SBEE Seminar Series: Wes Hutchinson
Ross School of Business, 701 Tappan St., Room 0420
Are Consumers Boundedly Rational?
Bounded rationality is a frequently used construct in both psychology and economics that is generally meant represent the idea that human decisions often deviate from optimal decisions when the decision problem is narrowly and precisely defined; however, these decisions are brought into closer alignment when the problem is expanded to include the known constraints of human cognition, such as the costs of mental effort and the feasibility of computing optimal solutions.
In this paper, I propose a general framework for bounded rationality in which actual thinking and deciding is compared to optimal thinking and deciding. More specifically, actual learning and inference is compared to Bayesian updating, actual attention and memory is compared to the full use of available information and rational inattention, actual planning is compared to forward-looking cost/benefit analysis, and actual preference and choice are compared to utility maximization. The basis of these comparisons is a set of ten empirical results from my own research.
My general conclusions are that, as humans, (1) we are very good at selecting important information, learning from past experience, and similarity-based reasoning, and (2) pretty good at verbal and non-verbal communication, simple symbolic inference and predicting the very near future, but (3) we are quite poor at complex problem solving and understanding the long-term consequences of our current actions.
Wes Hutchinson is Stephen J. Heyman Professor and Professor of Marketing at the Wharton School of the University of Pennsylvania. His research focuses on consumer and managerial decision making, particularly the interrelationships among attention, learning, confidence, decision making, and expertise in repeated choice environments. His recent research projects include modeling the effects of visual attention at the point of purchase on in-store decisions using eye-tracking data, developing new measures of consumer responses to advertising, mass customization of product aesthetics, and intuitive statistical reasoning as part of decision making. A past president of the Association for Consumer Research, Professor Hutchinson has published articles in a variety of top-tier journals in business and psychology. He is on the editorial review boards of the Journal of Consumer Research, the Journal of Marketing Research, and Marketing Science, and he has won several academic awards. Professor Hutchinson’s teaching interests include courses in New Product Development (UG and MBA), the Social Impact of Marketing (UG and MBA), Research Methods (PhD), and teaching Essentials of Marketing for Wharton’s Executive Education program. He received his PhD in psychology from Stanford University and his BS in psychology from Duke University. Significant personal failures include never really learning to speak Spanish or play the guitar, among others too numerous to list.
This talk will take place from 11:45 am - 12:45 pm.