Question

As you answer the below questions, be sure to make connections to the heuristics and biases covered in this module.

2. A grocery chain is interested in increasing sales of Hamburger Helper. It is considering advertising it in one of two ways. Either as 10 for $10 or as $1 each.

a) Would the choice affect how many boxes of Hamburger Helper an Econ would purchase? Why or why not? If it would, use behavioral economic concepts to explain which advertisement would bring about the most sales.

b) Would the choice affect how many boxes of Hamburger Helper a Human would purchase? Why or why not? If it would, use behavioral economic concepts to explain which advertisement would bring about the most sales.

c) What is your suggestion to the grocery chain?

Answer 1

A. Hamburger Helper should consider advertising as $1 each to increase sales.

Behavioral economics draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models. Decisions such as how much to pay for a cup of coffee, whether to go to graduate school, whether to pursue a healthy lifestyle, how much to contribute towards retirement, etc. are the sorts of decisions that most people make at some point in their lives. Behavioral economics seeks to explain why an individual decided to go for choice A, instead of choice B.

Because humans are emotional and easily distracted beings, they make decisions that are not in their self-interest. For example, according to the rational choice theory, if Charles wants to lose weight and is equipped with information about the number of calories available in each edible product, he will opt only for the food products with minimal calories. Behavioral economics states that even if Charles wants to lose weight and sets his mind on eating healthy food going forward, his end behavior will be subject to cognitive bias, emotions, and social influences. If a commercial on TV advertises a brand of ice cream at an attractive price and quotes that all human beings need 2,000 calories a day to function effectively after all, the mouth-watering ice cream image, price, and seemingly valid statistics may lead Charles to fall into the sweet temptation and fall out of the weight loss bandwagon, showing his lack of self-control.

So the people will go for sale for $1 each rather than 10 for $10 each.

The grocery chain can begin to understand that their consumers are irrational, which can lead to effective way to embed behavioral economics in the company’s decision-making policies.