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Chapter 33 – p.360 - Joint evaluation o Here one considers two scenarios at the same time and make a comparison o Also possible to apply a rule or a norm o No surprise and little ambiguity when comparing o Influenced by System 2 § à C...

Chapter 33 – p.360 - Joint evaluation o Here one considers two scenarios at the same time and make a comparison o Also possible to apply a rule or a norm o No surprise and little ambiguity when comparing o Influenced by System 2 § à Comparison that occurs in joint evaluation involves more careful and effortful assessment - Separate evaluation o Here one only considers one scenario o More focused on emotions o Surprise and high ambiguity because no comparison o Influenced by System 1 § à emotional reactions are likely to determine single evaluation o à Judgments made in single and in joint evaluation are not consistent - Example: o You offered a choice between two bets, which are to be played on a roulette wheel with 36 sectors § Bet A: 11/36 to win $160 and 25/36 to lose $15 § Bet B: 35/36 to win $40 and 1/36 to lose $10 o You are asked to choose between safe bet and riskier one à high chance to win and small chance to win à B is the popular choice (in joint evaluation) o Now you are exposed to each bet separately (separate evaluation) à what is the lowest price at which you would sell it? à selling price for A is higher than for B à preference reversal (mainly seen in within subject experiment) - Judgment within categories: o Judgment and preferences are coherent within categories o And incoherent when objects which are evaluated belong to different categories - Summary à o Joint evaluation favors System 2 § à comparative judgement involves System 2 and is more stable than separate evaluation o Separate evaluation favors System 1 § à Separate evaluation reflects intensity of emotional response Chapter 7 Kahnemann - How does System 1 work? o Basically, jumping to conclusions § à but only efficient if: conclusions are likely to be correct and the costs of a mistake are acceptable jump saves much time and effort § à risky if: Situation is unfamiliar The stakes are high There is no much time to collect more information o Errors of System 1 can be prevented by System 2 o System 1 is influence by experience à influences how we interpret things § Recent experiences leads to memories which influence way of interpreting things à easer in general § Experience which are more far away create distant memories which makes it harder to interpret things  o System 1 has not acceptance for doubt or questioning, things are just accepted à less mental effort o System 1 makes it easier to believe things (automatic operation which involves the construction of the best possible interpretation of a situation) o Biased to believe everything o Affected by confirmation bias § à uncritical accepting of suggestions and exaggeration of the likelihood of extreme and improbable events § à how often you have seen tsunamis in the past will influence your perception about future tsunamis o Halo Effect is also part of System 1 § The tendency to like or dislike everything about a person including things you have not observed o If there is no memory about a certain situation System 1 excels at constructing the best possible story that incorporates ideas currently activated, but it does not or cannot allow for information it does not have § à The measure of success for system 1 is the coherence of the story it manages to create § à when information is scarce System 1 operates as machine to jump to conclusions o System 1 is insensitive to quality and quantity of the information that gives rise to impressions and intuitions - How does System 2 work? o Has the characteristic of uncertainty and doubt o More mental effort o Sometimes busy and lazy à harder to activate o Tests hypotheses by searching for confirming evidence which is known as positive test strategy o - à The combination of coherences seeking System 1 with a lazy System 2 implies that System 2 will endorse many intuitive beliefs which reflect that System 2 will endorse many beliefs which are reflect the impressions generated by System 1 - Bias of Judgement and Choice: o Overconfidence § Neither the quantity nor the quality of the evidence counts for much in subjective confidence § The confidence that individuals have in their belief depends on the story they can tell about what they see § People often fail to allow for the possibility that evidence should be critical to our judgement is missing à what we see is all there is § People’s associative system tend to settle on coherent pattern of activation and suppresses doubt and ambiguity o Framing effects § Different ways of presenting the same information often evoke different emotions Example: o 90% fat free is seen as better than 10% fat o Base-rate neglect § People who are meek and tidy are more believed to be a librarian § Description is salient and vivid even though everyone knows there are more male farmers than librarians § This is a statistical fact which doesn’t come to your mind as a first thought Hsee Less is better - Normative decision theories = o assume that people have consistent and well-defined preferences regardless of how the preferences are elicited. - Behavioral decision research = o preferences are constructed ad hoc and can be easily influenced by contextual manipulations as framing of problem in terms of gain or a loss - ànormatively less valuable option is judged more favorably than its more valuable alternative = less-is-better theorem o risky option (e.g. 5% chance to win $96 or $0) can be valued more highly than superior risky option (e.g. a 5% chance to win $96 or $24). à evaluation according to which, the weight assigned to a given outcome in risky prospect depends both on rank and size - Example: o Silver medalists thought that they had almost won gold medal and were therefore disappointed with being the second, while the bronze medalists thought that they had almost not won anything, so felt lucky with what they had achieved. - Study 1 o used questionnaire with two between-subject versions o both versions participants were asked to imagine that they were about to study abroad and had received good-bye gift from friend o Version 1: § wool coat, from nearby department store § store carries variety of wool coats § worst coat costs $50 and the best costs $500 § The one your friend bought you costs $55 o Version 2: § wool scarf, from nearby department store § store carries variety of wool scarves § worst costs $5 and the best costs $50 § The one your friend bought you costs $45 - à In both conditions participants were asked how generous they thought the friend was. Answers the $55 coat is certainly more expensive than the $45 scarf, those receiving the scarf considered their gift giver to be more generous than those receiving the coat o judgment of a gift giver's generosity should depend on the cost of the gift, not on its usefulness = the cost of a gift is the only relevant value of concern for generosity - à gift givers want their gift recipients to perceive them as generous, it is better for them to give a high-value item from a low-value product category (e.g. a $45 scarf) rather than low- value item from high-value product category (e.g. a $55 coat). - Hard vs. easy evaluation: o The person judges an option in isolation, the judgment is influenced more by attributes that are easy to evaluate than by attributes that are hard to evaluate, even if the hard-to-evaluate attributes are more important. An attribute is said to be hard to evaluate if the decision maker is not aware of its distribution information and consequently does not know whether a given value on the attribute is good or bad. An attribute is said to be easy to evaluate if the decision maker knows its distribution information and thereby knows whether a given value on the attribute is good or bad. o à when people evaluate an object in isolation, they often think about other objects in same category, and compare the stimulus object to the other objects. § the first “the real value of the gift” is hard to evaluate. Without something to compare it to, people would not have an idea whether a $55 (or a $45) gift is good or bad § the second “product category” is a reference, and is not directly evaluated.  § the last “relative position of the given gift in its category” is easy to evaluate. Participants had some distribution information (i.e. price range in this case) of this attribute. Compared with other wool coats ranging in price from $50 to $500, a $55 coat is quite inexpensive. Compared with other wool scarves ranging from $5 to $50, $45 scarf is quite expensive. The evaluability hypothesis predicts that one's evaluation of the gift would be influenced by the “relative position” attribute and not by the actual value. The result is consistent with prediction. In evaluating a gift, people are neither sensitive to the actual price of the gift, nor to the category of that gift (e.g. whether a coat or a scarf), but they are very sensitive to the relative position of the gift within its category. - Separate and joint evaluation: o Separate: § people cannot compare one option against another, and can only compare the given option to whatever reference is available at the time of the evaluation. o Joint: § In joint evaluation, the two options are juxtaposed, and each option becomes the most salient and convenient reference for evaluating the other option. In this case, people will give less weight to or ignore the reference information they would otherwise use in separate evaluation, and use the alternative option as their primary reference o Results for Study 2 as experiments for separate and joint evaluation: § clear less-is-better effect in separate evaluation, and a clear preference reversal between joint and separate evaluations § In the separate evaluation versions, Vendor L's serving was valued more than for Vendor H's, even though Vendor L's serving contained less ice-cream § In joint evaluation, the effect was reversed: Vendor H's serving was valued more § - Dishes Set experiment (see lecture for explanation): § Willingness to pay prices: low-value option was valued more favorably than the high-value alternative in separate evaluation: values were higher for Set L than for Set H although Set L included fewer intact pieces than Set H In joint evaluation, the effect was reversed: WTP values were higher for Set H - General discussion: o This research compares valuations of options between separate evaluation and joint evaluation where one of the options is always more valuable or better than the other. o It demonstrates that preferences were reversed between these two evaluation modes, and, more interestingly, that the low-value option was valued more highly than the high-value alternative in separate evaluation. o There is a higher valuation of the low-value option in separate evaluation heavily on whatever comparison information is available at the time of the evaluation. o people use different information as their reference points in the joint evaluation mode than in the separate evaluation mode. o Even in separate evaluation, the reference point associated with one option often differs from that associated with the other option. o If the reference associated with the high-value option is better than the high-value option itself, and/or if the reference associated with the low-value option is worse than the low-value option itself, the less-is-better effect may emerge. o the less-is-better effect will be less likely to occur if the value of concern itself is easy to evaluate. § For example, for people in the ice cream business, the actual amount of ice cream in a serving may be easy to evaluate. They know how much a serving with a given amount of ice cream is worth, without having to compare it § Second, the less-is-better effect occurs not only because the “relation-to- reference” attribute is easy to evaluate, but also because the stimulus options have different relations with their respective references one is better than the reference and the other is worse than the reference, or one is better (or worse) than the reference and the other is equal to the reference. § If the stimulus options have similar relations with their respective references for example, both better than their references, then the less-is-better effect will be less likely to occur. For instance, in the ice cream case, if both servings were overfilled, there would probably not be a less-is-better effect in separate evaluation, and not be a preference reversal between joint and separate evaluations, either. o Which is the more valid method? § The first (separate evaluation) method is apparently imperfect, because, as we now know, the option favored in separate evaluation may well be different from the option that is objectively more valuable or better. § Then, is the second (joint evaluation) method more valid? Not necessarily, either. The answer depends on what it means by “more valid”. § If the criterion of validity is for the evaluations to be consistent with the objective quality of the stimulus options, then joint evaluation is indeed more valid than separate evaluation, because in joint evaluation people are more likely to discover subtle differences between the stimulus options which may be masked in separate evaluation, and more likely to know which option is objectively more valuable o In short, preferences elicited in joint evaluation may differ from preferences elicited in separate evaluation. Preferences elicited in joint evaluation are often more consistent with the objective quality of the evaluated options, but preferences elicited in separate evaluation are often more predictive of consumers' ultimate experience.