Understanding Consumer Bias: Prospect Theory Insights PPT
This PPT slide, part of the 46-slide Psychology of Product Adoption PowerPoint presentation, presents the Prospect Theory Value Function, which highlights the disparity between subjective and objective evaluations of gains and losses. It illustrates how consumers perceive value not just based on actual monetary outcomes, but also on psychological impacts. The graph is divided into 4 quadrants, with the x-axis representing objective gains and losses, while the y-axis reflects subjective gains and losses.
In the upper right quadrant, the example indicates that a gain of $100 is perceived as a direct match to the actual gain, showing that subjective and objective values align in this scenario. However, the lower left quadrant reveals a crucial insight: a loss of $40 is psychologically felt as a much greater loss, equivalent to a $100 loss in terms of its emotional impact. This discrepancy illustrates the principle that losses loom larger than gains in consumer psychology.
The reference point marked on the graph indicates the current wealth state, serving as a baseline for evaluating gains and losses. The slide emphasizes that even when the net objective value is positive—$60 in this case—the net subjective value can drop to zero due to the psychological weight of perceived losses. This suggests that understanding consumer behavior requires a nuanced approach, recognizing that emotional responses can significantly influence decision-making.
The insights derived from the Prospect Theory Value Function are vital for strategizing product adoption and marketing approaches, as they reveal how consumers might react to pricing, promotions, and overall value propositions. Recognizing these psychological biases can help in tailoring strategies that resonate more effectively with target audiences.
This slide is part of the Psychology of Product Adoption PowerPoint presentation.
Designed by a firm of ex-consultants from McKinsey, E&Y, and Bearing Point, this presentation discusses the Psychology of Product Adoption. It covers important concepts like Prospect Theory, Innovator's Curse, and Endowment Effect.
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Behavioral Economics Product Strategy Psychology Product Launch Strategy Value Proposition Product Adoption Consumer Behavior
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