For the longest time I have wanted to take a class on Consumer Behavior, so when I had the opportunity to sit in on a class on Behavioral Economics at Northeastern University, I jumped at the chance. During the first class I was at, we were discussing Prospect Theory where people use various heuristics to make analyzing risky choices easier. These heuristics include coding, combination, cancellation, simplification and detection. Instead of going into detail about each of them here, I recommend you look into it on Wikipedia.
As we were discussing supporting evidence for Prospect Theory such as loss aversion, the endowment effect and the status quo bias, I began thinking about the importance of recommendations. How can a recommendation decrease the degree of risk when making a choice? I have learned in the past about the importance of “organic” recommendations. For example, in a magazine, the pages which have the collections of outfits that writers picked out versus the advertisements that the brands paid big money to include in the magazine (see below image from Health Magazine). Social media has encouraged this trend of recommendations even farther through social networks and the simplicity of interacting and sharing information. Hearing a recommendation from a name you recognize and maybe respect means a lot more than an ad from a brand who you can’t match a face to. You can also see this happening when you listen to the radio and Ryan Seacrest, for example is talking about the newest Kindle and how much he likes it. Even if these people are paid to say these “opinions”, they seem realistic enough that we as consumers believe them.
Whose recommendations do you trust? Celebrities, bloggers, authors, family and/or friends? I tend to trust my family and friends a lot…especially when it comes to electronics.