The upside of irrationality: how cognitive biases affect customer satisfaction

Customer satisfaction is the priority of industries, companies, and consumers. Many empirical studies show that customer satisfaction is the key to profitability. One factor that is believed to affect customer satisfaction is cognitive bias, a mental phenomenon that causes an error in human thinking and decision-making, mostly associated with memory.This study is grounded in the theory of mind, which contends that the cognitive state is a prerequisite of the affective state. The cognitive state is represented by cognitive bias, while the affective state is represented by customer satisfaction. The study explores various aspects of cognitive bias, namely, heuristic bias (represented by the anchoring effect), overconfidence bias (represented by the illusion of control), and choice bias (represented by the endowment effect).Three main hypotheses are proposed. First, each facet of cognitive bias affects customer satisfaction. Second, gender moderates the relationship between cognitive bias and customer satisfaction. Third, the interaction effect between the various aspects of cognitive bias has a significant impact on customer satisfaction.The proposed experimental design comprises eight scenarios (2 x 2 x 2 between-subject design) with a total of 524 participants. The scenarios are distinguished as manipulated/not manipulated by the anchoring effect, manipulated/not manipulated by the illusion of control, and manipulated/not manipulated by the endowment effect. Independent t-test, two-way ANOVA, and three-way ANOVA are used for analysis.The anchoring effect, illusion of control, and endowment effect are found to have a significant impact on customer satisfaction. A moderating effect of gender is observed in the relationship between the anchoring effect and customer satisfaction and that between the endowment effect and customer satisfaction; however, no such effect of gender is found in the relationship between the illusion of control and customer satisfaction. The results further show that the interaction between the anchoring effect and illusion of control has no impact on customer satisfaction, the interaction between the anchoring effect and the endowment effect has a significant effect on customer satisfaction, the interaction between the illusion of control and the endowment effect has a substantial impact on customer satisfaction, and the interaction among the anchoring effect, illusion of control, and the endowment effect has no impact on customer satisfaction. It is because some pairs of cognitive biases do not share any similar extent.This study provides several theoretical contributions. The effect of cognitive bias on customer satisfaction is empirically tested, supporting the existence of a significant relationship. The study’s results support the theory of mind, which contends that the cognitive stage is a precondition of the affective stage of mind. In addition, based on the theory of mind, when stimulated by a cognitive state, women score higher on tests of the affective dimension than do men. However, this study finds that in one cognitive state, namely, illusion of control (representative of overconfidence bias), the relationship between the cognitive state and the affective state is similar for both genders. Last, based on the theory of mind, the interaction between cognitive states should have a significant impact on the affective state. This study, however, finds that not all cognitive mechanisms affect the affective state, as these cognitions must share similarities to some extent.