Sip this book| Predictably Irrational [Part 2]

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The Hidden Forces That Shape Our Decisions by Dan Ariely

3- The Cost of Zero Cost- Why We Often Pay Too Much When We Pay Nothing?

As human beings, we are intrinsically afraid of losing, therefore our reaction to FREE is tied to this fear. The strength of FREE is basically inherited from our weakness when it comes to losing. Our fear of loss makes free as a choice more appealing as there is no possible loss factor attributed to free items, while any other poor choice associated with spending a given amount of money could be significantly attributed to loss if it wasn’t made wisely. Hence FREE will always be our sexy choice.

In one of the experiments mentioned in this book, Ariely gave a few test subjects the choice between having a Lindt Truffle at 15 cents, or Hershey’s Kiss for 1 cent. For those who don’t know, Lindt is a high-quality Swiss Chocolate brand which was always associated with quality and decency. As written from the book, the outcome of the experiment was as expected.

we were not surprised to find that our customers acted with a good deal of rationality: they compared the price and quality of the Kiss with the price and quality of the Truffle and then made their choice. About 73 percent of them chose the Truffle and 27 percent chose a Kiss.

Now could a slight modification to the experiment could change the behavior of the test subjects in an irrational way? The short answer is yes, as we will notice with the second experiment.

Now we decided to see how FREE! might change the situation. So we offered the Lindt Truffle for 14 cents and the Kisses free. Would there be a difference? Should there be? After all, we had merely lowered the price of both kinds of chocolate by one cent. But what a difference FREE! made. The humble Hershey’s Kiss became a big favorite. Some 69 percent of our customers (up from 27 percent before) chose the FREE! Kiss, giving up the opportunity to get the Lindt Truffle for a very good price. Meanwhile, the Lindt Truffle took a tumble; customers choosing it decreased from 73 to 31 percent. Another case study mentioned by the author was about Amazon shipment offer. They offered free shipment for orders that exceed a certain amount. While this might mean that you need to buy 2 books instead of 1 that you originally intended to buy, however, the FREE shipping was very tempting. People at Amazon were very happy with this offer, except for an unexpected behavior happened in France sales. In France, there was no increase in Amazon sales, as it turned out that customers there were reacting to a different deal. The difference was that the french division was offering a shipping with just 1 franc- 20 cents- instead of free shipping.

This doesn’t seem very different from FREE! but it was. In fact, when Amazon changed the promotion in France to include free shipping, France joined all the other countries in a dramatic sales increase. In other words, whereas shipping for one franc — a real bargain — was virtually ignored by the French, FREE! shipping caused an enthusiastic response.

4- The Cost of Social Norms Why We Are Happy to Do Things, but Not When We Are Paid to Do Them

Another important point that was mentioned in this book, the unfortunate fact that as soon as market norms being collided with the social norm, it will dominate for a while leaving social norms away for a long time.

In other words, social relationships are not easy to reestablish. Once the bloom is off the rose — once a social norm is trumped by a market norm — it will rarely return.

The argument that was mentioned by the author regarding this point stated that it looks okay to ask a friend to help in moving a large piece of furniture. However, asking a friend to help move a lot of boxes or furniture is not especially if that friend is working side by side with paid movers.

Similarly, asking your neighbor (who happens to be a lawyer) to bring in your mail while you’re on vacation is fine. But asking him to spend the same amount of time preparing a rental contract for you — free — is not. THE DELICATE BALANCE between social and market norms is also evident in the business world. In the last few decades companies have tried to market themselves as social companions — that is, they’d like us to think that they and we are family, or at least are friends who live on the same cul-desac. “Like a good neighbor, State Farm is there” is one familiar slogan. Another is Home Depot’s gentle urging: “You can do it. We can help.”

Read Next: Sip this book| Predictably Irrational [Part 3]

Start Reading: Sip this book| Predictably Irrational [Intro]

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