Question

Question 1. a. Explain what the word “heuristics” means. Give and explain an example. (2 points) b. What are the pros and cons of using heuristics (2 points) c. What is a decoy effect (1 points) Question 2. Kofi is at a restaurant ordering his drink. But he doesn't know what to choose. The shop had in stock 6 different options with different attributes on calories, brand image, caffeine content and price (see details below). Preamble 1: He often order Dr Pepper, but he is considering other options today. Preamble 2: In order of decreasing preferences, Kofi first values low cost drinks (he does not want to spend more than $1.25), then low calorie drinks (he doesn't want to drink more than 75 calories), then low caffeine drinks (he wants less than 30 mg of caffeine), and finally brand image. Calories Price ($) image Dr. Pepper Squirtle Phoenix Sun 4 Caffeine (mg) 12 50 50 150 $1.00 $0.50 0 100 16 $0.75 3 90 5 Coca-Cola DietTastic Eau de France 34 45 0 0 0 $1.50 $0.99 $3.00 درا 5 What would Kofi choose if he used the following strategies? Give some explanation of how the strategy works (5 points). a) recognition heuristic b) minimalist strategy c) take the last strategy d) elimination by aspects e) lexicographic strategy (using the criteria in the following order: image, calories and caffeine)

Answer 1

Question 1. a. "Heuristics" can be defined as a way of solving problems or providing solutions to complex situations by the use of mental short cuts, so as to make quick decision.

e.g. - An educated guess : Say a person has to answer an impromptu question. He has come across a similar question before and tries to base the guess upon the previous correct answer, thus , making an educated guess.

b. Pros of using heuristics :

1. Induces creativity while solving a problem
2. Improves the self confidence of a problem solver

Cons of using heuristics :

1. Optimal solution might not be produced or best decisions might not be taken
2. Heuristic approaches can lead to inaccuracies and more mistakes

c. A decoy effect is a marketing strategy where consumer preferences might be affected between given choices , when an extra choice of product is introduced. E.g. - the common three sizes of popcorn buckets - small($5) , medium ($12) and large ($15). Now the large popcorn acts as a decoy, when presented such that consumers would rather prefer to select the medium one. But what is happening is that the seller is profiting off an extra $7 when people switch from a small bucket to a medium one.

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