Evaluating
Prospect Theory
Prospect theory is one of the most notable concepts to come from behavioural economics and is the cornerstone of many biases such as loss aversion, risk aversion and framing.
For Example
If you receive $100, you will feel happy. However, if you receive $200 but lose $100 on the way home, you would feel twice as bad, despite still having gained $100. This illustrates the principle of loss aversion, where the negative impact of a loss is felt more intensely than the positive impact of a gain of the same amount.
Similar Biases
Risk Aversion
We tend to remember tasks and goals that are not completed.
Evaluating Risk Preferences: Insights from Prospect Theory Scenarios
Participants were asked to evaluate two scenarios: Scenario 1: A) 100% chance of winning $3000. B) 80% chance of winning $4000 and 20% chance of gaining nothing. Scenario 2: A) 100% chance of losing $3000. B) 80% chance of losing $4000 and 20% chance of losing nothing. Results indicated that in Scenario 1, most participants chose Option A, even though the rational choice would be Option B. In Scenario 2, the majority of participants chose Option B, even though the rational choice would be Option A. This illustrates how individuals tend to favor certain gains and riskier losses, aligning with the predictions of prospect theory.
The Impact of Reference Points and Framing on Treatment Decisions in Cancer Patients
In an experiment, participants were asked to imagine themselves as cancer patients required to choose between two treatments: Treatment A, chemotherapy, and Treatment B, surgical removal of the cancer. Participants first established a reference point, framing the decision as a matter of life and death. This reference point significantly influenced their choices, as the presentation of the treatments played a crucial role. Participants tended to choose the option perceived as having the least risk after evaluating their options against the reference point they had created. This demonstrates the impact of framing and reference points on decision-making in high-stakes medical scenarios.
Affected Problems
Check the problems below the bias can help you fix in customer experience
Customers often experience anxiety when making decisions due to a desire to avoid loss. By highlighting potential losses, we can alleviate this anxiety by making one choice more evidently favorable, thereby enhancing the overall customer experience.
Challenges
Customer Experience Pillars
Application Touchpoints
Interfaces where it can be applied most efficiently
Use Cases
Check the use cases to inspire the application of this behavioral bias
Msheireb Downtown Doha. Customer Loyalty Program Experience Journeys
Msheireb Downtown Doha. Customer Loyalty Program Strategy
Teyaseer. Elevating CX with Real-Time Customer Feedback Integration
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Aldar Hospitality. A Comprehensive Approach to Customer Experience (CX)
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Aldar Education. Transforming Customer Experience (CX) through the Admissions Process
Aldar Academies. Designing Escalation Strategy for Education
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Wasl. Voice of Customer (VOC) Strategy Development
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Wasl. Customer Experience (CX) Journey Mapping in Real Estate
Wasl Mobile App & Self-Service Digital Transformation
Wasl. Customer Service Design for Real Estate
Swarovski. Boosting retail CX through mystery shopping strategy & audits
Nudging customers to book services and attend their ladies salon appointments
Emaar Properties. Transforming conversion power, experience & design of a property sales kiosk
Chalhoub Group. Transforming internal culture through a group-wide CX Academy
Reel Cinemas. Complementing journeys & operations with a new cinema info screen UI
Chalhoub Group. Putting customer experience in the center of fashion & beauty retail
City Walk by Meraas: Defining what a shopping & leisure destination of the future is
Transforming group-wide customer experience in Emaar Properties
Level Shoes Behavioral & Customer Experience Transformation
Dubai Properties Real Estate Customer Experience Transformation
Provis & Khidmah: Designing & refreshing the complaint escalation matrix
Aldar Group Customer Experience Transformation
Emaar Customer Happiness Center CX Design & Transformation
Transforming Free Zone Customer Journeys, Processeses and Systems
Renascence Advice
When leveraging insights from prospect theory in customer engagement, it is crucial to balance its advantages with potential pitfalls. Prospect theory highlights that individuals evaluate potential losses and gains differently, often exhibiting loss aversion where losses loom larger than equivalent gains. Utilizing this understanding can enhance marketing strategies, such as emphasizing potential losses from not choosing a product or service to motivate customer action. However, overly focusing on loss aversion can lead to manipulative tactics that may erode customer trust and loyalty. To avoid these pitfalls, it is essential to apply prospect theory ethically and transparently. Ensure that communications are balanced, highlighting both the benefits of taking action and the drawbacks of inaction without resorting to fear-based tactics
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