In the second lecture, Mr Thaler, progenitor of behavior economics and esteemed professor at Chicago Booth decision research center, opened-up the discussion with a concept. He orchestrated a website (conceptually) that would read disclosures from various companies like credit cards and cell phone companies. The website will be a hub to research and select best service or product per individualized needs. His assumption was that every company should provide two electronic files as a part of disclosure. One that would enlist under what conditions will the fees be charged and give all the formulas for how fees will be calculated. The second would enlist all the charges levied on that customer's account. These files together will be crunched by the website to analyze customer's usage. Further, a compiled list of disclosures from various companies would allow the website to suggest which company would better fit a particular customer's needs. cool, isn't it? But, wait a minute...
Who is going to enforce that companies provide this disclosure? Even if government regulates this, who will ensure that disclosures are comprehensive and meet a particular standard. Fine, these problems are easy. But, why companies would not try to obscure? After all, they are there to make profits!
To this, Mr Thaler argued that market will ultimately regulate these companies. Citing example of Amazon and eBay, he stressed that if this website's CEO is smart and a company tries to camouflage information or refuse to cooperate, then this website can put a black spot against this company. Nobody wants to lose customers that way. But, questions were raised about brand reputation and trust that a brand builds over the years. Why would someone believe this website when he has 4 to 5 years of experience with this company. Mr Thaler then took the discussion into a broader arena stating, its interesting when is it in the interest of companies to obscure information and does that help or hurt customer. Companies are driven by repeat business. After several discussion around why hotels do not state parking charges etc the discussion took a different direction.
What is perceived value of a product and how to evaluate historic value of a product? Historic value is the value of the product at the time of purchase when it has been experienced by customer for some time. This is where all the reviews on a company or products come into picture. Imagine a genuine customer goes to Bestbuy to buy a digital camera. He is flooded with options that he do not even know how to comprehend, bar compare. It is often seen that consumer would buy a product that has more options than the one with less. He uses them or not is a separate story. There were other examples of how consumer creates a translation of features that can't be valued and everyone has his own translation. Further, it was demonstrated that the sequence in which the features (choices as well) are presented to the customer decides if he is going to chose this product or not.
The gist of the story was that when you buy products, you should look for options that matters to you most and then compare them and that is it. You should try to eliminate products one by one and not zero down to few and then chose one. Make a list of your must haves in sequence. Then, if you want something and this product is less in that feature than the other, drop it!
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