, 55% of the correct answers are
found in the middle options
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Examples

• In a row of four bathroom stalls, 60% of people choose the middle two
• Retailers found that moving toothbrushes from the top shelf to a middle shelf led
to an 8% increase in sales
• Even on game shows, contestants who are seated in the middle are more likely
to advance in the game and win. Over 20 episodes of The Weakest Link, players
in the center positions reached the final round 42.5% of the time, while players at
the edge made it only 17.5% of the time.
• In a normal four-option multiple choice tests, 55% of the correct answers are
found in the middle options !!!Not in your exam!!!
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Bye Now!
Why the magazine strategically placed the
perfume advertisement right after the letter
from the editor?
 Bye-now effect
We likely to spend more after reading the word “bye” !priming

*** Homophones (flower and flour, wait and weight) and

translations across languages
 42

Fill in the blanks!

A) Bread, Juice, Milk, SO-P

B) Towel, Shower, Shampoo, SO-P

 Priming
An individual’s exposure to a certain stimulus influences her response to a
subsequent stimulus, without any awareness of the connection
Data-Driven
Decisions
45
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A sample of bullets spread on American planes

that have returned from a WWII mission:

Survivorship Bias

The error an individual makes when a data

set only considers the “surviving”
observations, without considering those
which didn’t survive.
Selection Bias
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More on Selection
A study of students’ grades in the United
States showed that immigrants had, on
average, a higher grade point average than
US-born students. The conclusion was that
Americans are not very smart, or at least do
not work very hard, as compared with other
nationalities.
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Back to Covid tests!

If a test to detect a disease whose prevalence
is 1/1000 has a false positive rate of 5% (0%
false negative), what is the chance that a
person found to have a positive result actually
has the disease, assuming you know nothing
about the person's symptoms or signs?
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The case against minorities

There are two cab companies in a city: one is the “Green” company, the other is the
“Blue” company. Of all the cabs in the city, 85% are blue and 15% are green.
A witness later identifies as green, the cab that was involved in a hit and run one
night.
In order to assess the reliability of the witness, the court ordered that their ability to
discriminate between blue and green cabs at nighttime be tested. It is shown that
the witness can accurately distinguish the colors 80% of the time but confuses them
20% of the time.

How likely us that the cab involved in the hit and run was actually green?
Base-Rate Fallacy
A type of cognitive bias
that occurs by ignoring
the relative sizes of the
reference groups when
making inferences about
conditional probabilities.
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How to deal with it?

Our brains are not evolved to deal with
probabilistic statements.

We often mistakenly assume P(A|B)=P(B|A)

• All librarians I know are shy. Next time I see a
shy person, I’ll ask if they’re a librarian!

Beware of conditional statements

Use frequencies instead of probabilities.

Our decisions are driven by “heuristics”
 More on heuristics
In four pages of a novel (about 2,000 words) in English, In four pages of a novel (about 2,000 words) in English,
do you expect to find more than ten words that have the do you expect to find more than ten words that have the
form _ _ _ _ _n _ (seven-letter words that have the letter form _ _ _ _ ing (seven-letter words that end with ing)?
n in the sixth position)?
 More on heuristics
In four pages of a novel (about 2,000 words) in English, In four pages of a novel (about 2,000 words) in English,
do you expect to find more than ten words that have the do you expect to find more than ten words that have the
form _ _ _ _ _n _ (seven-letter words that have the letter form _ _ _ _ ing (seven-letter words that end with ing)?
n in the sixth position)?

Availability Heuristic
Main Steps of Rational Decision-Making

1. Identify the decision “problem”

2. Establish the main decision criteria
3. Generate solutions (alternatives)
4. Evaluate alternatives
5. Check robustness of your evaluations
6. Synthesize and decide!
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Main Steps of Rational Decision-Making

1. Identify the decision “problem” ! Ask questions!

2. Establish the main decision criteria ! Ask questions!

3. Generate solutions (alternatives) ! Ask questions!

4. Evaluate alternatives ! Ask questions!

5. Check robustness of your evaluations ! Ask questions!

6. Synthesize and decide! ! Ask questions!

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 International Marketing Decisions
Decisions, Decisions, Decisions!

Moha Ghaderi IBE 2023