Expected Value and Consumer Choices

Consumers' choices are prey to subtle discrepancies that arise in cognitive accounting. Learning how and when you are prey to these discrepancies is an important step in improving your decision making.

As the readings for this module demonstrate, people value gains and losses differently under different scenarios. For example, contestants in a game show might choose a guaranteed $15 prize over a 50 percent chance of winning $30 despite the fact that the expected values are the same.

Using the readings for this module, University online library resources, and the Internet, address the following:

• What is mental accounting and how does it impact consumer decision making?
• How might a company take advantage of consumers' mental accounting? Give examples.
• As a marketer, how might you frame certain decisions to benefit from the disparities that arise in one's cognitive accounting?
• As a consumer, how would you avoid the pitfalls posed by the inequalities of one's cognitive accounting?