Friday, August 23, 2013

Relativity and decisions: Predictably Irrational


by Dan Ariely


Relativity can be complex and seemingly contradictory when it comes to our decision making. As Dan Ariely explains in his book, Predictably Irrational, the human mind has all types of tricks and processes that allow us to make choices. He gives a great example of relativity in the following passage:

Let me explain with an example from a study conducted by two brilliant researchers, Amos Tversky and Daniel Kahneman. Suppose you have two errands to run today. The first is to buy a new pen, and the second is to buy a suit for work. At an office supply store, you find a nice pen for $25. You are set to buy it, when you remember that the same pen is on sale for $18 at another store 15 minutes away. What would you do? Do you decide to take the 15-minute trip to save the $7? Most people faced with this dilemma say that they would take the trip to save the $7. Now you are on your second task: you’re shopping for your suit. You find a luxurious gray pinstripe suit for $455 and decide to buy it, but then another customer whispers in your ear that the exact same suit is on sale for only $448 at another store, just 15 minutes away.

He later explains that the way to combat this type of perception is to broaden our focus by asking ourself the question “Where can that $7 go that is more useful?” and this allows us to see the value of $7 matched up against itself, not relative to a huge sum of money like hundreds of dollars.  

No comments:

Post a Comment