Biases That Influence Your Purchasing Habits 1
Do you think you are a rational shopper? Learn about how certain unknown factors affect your shopping behaviour.
When you tend to purchase a product what are the things that you take into consideration? Are they characteristics such as the product itself, the company, its quantity, quality, your experience with it and most importantly its price? We tend to assume that since we consider so many factors before deciding to purchase, we must be sensible and rational consumers. Right?
Unfortunately, that is not the case. According to research on consumer behaviour, our implicit thoughts, opinions and perceptions ultimately impact our decision-making.
This is the first of two articles about bias and purchasing behaviour. Through this article, we will look at cognitive biases after which we will examine 2 common biases that we tend to exhibit when it comes to our purchasing behaviour. We will also examine the reason why these biases occur and the steps we can take to avoid them.
Shortcuts For The Busy Reader
What Are Cognitive Biases?
A cognitive bias is an error in our thinking that causes us to misinterpret the information we receive, affecting the accuracy of our subsequent judgements and decisions.
Our brain is a powerful organ because it receives high volumes of information every day. However, to save time and process the information it receives, our brain tends to use shortcuts (also known as heuristics). These shortcuts are based on either our past experiences or rules of thumb and have an impact on how we perceive situations and interact with situations.
Heuristics include decisions such as the route you take to work or the outfit you wear every day. The use of these shortcuts not only helps to reduce the mental strain required to make these decisions but also allows us to make quick and efficient decisions.
While these shortcuts can be helpful, at times they can also lead to erroneous decision-making. This is because they are not objective in nature and cannot be applied to all scenarios. This ultimately gives rise to cognitive bias.
Let us now examine how these cognitive biases impact our buying behaviour.
How Do Biases Affect Your Shopping Behaviour?
Having examined cognitive biases, it is logical for us to learn about their impact on our decision-making, particularly regarding our buying behaviour. To do so, we will have a look at the decoy effect and the bandwagon effect.
a. The Decoy Effect
Imagine you are out to watch a movie. After getting yourself the tickets, you head over to the food stand to get yourself some popcorn. You notice the following pricing options (see the image). Which one would you pick?
The large option at $9 seems a little pricey for popcorn. Considering that, the chances are you chose the small option and saved yourself $5. Now that we have figured that out, what do you think will happen if we add another option to consider? Take a look at the second image.
Does the large popcorn now look more appealing? Why wouldn't it? The price difference between small and medium is $4, but only $1 between medium and large, making the large appear to be a better deal. If you used similar reasoning to make your decision, you are most likely exhibiting the decoy effect.
The decoy effect suggests that when given two options, we change our preference between the two when a third option (decoy) is added. In the preceding example, the addition of medium popcorn changed our preference from small to large.
When we have a look at real-world examples, we can notice that several companies use decoy pricing. Starbucks coffee sizes, McDonald’s fries, and Netflix monthly subscriptions are just a few examples. These multinational corporations cleverly and effectively use decoy pricing to direct our attention towards the products they would like to sell the most.
On the other hand, this pricing strategy leads to us buying more products and services than we need. When the decoy option is taken into consideration, we tend to focus less on what we need and more on getting the better or more advantageous deal. While the deal might seem advantageous, the decoy is priced in such a manner that it nudges us towards picking the option that is more profitable for the business (in this case, the large popcorn).
Overconsumption of goods and services accumulates over time and has an impact not only on our finances but also on our health. Considering the negative effects it can have on us, why do we still succumb to the decoy bias?
Why Does the Decoy Effect Occur?
The choices presented in the decoy do nothing more than nudge us in one particular direction. They do not offer us any incentives or penalties for our choice or lack thereof. As a result, we begin to believe that our decisions were made consciously, despite the influence of several factors.
Another reason the decoy effect occurs is that it provides us with the opportunity to justify our choices. When the decoy is presented in our choices, we can provide a rationale for not choosing one option and choosing the other. This ability to justify the decoy can consequently make us feel more at ease with our decision.
How Do You Avoid the Decoy Effect?
While it's easier said than done, mere knowledge of the decoy bias does not mean we would be successful in avoiding it. Nonetheless, we can take some measures to prevent succumbing to the decoy effect.
The first is to keep an eye out for products that are in a set of three, there are chances that one of them is a decoy. Secondly before visiting the store identify your priorities, i.e. the qualities that the product must contain to be purchased. Having clear priorities can prevent us from falling prey to the decoy effect. Finally, purchasing only the products that you need can help in reducing overspending and overconsumption.
b. The Bandwagon Effect
Do you think that your purchase decisions can be influenced by others? In the context of consumerism, the bandwagon effect suggests that we sometimes buy products because of those around us, ignoring our own beliefs, feelings, and, in some cases, need for the product.
Endorsements are a simple example of the bandwagon effect. Consider a newly released moisturising cream on the market. If it is endorsed by a beauty influencer or a celebrity, it not only helps to spread the word about the product, but it is also a clever way to get people to jump on the bandwagon, use the product and look like their favourite celebrity.
The bandwagon effect can also be seen on e-commerce websites in the form of ratings and reviews. While one or two 5-star ratings may not have a great effect on our decision-making, thousands of 4.5-star ratings about a product can influence our buying decisions. Studies have shown that these ratings and reviews on e-commerce can greatly influence our buying decisions whereby we gravitate to purchase products well-liked by others.
The bandwagon effect tends to be helpful in the above two scenarios, as it provides us with knowledge about the products before we use them. Our reliance on public opinion, however, can be harmful. In order to align with the majority group's beliefs, we would have to conform to some of the group's beliefs, which would override our analytical thinking and ability to form decisions. This can give rise to “herd mentality”.
This form of the bandwagon effect can have real-world consequences, as evidenced by events such as the dot com crash and the 2008 financial crisis. The stock market experienced rapid growth in the prices of assets in the years preceding these events, as shown in the image. This was due to people's enthusiasm for stocks in the technology sector in the years before 2001, whereas in 2008, it was for stocks in the housing and financial sectors.
Due to the enormous hype surrounding these sectors, many people jumped on the bandwagon and purchased stocks in these sectors, rapidly driving the stock price up due to demand. This, however, caused a phenomenon called a bubble followed by a stock market crash affecting all those who were part of the frenzy.
Why Does the Bandwagon Effect Occur?
One major reason we succumb to the bandwagon effect is due to our need to feel like we belong to a group or a community. In order to not feel excluded or isolated, we try to align ourselves with the group's ideas. Furthermore, we rely on the bandwagon effect as it helps us make quick decisions. We rely on the evaluations of others and use widespread popularity as a metric to indicate if others like it. In cases where many people express their support for an idea, we too tend to adopt it.
How Do You Avoid the Bandwagon Effect?
It is advised that you extend the time between when you come across any information that is socially loaded and when you decide on it. The time-lapse can help you examine multiple perspectives, sparking critical thinking. Furthermore, a second alternative is to avoid making decisions in situations where you feel socially pressured. Leaving this space will allow you to think for yourself.
Heuristics and cognitive bias are important parts of our decision-making process. As we previously discussed, they are the outcome of our need to carry out quick decisions. That being said, it is crucial for us to be aware of how biases impact us and our behaviour. Stay tuned for part two of this series where we learn about more such biases and how they affect our purchase decisions.
References Huck, Steffen and Zhou, Jidong, Consumer Behavioural Biases in Competition: A Survey (September 2011). NYU Working Paper No. 2451/29989, Available at SSRN: https://ssrn.com/abstract=1944446 von Helversen, B., Abramczuk, K., Kopeć, W., & Nielek, R. (2018). Influence of consumer reviews on online purchasing decisions in older and younger adults. Decision Support Systems, 113, 1–10. https://doi.org/10.1016/j.dss.2018.05.006 |