More generally, decision-making is the cognitive process of selecting a course of action from among multiple alternatives. Common examples include shopping and deciding what to eat. Decision-making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behaviour that a decision has been made. Therefore we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to effect the action.
In general there are three ways of analyzing consumer buying decisions. They are:
Economic models - These models are largely quantitative and are based on the assumptions of rationality and near perfect knowledge. The consumer is seen to maximize their utility. See consumer theory. Game theory can also be used in some circumstances.
Psychological models - These models concentrate on psychological and cognitive processes such as motivation and need recognition. They are qualitative rather than quantitative and build on sociological factors like cultural influences and family influences.
Consumer behaviour models - These are practical models used by marketers. They typically blend both economic and psychological models.
Neuroscience has become both a useful tool and a source of theory development and testing in buyer decision-making research, and using neuroimaging devices in order to investigate consumer behavior developed under the name of Neuromarketing. What is going on inside the head of the consumer as measured by various neuroimaging and biological correlates like genes and hormones can provide new insights and new ways to test theory, so this is a great opportunity for the decision-making researcher.
There are 5 stages which a consumer often goes through when he/she around their Purchase. These stages also exist because of normal human psychology. These 5 stages are:
- Problem/Need Recognition- This is in general the first stage in which the consumer recognizes that what essentially is the problem or need and hence accordingly a consumer can identify the product or kind of product, which would be required by the consumer. Page text.
- Information Search- In information search, the consumer searches about the product, which would satisfy the need, which has been recognized by the consumer in the stage previous to this one.
- Evaluation of Alternatives - In this stage, the consumer evaluates the different alternatives which the consumer comes across, when the consumer was searching for information. Generally in the information search the consumer comes across quite a few products and thus now the consumer has to evaluate and understand which product would be properly suited for the consumer.
- Purchase- After the consumer has evaluated all the options and would be having the intention to buy any product, there could be now only two things which might just change the decision of the consumer of buying the product that is what the other peers of the consumer think of the product and any unforeseen circumstances. Unforeseen circumstances for example in this case could be financial losses, which led to not buying of the product.
- Post Purchase Behavior- After the purchase the consumer might just go through post purchase dissonance in which the consumer feels that buying the other product would be better. But a company should really take care of it, taking care of post purchase dissonance doesn't only spread good words for the product but also increases the chance of frequent repurchase.
Nobel laureate Herbert A. Simon sees economic decision making as a vain attempt to be rational. He claims (in 1947 and 1957) that if a complete analysis is to be done, a decision will be immensely complex. He also says that peoples' information processing ability is very limited. The assumption of a perfectly rational economic actor is unrealistic. Often we are influenced by emotional and non-rational considerations. When we try to be rational we are at best only partially successful.
Models of Buyer Decision Making
In an early study of the buyer decision process literature, Frank Nicosia (Nicosia, F. 1966; pp 9–21) identified three types of buyer decision-making models. They are the univariate model (He called it the "simple scheme".) in which only one behavioural determinant was allowed in a stimulus-response type of relationship; the multi-variate model (He called it a "reduced form scheme".) in which numerous independent variables were assumed to determine buyer behaviour; and finally the "system of equations" model (He called it a "structural scheme" or "process scheme".) in which numerous functional relations (either univariate or multi-variate) interact in a complex system of equations.
He concluded that only this third type of model is capable of expressing the complexity of buyer decision processes. In chapter 7, Nicosia builds a comprehensive model involving five modules. The encoding module includes determinants like "attributes of the brand", "environmental factors", "consumer's attributes", "attributes of the organization", and "attributes of the message". Other modules in the system include, consumer decoding, search and evaluation, decision and consumption.
Some neuromarketing research papers examined how approach motivation as indexed by electroencephalographic (EEG) asymmetry over the prefrontal cortex predicts purchase decision when brand and price are varied. In a within-subjects design, the participants were presented purchase decision trials with 14 different grocery products (seven private label and seven national brand products) whose prices were increased and decreased while their EEG activity was recorded. The results showed that relatively greater left frontal activation (i.e., higher approach motivation) during the pre-decision period predicted an affirmative purchase decision.
The relationship of frontal EEG asymmetry with purchase decision was stronger for national brand products compared with private label products and when the price of a product was below a normal price (i.e., implicit reference price) compared with when it was above a normal price. Higher perceived need for a product and higher perceived product quality were associated with greater relative left frontal activation.
Cognitive and Personal Biases in Decision Making
It is generally agreed that biases can creep into our decision making processes, calling into question the correctness of a decision. Below is a list of some of the more common cognitive biases.
Selective search for evidence - We tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.
- Selective perception - We actively screen out information that we do not think is salient.
- Premature termination of search for evidence - We tend to accept the first alternative that looks like it might work.
- Conservatism and inertia - Unwillingness to change thought patterns that we have used in the past in the face of new circumstances.
- Experiential limitations - Unwillingness or inability to look beyond the scope of our past experiences; rejection of the unfamiliar.
- Wishful thinking or optimism - We tend to want to see things in a positive light and this can distort our perception and thinking.
- Recency - We tend to place more attention on more recent information and either ignore or forget more distant information.
- Repetition bias - A willingness to believe what we have been told most often and by the greatest number of different of sources.
- Anchoring - Decisions are unduly influenced by initial information that shapes our view of subsequent information.
- Group think - Peer pressure to conform to the opinions held by the group.
- Source credibility bias - We reject something if we have a bias against the person, organization, or group to which the person belongs: We are inclined to accept a statement by someone we like.
- Incremental decision-making and escalating commitment - We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This can be contrasted with zero-based decision-making.
- Inconsistency - The unwillingness to apply the same decision criteria in similar situations.
- Attribution asymmetry - We tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other's success to good luck, and their failures to their mistakes.
- Role fulfillment - We conform to the decision-making expectations that others have of someone in our position.
- Underestimating uncertainty and the illusion of control - We tend to underestimate future uncertainty because we tend to believe we have more control over events than we really do.
- Faulty generalizations - In order to simplify an extremely complex world, we tend to group things and people. These simplifying generalizations can bias decision-making processes.
- Ascription of causality - We tend to ascribe causation even when the evidence only suggests correlation. Just because birds fly to the equatorial regions when the trees lose their leaves, does not mean that the birds migrate because the trees lose their leaves.
In science, cognition is the set of all mental abilities and processes related to knowledge: attention, memory & working memory, judgment & evaluation, reasoning & "computation", problem solving & decision making, comprehension & production of language, etc. Human cognition is conscious and unconscious, concrete or abstract, as well as intuitive (like knowledge of a language) and conceptual (like a model of a language). Cognitive processes use existing knowledge and generate new knowledge.
These processes are analyzed from different perspectives within different contexts, notably in the fields of linguistics, anesthesia, neuroscience, psychiatry, psychology, education, philosophy, anthropology, biology, systemics, and computer science.[page needed] These and other different approaches to the analysis of cognition are synthesized in the developing field of cognitive science, a progressively autonomous academic discipline. Within psychology and philosophy, the concept of cognition is closely related to abstract concepts such as mind and intelligence. It encompasses the mental functions, mental processes (thoughts), and states of intelligent entities (humans, collaborative groups, human organizations, highly autonomous machines, and artificial intelligences).
Thus, the term's usage varies across disciplines; for example, in psychology and cognitive science, "cognition" usually refers to an information processing view of an individual's psychological functions. It is also used in a branch of social psychology called social cognition to explain attitudes, attribution, and group dynamics. In cognitive psychology and cognitive engineering, cognition is typically assumed to be information processing in a participant or operator’s mind or brain. Cognition can in some specific and abstract sense also be artificial.
Group dynamics is a system of behaviors and psychological processes occurring within a social group (intragroup dynamics), or between social groups (intergroup dynamics). The study of group dynamics can be useful in understanding decision-making behavior, tracking the spread of diseases in society, creating effective therapy techniques, and following the emergence and popularity of new ideas and technologies. Group dynamics are at the core of understanding racism, sexism, and other forms of social prejudice and discrimination. These applications of the field are studied in psychology, sociology, anthropology, political science, epidemiology, education, social work, business, and communication studies.
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