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Management Science Seminar - The role of emotions in consumer decision making

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Wednesday 26 November 2008, 13:00
LT5, Management School

David Faro

Assistant Professor at London Business School

Research has uncovered various systematic biases in people’s decision making. For example, studies have shown that once someone owns something, he/she places greater value on it than he/she would have before owning it (the “endowment effect”). The endowment effect is one reason for investors’ tendency to hold on to financial assets, and perhaps also to people’s difficulty to part with their unused possessions. Another type of bias involves distortions of probability, which may partly explain why people buy lotteries and pay substantial sums to insure products that have only a very small chance of failing.
 
Whether these types of biases deem humans as irrational is still up for debate. The research presented in this seminar shows that the endowment effect and probability distortions can be better understood and partly addressed by taking into account the role of emotions in decision making.

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