What’s good young and eager mind?
A few days ago, the brilliant DD wrote this:
I rarely disagree with him but in this case, my views differ so it led to an insightful conversation.
I’d like to make my case and then you can draw your own conclusions.
Consumers, on average, are more likely to display satisficing behavior than maximizing behavior (Caplin, Dean, Martin, 2011. & Reutskaja, Nagel, Camerer, Rangel, 2011).
Satisficing is a decision-making strategy where individuals aim to achieve an outcome that meets a satisfactory threshold.
Maximizing is a decision-making strategy characterized by seeking the best possible outcome or option, often involving exhaustive comparison and evaluation of alternatives.
Remember… people be lazy!
Btw, this seems to hold even for ‘considered purchases’ like laptops and cars. If that weren’t true, we would see the importance of differentiation in those industries. Instead, it seems distinctiveness (consumers recognizing you are you) matters more.
Ergo, they don’t think super hard about buying decisions so if perceived value (PV) is greater than price (p) then a sale happens is a good model.
DD came back with the following;
I think you can view PV as the resultant vector of a bunch of vectors.
You probably remember how you can add a bunch of vectors and represent them with a single vector.
In that case, PV < p cuz homeboy’s shadiness would be such a large negative vector.
And empirically that’s what we see. People get suspicious when they think it’s too good to be true. Look at some of Mr. Beast’s giveaways:
So PV (at least for me) includes context.
Which is not an unreasonable assumption since it’s the exact critique scientists have about controlled lab environment studies. If you study how people experience a certain food, there’s a big chance you’ll have issues with ecological validity (i.e. the results don’t translate to the real world) because enjoying that food in a restaurant ambiance with friends is PART of the experience and value of the product.
Nice little off-the-cuff insight from Prof Garnett.
Hope you got some food for thought out of this piece. I’d like to thank DD for kicking up the topic.
And lastly, because there’s so much disagreement with how to define terms in business, it’s even more important that when you’re talking to others (or just thinking) that you clearly define your terms. That’ll help you avoid some of the fuzzy logic.
Talk soon,
RJY
Chop wood. Carry water.
References
Caplin, A., Dean, M., & Martin, D. (2011). Search and Satisficing. The American Economic Review, 101(7), 2899–2922. http://www.jstor.org/stable/41408725
Nagel, Rosemarie & Reutskaja, Elena & Camerer, Colin & Rangel, Antonio. (2011). Search Dynamics in Consumer Choice under Time Pressure: An Eye-Tracking Study. American Economic Review. 101. 900-926. 10.1257/aer.101.2.900.