Wednesday, February 2, 2011


It's not often that a book leaves me feeling dumb. This book did. Subtitled "The Myth of Fair Value (and How to Take Advantage of it)", it talks about how completely irrational we humans are when it comes to price.

Having a background in statistics, I like to think I understand numbers and can't be duped by pricing schemes. I'll make a purchase sometimes and think I'm getting a great bargain and that it was I that duped the retailer. That's just what they want you to think.

The book is a summary of various psychological and economic studies that show how irrational human beings are.

For example, from page 146:
"Imagine that you are about to purchase a jacket for $125 and a calculator for $15. The calculator salesman informs you that the calculator you wish to buy is on sale for $10 at the other branch of the store, located 20 minutes' drive away. Would you make the trip to the other store?"

Most respondents said yes. In another study, the prices were reversed and the calculator cost $125 but was on sale for $120 at another store. The jacket was $15. Still a total of $140 being spent at Store A, $135 at Store B but this time most respondents would not travel to the other star. Even though five bucks would be saved either way, the respondents felt that it was worth making the trip for a 33% savings but not for a 2.5% savings.

Or how about this one? Students had to choose between two tasks. Either recall and write down a failure in their lives while eating a 15 gram piece of chocolate or recall and write down a success in their lives while eating a 5 gram piece of the same brand of chocolate. Most chose doing the negative task with the big chocolate. After the assignment was completed, the students were asked to rate their experience on a nine-point scale from extremely unhappy to extremely happy. Those who wrote about the success were happier.

As you can probably determine, the experiment was considered "a microcosm of life". We think the bigger piece of chocolate (or more money or more stuff) will bring us happiness when it's really what we do and how we lead our lives that bring true happiness.

Some of these studies I had read about before, either as statistical experiments or in other articles or books (such as Dan Ariely's book Predictably Irrational or Levitt and Dubner's Freakonomics. Even still, I was educated and learned a lot. The downside of the book (outside of glimpsing my own irrationality) was that many of the experiments were glossed over, omitting details I would've thought useful. With 57 chapters over 288 pages, you're only looking at about five pages an experiment. I think some could have been omitted and others expanded.

Definitely a good read, though, and a must read if you like hanging out in the 330 section of the Dewey Decimal system.

No comments: