You are at home and all of the free (but dubious) movie downloading sites are not working. You decide that you want to be classy and pay to watch high quality Netflix movies.
When you go to Netflix’s online subscription platform, you are quickly prompted to “choose the plan that suits you best. The first month is free ”.
But which subscription should you choose?
The budding psychologist in you has just dealt with this question with prospect theory (PT), one of the most discussed psychological theories of this century.
Outlook theory and loss aversion
PT is a decision-making theory that states that people estimate the perceived likelihood of available options by overweighting small subjective probabilities and underweighting large subjective probabilities.
In PT, loss aversion (LA) refers to the tendency to avoid losses rather than make gains of equal value. LA works as a function of a dual processing system in which effortless thinking is the norm and in which thought monitoring is slack, allowing intuitive, even flawed, judgments to be expressed.
Netflix marketing and loss aversion
When choosing your Netflix subscription, LA first influences your decision-making through the framing effect: when irrelevant functions unjustifiably influence the decision-making process. By placing “Premium” as the standard subscription option and comparing this plan with two other less comprehensive alternatives, Netflix gives you a negative frame of choice, as if you weren’t choosing “Premium” which you are missing out on.
Second, this loss framework can also lead to fear of omissions (not when buying the “right” (optimal) subscription) and commission errors (when buying the “wrong” (suboptimal) subscription), which in retrospect lead to regrets.
Indeed, people find commission failure more poignant than failure to do so (omission bias). Therefore, if you, as a customer, use the subscription plan features as a key attribute in choosing a Netflix plan, the more likely you are concerned about not accepting the “wrong” (less inclusive but also less expensive) than the “wrong” do. correct (more comprehensive, but also more expensive) choice. This is because, according to the Hsee evaluability hypothesis, framing effects work particularly well in the joint evaluation.
In a classic experiment, the researchers asked participants to read the descriptions from two dictionaries. Dictionary B had 10,000 more entries than Dictionary A, but the title page was torn while Dictionary A was completely new. When the dictionaries were presented in a single rating, participants chose Dictionary A. In the joint rating, this preference was reversed. The number of entries had little weight in the individual evaluation, but in the joint evaluation it became clear that dictionary B was superior to this attribute and the number of entries was more important than the condition of the cover sheet.
The study exemplifies how the joint assessment increases the discrepancies between the alternatives that exclude the greatest loss. As a result, preferences return in favor of the option with the lowest loss (prominent reference attribute).
Netflix Marketing, the Pain of Paying and Zero Cost
The “pain of paying” works in a similar way. For example, paying with cash causes a greater loss than paying with a credit card. Companies like Netflix therefore offer a free monthly subscription. This technique implicitly encourages you to overreact to the free subscription month by subconsciously treating it as a zero cost, which mitigates the LA experience after prepaying the full subscription.
To illustrate the zero cost, experimenters placed a booth in an MIT student center where a passer-by could buy Hershey’s kisses for one cent or Lindt truffles for fifteen cents. Most people preferred truffles to kisses. In a second condition, where Lindt truffles cost fourteen cents and Hershey’s kisses cost nothing, most people have preferred kisses to truffles.
If people work according to purely mathematical logic, they should have behaved the same under both conditions, since the price difference between the candies was constant. Instead, people calculated the difference between the cost and the reward. When both items cost money they mainly focused on the quality of the products, but when one product was free they mainly focused on the cost of the products.
With that in mind, Netflix’s Free Month of Service may dampen LA and, consequently, the tendency to weigh pros and cons with the same focus used when considering potential losses.
Netflix Marketing and the Sunk Cost Fallacy
Even when people consider losses, they are still subject to error. One such mistake is the sunk cost fallacy: when people cling to a fruitless activity due to resources invested so far (time, money, or effort).
In another classic experiment, Tversky and Kahneman asked participants to imagine they were seeing a piece that cost $ 10 per ticket. When they enter the theater, they find that their ticket is missing. When attendees were asked if they were going to buy another ticket, 46% said they would. In a similar experiment, other participants were told to imagine seeing a piece that costs $ 10 per ticket. Upon entering the theater, attendees find they lost a $ 10 bill. In this scenario, however, 88% of attendees confirmed that they would still buy a ticket. Tversky and Kahneman explain this sunken cost fallacy by describing how LA mediates mental bookkeeping.
According to mental accounting, additional costs (inconvenience, time, or money) are included in various mental accounts when the costs outweigh the benefits. So going to the theater is a transaction: the cost of a ticket is exchanged for the experience of the play, so that buying a second ticket increases the costs on the theater account to an unacceptable level. However, the loss of cash is not deducted from the “Theater” account and only affects the purchase by making attendees feel less wealthy.
When people tag money (e.g., available cash may be “theater money” but “theater money” is not simply available cash), they make decisions by looking at each mental account separately and looking at the bigger picture of the opportunity cost (trade) overlooked. off).
The status quo bias
Additionally, LA contributes to the sunk cost fallacy by pointing to the status quo bias (i.e., preference for the current state of affairs). In one study, participants had to imagine having inherited some investments and give them alternative investments to switch to. Compared to the control group, which was supposed to envision having the cash equivalent of the inherited investments, the experimental group was unlikely to turn away from the originally inherited investments.
The study results show that the status quo bias acts as a reference point at which aspects of alternative decisions are assessed as advantages or disadvantages compared to the current situation, so that disadvantages of alternatives are perceived more strongly than corresponding advantages.
With that in mind, the Status Quo Bias predicts you won’t unsubscribe from Netflix after the month off, even if you’re not using Netflix.
The prospect of a loss (paying Netflix but not using it) can motivate you to watch TV just to get your money’s worth. Unsubscribing would also result in negative changes to the status quo by eliminating the choice: the fact that you might be able to watch Netflix even if you actually don’t.
Still, the time spent on Netflix due to decreased cost error can still help you increase post-purchase satisfaction through increased personal connection with the product.
If you watch Netflix, despite the lack of interest, the more likely you are to justify your subscription. This is because the cognitive dissonance between your attitudes and behavior makes you likely to feel uncomfortable thinking about wasting your time and money and trying to reduce it. Since it is easier to justify your behavior than to change your attitudes, the more likely you will continue to pay and watch Netflix than change your attitudes and face your misleading investment.
How Netflix Takes Your Money in Total
So Netflix subscriptions are demystified.
Though not without qualifications, PT vividly demonstrates how there appears to be the germ of coercion in the human quest for coherence and security, the kind of addiction to stability and continuity that transforms when threatened in LA.
The effects of LA on framing effects due to omission bias, joint (vs. individual) evaluation and zero-cost offers, as well as the effects of LA on the fallacy of sunk costs due to status quo bias, cognitive dissonance and mental bookkeeping are evident.
Cumulatively, LA explains at length a wide range of decision-making phenomena by invoking a limited rationality that reflects an exclusively human tendency to evaluate outcomes in terms of loss and gain, with loss being felt more than gain.
With that in mind, when we confess that some efforts are in vain and some losses persist, we admit that one of the only certainties in life is uncertainty. Ultimately, knowing what mistakes we are prone to make is no more likely we will, but rather we need to correct ourselves.
Should you subscribe to ‘Premium’ Netflix?
Hsee, CK & Leclerc, F. (1998). Will products look more attractive if they are assessed together or separately? Journal of Consumer Research, 25, 175-186. DOI:
Samuelson, W. & Zeckhauser, RJ (1988). Status quo bias in decision making. Journal of Risk and Uncertainty, 1, 7-59. DOI: 10.1007 / BF00055564
K. Shampanier, N. Mazar & D. Ariely (2007). Zero as a special price: The real value of free products. Marketing Science, 26 (6), 742- 757. DOI: 10.1287 / mksc.1060.0254
Tversky, A. & Kahneman, D. (1981). The making of decisions and the psychology of choice. Science, 211 (4481), 453- 458. DOI: 10.1126 / science.7455683
Image via jgryntysz / Pixabay.