Suppose you go shopping at Southside Mall and see a shirt you like for $55. A passerby tells you, “I saw that same shirt at Northside Mall for “$43.” Northside Mall is a twenty-minute drive from your current location. Would you make the trip to save the $12? If you would, then according to Dr. Dan Ariely, you are like most of us. You assess the value of one item by comparing it to whatever similar items are available.
In Predictably Irrational, Ariely writes that most of us can’t determine what we want without context. We need relatively. In the case of the shirts, a $12 savings seems worth a twenty-minute trip because you are comparing $55 and $43. In that context, the difference seems significant.
But what if you continue browsing in Southside Mall and find a new sofa you like for $1999. The same passerby says she saw the sofa at Northside for $1987? Now would you make the trip? Ariely says most people would not. The same $12 difference seems insignificant when you are comparing two four-digit items.
Logically, $12 is worth the same in either case, but because our brains our wired to make relative choices, it seems worth a trip in the case of the shirt, but not in the case of the sofa.
Marketing and sales people not only can use this to influence us, sometimes they must. Ariely tells us the first home bread baking machine introduced to the market drew little interest from consumers. No one knew how to assess its value. But on expert advice, the manufacturer, Williams-Sonoma, introduced a second model of bread baking machine that was larger and more expensive. Sales of the original machine took off when people had something analogous to compare it with.
We are wired to compare things because, in many cases, comparison is adaptive, it usually helps us make good decisions and make them efficiently. But this wiring also means that we can be manipulated into paying too much for something by the presence of an artificially inflated price on a similar type item shown for that purpose. You tell a realtor the most you want to pay for a house is $150,000. She shows you a beautiful house listed for $200,000 “just to give you a range for reference,” a very nice house for $170,000, and a less attractive house for $145,00. Now the $170,000 house looks like a good deal.
Our hard-wired need for relativity extends beyond money matters. Ariely’s experiments showed that college students’ interest in dating a person in a photograph could be skewed by Ariely’s choice of other photos shown along with it.
The same mental wiring causes us to judge ourselves by comparison to others. When federal securities regulators first required companies to disclose the salaries and perks of their top level executives, people thought that this requirement would cause the companies to moderate executive pay to avoid embarrassing bad press. Instead, executive pay levels increased because, when one executive could learn that another earned more than he did, he would demand more.
Sadly, we often hurt ourselves more than any marketer could hurt us by comparing our own situations with others’. Jealousy drives us to want as much or more than others have, and the more we have, the more we want, even though studies show that the happiest people are often those of more modest means.
We even compare ourselves to ourselves. We move up from a Chevy to a Cadillac, and before you know it, we feel we need a Ferrari. Making the same salary for ten years somehow doesn’t feel right, although it may provide a good lifestyle and the ability to provide for retirement. How many people have quit a pleasant and personally satisfying job for a higher paying position that increases stress and decreases family and leisure time?
How can we protect ourselves from relativity-based marketing gimmicks (and from our own jealousy)? Predictably Irrational recommends surrounding ourselves with smaller comparisons. If you go to a party, don’t hang around next to the big shot surrounded by admirers. Rather, start a conversation with an ordinary person on the other side of the room.
Ariely reports that one wise man owned a Porsche but realized he would soon want to move up to a Ferrari, but that it wouldn’t make him happier. He deliberately adjusted his reference point by selling the Porsche and buying a Toyota Prius.
When applying these techniques, I advise making a point of noticing how much you enjoy speaking with that ordinary person at the party and all the things you can do with the money you save on the Prius. Relishing those feelings can help you expand your brain wiring.
I would add that some of the techniques we use in consensus building can help us here, too. Before making an important decision, take a break (see Bridges to Consensus, Chapter 9). Time alone can lessen the autopilot pull of relative thinking. Then identify the comparisons influencing you. How valid are they?
Ask yourself questions that clarify your interests (Bridges, Chapter 5), not only those interests related to the current decision, but broader life interests as well. Why are you considering driving to another mall for a better price on the shirt? To save money. What is the value of the gas you’ll burn making a second shopping trip? At today’s prices, it’s probably enough to eat up the savings on the shirt.
If you didn’t make the second trip, what would you do with the time you’d spend driving to another mall? Would you get to read your child a story before she goes to bed? Is that worth $12?
Buying a $200,000 house can make an additional $10,000 to replace some of the carpet with tile seem trivial, but what would you do with $10,000 if you won it in a lottery?
Even small decisions based on unsound comparisons can add up. Do you habitually buy the brand of pickles that costs the least? Good idea, unless the cheaper jar contains fewer ounces. If you eat pickles every day with your lunch, the savings over time justifies the time it takes to compare brands more thoroughly.
Of course we will still make decisions based on comparisons. It’s part of the human condition, and as mentioned, often adaptive. But with a little more attention, we can make those decisions more logically, adding a touch of relative sanity.