June 29, 2024

How We Weigh Risk In Buying Decisions, The Answer Is Counter-Intuitive. Master Class Part 6: Unlocking the Psychology of Customer Experience

25 minutes

This episode is the sixth in an eight-part series on Unlocking the Psychology of Customer Experience. Here, we explore the psychology we have regarding how human beings deal with predicting unpredictable outcomes. The discussion focuses on biases that influence how people perceive and assess probability and risk, impacting their judgment and decision-making processes.

We begin with a common bias in these situations, the Gambler's Fallacy. In this scenario, individuals predict future random outcomes based on past results. It feels logical but isn't and often results in poor decision-making.

For example, casinos will often put the results of the past few Roulette rolls to give patrons a history of what has happened with the wheel. Some gamblers might use this history to predict what is likely to happen next.

However, the marble doesn't have a memory of what just happened or any control over what happens next. The next roll will be as random as the last roll. The history of the Roulette wheel is meaningless; it only serves the casino by exploiting patrons' inability to realize the random nature of the spin and taking their money.

Another bias we discuss is the Hot Hand Fallacy, which influences people to believe that a streak of success in sports or other areas is sustainable despite statistical evidence.

The Gambler's Fallacy and the Hot Hand Fallacy are not any more logical or rational than one another. The Hot Hand Fallacy differs because, at least, an athlete's performance or a business outcome isn't random. However, it isn't any more likely to be right.

We also examine the Overconfidence Bias, which reveals how individuals tend to be overly confident in predicting outcomes, leading to misguided decisions. The Dunning-Kruger effect, a related phenomenon, highlights how individuals with limited knowledge of a topic may underestimate their competence.

Colin is guilty of this regarding his ability and drive to learn about his SLR camera's more nuanced settings. He opts for the automatic settings instead.

Moreover, the Endowment Effect is discussed, illustrating how people overvalue items they perceive as their own, influencing their willingness to part with them. The Hindsight Bias is also explored, revealing how people tend to believe that past events were more predictable than they were.

In this episode, you will also learn the following:

The importance of ongoing learning and adaptation in navigating the complexities of human decision-making.
The implications of these biases for customer experience design and decision-making in business.
Strategies for mitigating the impact of cognitive biases on judgment and decision-making.
Real-world examples of how these biases manifest in various contexts, such as investing, sports, and customer interactions.
The role of awareness and education in addressing biases and improving decision-making processes.
Practical steps for incorporating insights from behavioral economics into experience design and business strategy.

...more

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By Colin Shaw, Beyond Philosophy LLC

4.7