Decision-Making Theories - Essay Example

Decision-Making Theories In the recent decades, consumer behavior as a of psychological research has been given much attention as the sphere of marketing has been turning into a very significant area. With the development of the modern society and all the more stronger emphasis on its consuming nature, it has become important to examine consumers’ behavior and the key mechanisms of decision-making as this data could be helpful in practice. Information the interconnected issues of communication, identity, decision-making, social status, mental and physical conditions gives a comprehensive picture that completes the puzzle for marketing specialists and hence goods and services manufacturers – it helps them understand how consumers’ choice is motivated and how they can influence the this decision or adjust to consumers’ needs keeping in mind the information of these mechanisms. Thus, consumer psychology is aimed at predicting, describing and offering methods of influence on consumer responses (Sue Loroz & Cronley). The decision-making as a constituent of consumer behavior is a complex process that is the subject to the influence of numerous factors (Beresford & Sloper, 2008). People are living beings with their own individual preferences and habits, emotions and desires – these specific factors produce an impact on our choice and psychological peculiarities of decision-making process (Luce, 2005, p.23-28). The process itself is understood as a cognitive process presupposing selection of the most favorable alternative among those offered and including choice as the outcome of it. Moreover, choice made by consumers might convey symbolic meaning and describe self-identity of an individual. However, the self-identity is reflected rather in choice of non-utilitarian items that presupposes impact of personal factors, than in utilitarian ones that are chosen for their function only (Iyengar, 2010, p. 104). So, choice is understood as a result of the decision-making process involving evaluation and judgment about various alternatives (two or more for choice to be possible). The options an individual faces while choosing should be of certain positive value, and decision is made in favor of the one possessing higher positive value. There are plenty of different models and theories focusing on explanation of consumers’ behavior and decision-making process, i.e. cognitive processes underlying the choice. According to the recent researches, theories, principles and models of decision-making are divided into descriptive, normative and prescriptive with normative models observing theoretical mechanisms, descriptive ones focusing on actual situation and prescriptive ones focusing on what people can or should do in the process of decision-making (Dillon). Although it was earlier believed that decisions concerning purchases are made rationally and reasonably only, researches in the area of marketing and economics prove to contradict these beliefs stating that the role of ratio in consumer decision-making is rather overestimated. In reality, “the reasonable benefit” from the possible purchase is dictated by numerous physical and psychological behavior peculiarities, stimulation on the side of the vendors and various experts and authorities. Thus, the choice is observed from the standpoints of various theories and models focusing on different aspects. Let us overview and evaluate them in terms of their relevance and usefulness for developing strategies of influence of clients. Glasser’s Choice Theory The current theory is a basic and rather general foundation of theoretical aspects of choice. This theoretical framework was developed by a prominent American psychiatrist William Glasser who focused on the ideas of personal freedom and responsibility of an individual and applied his findings in a wide range of social issues like management, education and marriage. The choice theory is a result of a half-century-long theoretical and practical studies in psychology and deals with basic driving forces of our behavior and decision-making mechanisms. The statement underlying the theory implies that the motivation of our behavior is rather internal than external. According to Glasser’s theory, behavior of every individual is motivated genetically and is dictated by five needs including survival (this incorporates basic human needs like safety, breathing, food, shelter and others); fun and learning balance; striving to love, connecting and belonging; need for power and significance and need to autonomy/freedom (Glasser, 26, 1998). In order to satisfy the mentioned needs, a person must behave. On the other hand, the theory postulates the existence of the so called quality world possessing the features of an individual’s perfect world – as it is related to possessions, people, beliefs and other aspects. In other words, a person tends to place valuable aspects of his/her life into the framework of this quality world. Thus, having the image of the quality world in mind people receive real life experiences and compare their real perceptions to what is put into the perspective of the quality world. The key aim for people is to achieve the real world’s and the quality world’s congruence. Behavior of an individual – called “total behavior” in Glasser’s framework – is a set of four major components that presuppose varying extent of choice capability. The components are acting, thinking, physiology and feeling. Whereas a person has rather high level of direct control over acting and thinking, his/her powers in the last two domains are rather limited as the direct control is nearly impossible there. In other words, feelings and physiology are indirectly influenced through acting and thinking. Furthermore, Glasser singled out ten axioms supporting the theory and giving the general notion about it. Among them, there are the following: we are the only persons whose behavior we can control; we satisfy our needs when we satisfy the image of the quality world; all we do is behave; information is all we can give to others etc. (Furr, 2005-2006). Despite the comprehensiveness of the current theory, there have been criticism concerning certain aspects of it: for example, doubt was cast on the assumption stating that practically all behavior can be chosen in accordance with our needs that must be satisfied. If so, it would mean that all mental issues and disorders, depression, anxiety etc. are the “creative” manifestation of unhappiness controlled by us. However, view from the perspective of consumer psychology, the theory appears to be rather relevant and comprehensive. The principles of control over one’s behavior presupposes that the consumer’s behavior cannot be affected directly. And the statement that we only can provide information to others means that the only was the consumer can be influence is through the character and quality of the given information that might encourage or discourage them to make the choice in our favor. Rational Choice Theory Rational Choice Theory creates a theoretical framework helping to understand and model economic and social behavior (Blume & Easley, 2008). According to this approach, rationality – commonly understood as wanting to gain more than less with as little expenses as possible – is believed to be a principal drive in the decision0making processes carried out by the individuals. This is the theory explaining rational behavior and choice of individuals in realization of opportunities available for them in the society. Individuals tend to range these opportunities depending on how much the latter would benefit them on their way towards their goals. They follow their life plans that meet the greater number of their desires and have more chances for success. According to John Rawls, a rational individual doesn’t suffer envy, though he/she is not ready to easily admit his/her losses (Rawls, 2005). At the same time, it isn’t compulsory that an individual should increase his or her benefit at expense of others. The game theory describes an optimal state of the society where each player gains better results participating in coalitions with others in the political market functioning in accordance with respectively settled rules; when the player acts alone, the result is poorer. Thus, personal benefit depends on cooperation or conflict between the rational individuals in the process of decision-making (Myerson, 1991, p.1). Though collective actions and decisions might imply additional “expense” because of the different levels of the individual cooperating, it is corporate actions that demonstrate results unavailable for individual actions and cushion negative impacts of individual actions of others. Thus, in terms of rational choice, a conclusion can be drawn that corporate actions are beneficial and an individual would rather agree to act in accordance to some rules if the expected benefit exceeds all expenses. However, this theory – which is considered to be traditional in theoretical frameworks of either politics, economics or sociology – has a range of imperfections when applied to the area of consumer psychology. It turns out that the decisions on purchase might not always be dictated by rationalism only, and thus this theory, to my thinking, isn’t the most favorable option for application in the area of consumers’ behavior and influence of their choice. And the reason of this imperfection is stated by the theoretical approach below. Loewenstein’s Learning Model The goods learning model as a theoretical framework belonging to behavior economics was introduced by George Loewenstein in 1999 and states the in real life, distinction between the stages of decision-making (regarding consumers) is artificial. In fact, a consumer might skip one or several stages, or they can be passed simultaneously. Considered, purposeful and well-calculated decision-making is rather an exception in this area, and the lion’s share of behavior is relatively usual, automatic, unconscious and controlled by behavior standards and norms. This model emphasizes that the analytic function of the human psyche is deployed to little extent in the customer’s decision-making process. The traditional assumption stating that consumers’ choice is always self-interested and rational is criticized: than it is unclear what motivates consumers to choose alcohol, smoking or drugs (Cardes et al., 2014). Moreover, even certain emotions are non-conscious in the process of consumption. Thus, the process of the goods or service examination is offered in addition to the decision-making process – this process presupposes studying goods, identifying their functions and all their features, attributes, usefulness and benefit from their use. It is also pointed out that the consumer tends to focus mainly on the attributes that are the most significant for him/her instead of attach importance to all of them. At the same time, the model implies the impact of both cognitive and affective spheres in the process of goods learning: preferences are thought to exist in conscious and to be compared with the offered goods while learning process. Augmenting and Discounting Principles in Decision-Making This theory of decision-making explains one of the mechanisms through which people tend to make choice. It is stated that our decisions are constituted by numerous evidences and arguments that help us single sort out the most favorable option. When evaluating the options in order to decide, people attach importance to each and every piece of evidence that will help in the process. However, there’re cases when evidences tend to produce rather reversed impact. The disproportionate effect is reached when a piece of evidence provided turns out to be surprising or abnormal (Baron & Byrne, 1997). The discounting principle of decision-making is related to the former, yet works oppositely. Though rather simple, these principles seem to be rather plausible and relevant for consumer psychology as the strategies that can be built based on them might be helpful in influencing customers’ choice and behavior. For example, it would be easier to predict their behavior, keeping these principles in mind. Moreover, it becomes obvious that clients should be influence with surprise and unexpected arguments: for instance, according to these principles, a piece of jewelry is more likely to be chosen by the customer for the settled price when the customer is aware of the fact that this work is handmade or was created by a talented designer – these details might increase the item’s value and prestige in the eyes of the customer. Impulse Purchase Model English psychologists Helga Dittmar, Jane Beattie and Susan Friese have developed social-psychological impulse purchase model. An impulsive purchase is defined as a purchased made spontaneously, an unplanned buying motivated by the decision that was made just before the moment of purchase (Business Dictionary), yet such purchase isn’t unreasoned. “Impulse buying is a purchase that is unplanned, the result of an exposure to a stimulus, and decided on-the-spot. After the purchase, the customer experiences emotional and/or cognitive reactions” (Parboteeah, 2005). This type of purchasing “does not match with rational decision making model of a consumer” (Tinne, 2010, p. 72). Usually the emotional component plays a significant role in such decisions: the emotions might be evoked by the act of seeing the item or a product or due to the impact of the efficient promotional message created by marketing specialists. There are two main types of impulsive purchases: unexpected buying (for instance, when an individual intends to buy a certain product and – as a result – purchases something unplanned in addition) and unexpected varieties of goods (e.g. buying an unplanned variety of the product a person meant to buy, like purchasing a product of a different brand). According to this model, shopping in the modern society is seen as a major leisure activity. A person purchases only a certain share of products as a result of a well-considered and reasoned decision and with understanding of their necessity – these are compulsory purchases and either decision-making model or a product learning model might be applied to them. Furthermore, the desire to obtain some symbols of self-expression and social identity might act as an impulse for such purchases (Dittmar et al, 2004, p. 1). It is believed that people tend to buy goods not only as a material and functional benefit, but primarily as a symbol of social status, lifestyle and image. The very sense of an impulsive purchase is considered to lie in an effort to preserve the self-image of an individual as these unexpected purchases are perceived to convey a symbolic meaning. (Kahnemann, D, 2000). This model seems to be rather reasonable and relevant as it relates directly to the area of consumer psychology. The principles incorporated in it could be applied in development of efficient marketing strategies: the model shows that people are influenced by successful delivery of marketing messages and visual demonstration of products, hence, the theory emphasizes importance of these aspects in the process of influencing the client. The way customers might be successfully affected is creating a symbolic and meaningful marketing message accompanying the product, the message that would convey the concept of something prestigious, attractive and special. As people predominantly make such purchases driven by their willing to emphasize and express their identity and status, products’ campaigns should be built in the way that would encourage to buy by promising the specialness. For instance, this strategy is used in promos of various fashion brands that deploy celebrities’ photos wearing clothes, jewelry and accessories the companies are going to sell. This usually gives a feeling of exclusiveness and encourages a consumer to choose in favor of these companies. But, at the same time, to my thinking, this model isn’t quite applicable to products of everyday need like, for example, napkins or dairy products as they might hardly serve to outline one’s image and are mainly bought because of their functions and contents (and thus should be subject to other theories). Utility Theory In this case, utility is understood as the satisfaction (Doumpos & Zopounidis). One of the earliest attempts to explain consumer behavior and the mechanism of decision-making took place about three hundred years ago when Bernoulli, Neumann and Morgenstern undertook the task to provide a formal explanation to it. The theory is called the Utility theory stating that the choice made by consumers is preconditioned by their expectations concerning the outcome of this decision (Richarme, 2005). Again, this theory understands people as rational beings whose decisions are considered and reasoned – people are believed to select an option from the perspective of the probable benefit it will bring and act with aim of well-being maximization. The theoretical framework of this model has been expanded in the past 30 years to include the conception of the multiple-attribute choice. Multiple-attribute choice is defined as a case when decision is influenced by multiple criteria. This concept can be applied in analysis of individual consumer behavior, explaining individual consumer demand and modelling the most likely preferences of the decision-maker. Multiple-attribute decision-making theory (MADM) presupposes that consumer choice isn’t always motivated by one criterion – it is rather defined by several of them which might often be conflicting (Venkata Rao, 2010, p 27). MADM implies the general algorithm of decision-making in conditions when there are more than one criterion for choice – and, in fact, such cases occur most often. Offered this kind of choice, people tend to resort to compensatory strategies that allow then to trade off various attributes for the sake of others (Hogarth, 1987). However, the attributes often are of similar priority. Another option to be used in complex choices is non-compensatory strategies deploying several rules. First, disjunctive rule is applied in evaluation of each option due to its best attribute. Second, conjunctive rule is useful in eliminating options that go beyond the boundaries of choice (e.g. price levels). Third, one might use the rule of lexicographic choice in order to narrow the choice to one dimension. Fifth, elimination-by-aspects tactics deploys one dimension at a time excluding options that don’t fit. Evaluating this theory, we might conclude that, on one hand, it is reasonable enough to be applied in affecting the customer. The strategy a person is believed to apply based on this theory is likely to be a regularly used choice mechanism, thus one might ask a client of his/her previous experiences in order to understand what algorithm is used by him/her. This could assist in influencing the client’s choice and helping him/her to make choice. However, the utility theory has been criticized in the recent years as there are certain shortcomings in it. As all the more scholars consider the consumer choice to be rather irrational than well-considered and reasoned. Although this model used to be the dominant one in decision-making, it is now often criticized as most economists claim consumers to be occasionally rational, and their choices to be aimless and inconsistent with their goals and objective (and the rational choice is that aimed at achievement of certain objectives) (Dolan & Lindsey, 1988, p.540-544). AIDA and CAB Models of Consumer Behavior The AIDA model is one of the general consumer behavior models dividing decision-making process into several stages. The name AIDA is an acronym with A standing for awareness, I standing for interest, D standing for desire, and A – for action (Walsh, 2011). Thus, the model represents a process in the minds of potential customers consisting of four stages that lead to possible purchase of a product or service. Application of this model is typical for marketing and advertising as it points out stages which might be used for influencing a client and convincing him/her to make a choice in favor of a certain company. Though the prototypes of such model were researched by numerous scholars, the first comprehensive predecessor of AIDA belongs to Frank Hutchinson Dukesmith who distinguished four steps in the decision-making process of a consumer naming the following: attention, interest, desire, conviction (Dukesmith, 1904). Hence, the four stages underlying consumer decision-making process imply hints for marketing specialists. First, on the stage of awareness, attention of the customer should be attracted. Second, there is a stage on which interest of a client should be raised and attention should be focused on benefits of an option. Third, this is a stage of raising desire to purchase – hence consumers are convinced that this very option is the best choice to satisfy their needs. And fourth, it comes to the stage of action when customers implement their desire into reality moving towards actual purchase. Later improvements and developments of the model edited the steps included into it (Barry & Howard, 1990) and added new ones like confidence or satisfaction. However, one of the most significant AIDA modifications is a three-step model called CAB (Howard, 1999) and including the following stages: cognition, affect and behavior. Here, cognition means awareness or learning similar to that described in Loewenstein’s model; affect implies arising interest and desire towards the goods; and behavior means the stage when the result of decision-making process carried out in mind is implemented in actions. Evaluating these models, it would be reasonable to mention that they are highly relevant for consumer psychology as they concern directly consumer behavior and are predominantly used in advertising and marketing. This means that application of CAB and AIDA gives wider knowledge of the choice algorithm – if this process viewed as one divided into stages – and enables higher flexibility in terms of influencing clients’ behavior. This models can be applied in advertising and consulting as they would allow the specialists to develop strategies adjustable to every client’s whim. Self-Regulation Theory The last theory under consideration is characterized by a wider scope, yet is relevant for consumer psychology, too, especially nowadays. The principal idea underlying the theory is that not everything that is subject of our desires is good or useful for us – short-term desires might make us unreasoned choices that then have long-term effect. Thus, self-regulation of people’s actions and thoughts is needed in order to keep them from negative consequences and make them those whom they want to be (Baumeister et al, 1994). The lion’s share of self-regulation lies in keeping ourselves from doing something that is undesirable and shouldn’t be done as it might lead to negative consequences. There are four constituents of self-motivation: standards (defining desirable behavior); motivation to comply with these standards; monitoring thoughts and situations that motivate to break standards; and willpower that is responsible for controlling short-term unreasoned urges (Baumeister & Vohs, 2007). “The basis of self-regulation is self-monitoring” (Behncke, 2002). Self-regulation is implemented through the set of subfunctions (psychological) that must be mobilized simultaneously: intention and desire must be complemented by control over motivation and behavior (Bandura, 1991, 249). This theory can be easily applied to consumer behavior and choice and, to my thinking, is a logical extension of the impulsive purchase model offered by Dittmar et al. In terms of influence of consumer choice, this theory seems to be not quite applicable to direct influence strategies. It rather gives an insight to the mechanism that might prevent a consumer from purchase and gives a hint that the level of self-regulation in people varies. Thus, one can conclude that successfulness of marketing activity is dependable on this level of people-s self-regulation that keeps them from making unreasoned purchases under the influence of efficient marketing messages. Conclusion Drawing a conclusion to all the considered theories and models, I would like to mention that, to my thinking, neither of them is most efficient and applicable in terms of influencing consumer behavior. All plausible theories appear to be efficient when combined and used together as they create a comprehensive theoretical framework in the area of consumer psychology and cover various aspects of it. 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