The second experiment was by Dan Ariely (renowned author of bestseller ‘Predictably Irrational’, TED speaker, MIT professor and working in this field since he was a teenager).
‘Predictably Irrational’ is one of the best books I have read so far. This is like bible for behavioural scientists. Remember the 60–70 blogs/articles I mentioned about earlier in this article, half of them were authored by him!
So Mr. Ariely did not give name to this experiment which I am about to present but I like to call it ‘The DECOY Effect’ —
Dan once stumbled upon an advertisement on the website of the magazine ‘The Economist’. Below is the snapshot of the advertisement :
Just go through the advertisement properly and let me know what do you think about the pricing. Most of you will say that there is some kind of a printing error in the pricing of ‘Print subscription’ and ‘Print & Web subscription’. From the look,the third option is the best shot and majority of people will go with that particular option and they actually did as per official report from sources at ‘Economist’.
But do you really think that white collar folks at the ‘Economist’ are dumb enough to make a print error and are casual enough not to rectify it atleast??
So Dan Ariely went ahead and tried an experiment with this advertorial with 100 MIT grads he was teaching during that period. He showed the advertisement to his students and asked them to choose the option they would go with.
The results —
Now, looking at the above result you might very well go ahead and say that if none of the students went ahead with the second option, what was the point of keeping it? Its just redundant, lets just remove it.
So Dan did the exact same thing, he removed the second option and showed the same ad without the second option to a new set of 100 MIT grads and asked them to choose the option they would go with.
The results —
Surprised? Shocked? As you can see in the above snap that this time (with only two options present), 68 went with the ‘Only web’ option and only 32 went with ‘Print & web’ option. (Refer to the snapshot on the right)
Strange, right? This is because of the decoy effect. The second option, the one which was assumed to be redundant is the decoy here! Decoy is something that is made to be present just to influence our decisions.
What’s the take away? —
Well, our minds are irrational when it comes to decision making. Whenever we are asked to make a choice, we look for comparisons, we look for references. This is why ‘combo’ packs work. This is why ‘early bird discounts’ on e-commerce platforms work. So next time you have to make a choice/decision, just step back and look the picture from a bigger perspective, just ask yourself- Are you being tricked by a decoy?
The last experiment, which I personally feel Indians will relate to the most is the ‘The Relativity Cycle’ —
This research is the work of Daniel Kahneman – Author of International bestseller ‘Thinking Fast & Slow’ (No matter who you are and which field you work in, you have to get hold of this book and read it) & Amos Tversky (friend of Daniel and a mathematical psychologist)
Lets assume you are on your way to buy a $20 pen first and a $500 jacket later. While you are buying the $20 pen, someone (your friend, maybe) comes to you and whispers, ‘Hey bud, you know what you can buy this same pen at $8 from a store just fifteen minutes from this one?’.
What will you do? I would personally won’t mind walking 15 minutes to save $12 on the same pen and I guess majority of you won’t mind too.
Now, after buying the pen, you go straight ahead to buy the jacket worth $500. Just imagine someone else comes to you while you are trying on your jacket and whispers, ‘Hey bud, you know what you can buy this same jacket at $488 from a store just fifteen minutes from this one?’.
The chances are you won’t go and your mind will not show the same willingness it was showing in the ‘pen’ case.
When Dan and his friend conducted this study and tested it with bunch of people, the number of people willing to walk 15 minutes in case of the pen were way more than the number of people willing to walk 15 minutes in case of jacket worth $500!
But, you are saving $12 in both the cases, right? Then why did the second case did not have the same amount of response as the first case?
This is because of relativity! What your mind is doing here is that it is comparing the $12 with $20 in the first scenario and the $12 you will be saving with $500 in the second scenario. Though you are saving $12 in the both cases, the amount (saving) in the first case seems a lot higher and holds higher importance in our mind as compared to the second case.
This is why we hesitate to even pay 5 rupees extra for 20 rupees worth grocery and have no problem paying 2000 rupees extra for 25,000 worth of sofa or Television. If you look from a different perspective, grocery(food) despite being a necessity and sofa/television being a luxury, is given less rational thinking if comparison is to be made.
This is why buying something online for 3500 bucks is less mentally satisfying than buying the same thing for 5000 bucks but with 30% flat discount which is nothing but 3500 bucks!
So nope, e-commerce platforms like Amazon. Alibaba, Flipkart are not being generous by giving you discounts, instead its all ‘BEHAVIOURAL ECONOMICS!’