BBI of Chicago
August 2022

Cognitive biases in face-to-face retail sales discourse

By: Douglas Gomes Carvalho.

Cognitive biases are systematic deviations of thought that occur when processing and interpreting information, leading to distorted perceptions, affecting decision-making power, critical thinking, and judgments (TVERSKY and KAHNEMAN 1974). The systematic use of heuristics is known for leading to biases in judgment and decision-making. The main cognitive biases that affect the consumer in face-to-face retail will be explored in this work: The herd effect, anchoring, and loss aversion.

The Herd Effect is a correlated shift, occurring irrationally in a group of people, investors, or decision-makers, where the majority reaction leads the rest to repeat the same behavior (NETO et al., 2013). In a sales pitch, we can use this bias to make the customer feel like they are part of a group or to pressure them as if they are not making the best decision, considering that most are buying a particular product or service. It is interesting to note that not always a decision by the majority and subsequently followed by customers is the most rational or the one with the highest expected utility, regardless of the level of knowledge and information held by the buyer (NETO et al., 2013).

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Anchoring, also referred to as the focusing illusion, is the psychological phenomenon that states that the first information available will be the basis for influencing and memorizing all later information on the topic in question. The anchoring effect is a cognitive bias that describes the common tendency of human beings to rely on or anchors intensely to receive information, usually the first, in the decision-making process (MACCHIA, 2019). We see salesmen in different situations using the anchoring price technique, which consists of presenting a higher price as an "anchor" and an offering with a lower price afterward. That makes the customer implicitly understand that the value of the product is what was offered a priori, in this way, when the consumer observes a lower value offer, he will feel a sense of advantage or discount obtained, since the amount to be paid is lower than the first offer.

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Loss Aversion is the tendency of the human being to fear the loss in a higher relative proportion than the gain of the same value. For example, we feel the distress of losing R$1000.00 more intensely than the satisfaction of earning R$ 1000.00. This concept is associated with perspective theory and is briefly described by the expression “losses grow greater than gains” (KAHNEMAN and TVERSKY, 1979). The “Black Friday,” which lasts only one day, makes consumers make more hasty decisions for fear of missing out on “opportunities.”

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We conclude that retailers have many opportunities to adapt their speech and to use the human tendency to take cognitive “shortcuts” for decision making. Extensive academic research shows that exploring such “shortcuts” will prove to be a profitable attitude for anyone on the selling end of any market.

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BIBLIOGRAPHIC REFERENCES

KAHNEMAN, Daniel; TVERSKY, Amos. Prospect Theory: an Analysis of Decisions Under Risk. Econométrica, March 1979

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MACCHIA, Fabio. Impacto da arbitrariedade de preços e seus influenciadores na  tomada de decisão, p28-29, Insper, 2019.

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NETO, Luiz et al. COMPORTAMENTO MANADA: ESTUDO APLICADO EM ESTUDANTES DO CURSO DE CIÊNCIAS CONTÁBEIS. RIC - Revista de Informação Contábil -, [S. l.], v. 7, n. 1, p. 5, August 12th. 2013.

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TVERSKY, Amos; KAHNEMAN, Daniel. Judgement under uncertainty: heuristics and biases. Science, v. 185, n. 4157, Sept. 1974.

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