Derek Thompson in The Atlantic explains The 11 Ways That Consumers Are Hopeless at Math. For anyone with even a grade-school education, there is no rational reason for any of these behaviors to happen. And yet they do ~ and retailers use them to dip into our wallets as adeptly as any pickpocket. Perhaps spelling out the features of our innumeracy, and really thinking about them, will help us to wake up, notice the con games, and refuse to take part. Here we go ~
- Getting something extra "for free" feels better than getting the same for less. Why? Because we have little sense of the value of things, and make decisions based on emotional cues and half-thinking.
- We're heavily influenced by the first number. Compare a $7000 designer handbag and a $300 watch, and the watch seems like a bargain .... even if it's true worth is only about $40.
- We're terrified of extremes. Since we're not sure what things are worth, we shy away from prices that appear too high or too low.
- We're in love with stories. That is, the stories we fabricate in our own minds to justify a purchase. If two models of the same product (an espresso machine, a breadmaker) are placed side-by-side, and the less expensive model will outsell the more expensive one, even if the pricier model is substantially higher in quality and utility. Our justification is the story we tell ~ we bought a bargain.
- We do what we're told. In a store or in a restaurant, if an item is set apart by lighting, illustration, or some other emphasis, it becomes a magnet for purchase, even if it is overpriced to give the seller more profit.
- We let our emotions get the best of us. We avoid perceived rip-offs, even if the product is worth the price. We flock to perceived bargains, even if the product is junk.
- We're easily made dumber by alcohol, time, decisions. We take under-examined risks if we're tipsy, tired, stressed, or otherwise inattentive. Hence the placement of candy and magazines which we don't really need near the checkout counter. Hence ill-considered business decisions at boozy lunches.
- We're pained by transaction costs. Rather than suffer the pain of paying for each gym session, movie, or magazine, we allow ourselves to be sucked into paying for pricey annual memberships, subscriptions, or group rates, when we really don't use the service or product that often.
- We're weird about rebates and warranties. The first buys the perception of wealth. The second buys the perception of peace of mind. Both are illusions. Rebates only serve to bring down a cost which has been artificially, deliberately jacked up by the amount of the rebate in the first place. And warranties shouldn't be necessary if a product is of good quality. And doesn't the product normally outlast the warranty? Planned obsolescence is alive and well.
- We're obsessed with the number 9. "Up to 65 percent of all retail prices end in the number 9 .... Everybody knows that $20 and $19.99 are substantially the same thing. Yet our irrational feelings overrule rational math. $19.99 sounds discounted, especially when you throw in fact 2 above, we're heavily influenced by the first number. That initial 1 must be way cheaper than the initial 2, right? Not so fast, Sparky.
- We're compelled by a strong sense of fairness. Since we have no real idea what things cost, we rely on (mostly misleading) emotional cues. "An experiment by economist Dan Ariely tells the story beautifully. Arielly pretended he was giving a poetry recital. He told one group of students that the tickets cost money, and another group that they would be paid to attend. Then he revealed to both groups that the recital was free. The first group was anxious to attend, believing they were getting something of value for free. The second group mostly declined, believing they were being forced to volunteer for the same event without compensation. What's a poetry recital by a behavioral economist worth? The students had no idea. That's the point .... What's a button-down shirt 'worth'? What's a cup of coffee 'worth'? What's a life insurance policy 'worth'? Who knows! Most of us don't. As a result, the shopping brain uses only what is knowable ~ visual clues, triggered emotions, comparisons, ratios, and a sense of bargain vs. rip-off. We're not stupid. Just susceptible.
As this brief video illustrates, we may feel that we're operating the controls, yet we have little understanding of the process. Courtesy ~wgl~ .