Wednesday, July 25, 2012

Comsumer Psychology

Here are a few more items from the Atlantic's The 11 Ways That Consumers Are Hopeless at Math.

You can be influenced (we do what we're told):
When a restaurant highlights an item with a photo or outlined in a box or printed in bold, you can bet that the item is good for the restaurant's profit line. It may be a fine item but be aware of the subtle influence and make up your own mind.

It's not Fair!
There's a classic experiment that demonstrated that people are not the rational actors that Economists thought they were. Person A is shown $10. He/She must decide how much to share with person B in a take-it-or-leave-it deal. If Person B nixes the deal, no one gets any money; A and B get nothing unless B is pleased with the deal.
Under a rational model B should agree to any amount greater than zero. A free penny is still a free penny and B is ahead. But that is not what happened. Instead most B's voted with their feelings and vetoed the deal if they felt it was not a fair split like 50-50.

Our minds do funny things when it comes to fair value.

In another experiment a person was told, you have a ticket for a play worth $20 and a $20 bill in your pocket. When you arrive at the play you find the ticket is missing. Do you buy another ticket?  Many people said no. I guess they felt they had paid once and refused to pay again or didn't want to throw good money after bad? 
In a second experiments the subjects are told they have two $20's. When they arrive at a play they want to see, they find one of the 20's is missing. Would they still spend the remaining $20 to buy a ticket? Most people said yes. They felt that the missing $20 had nothing to do with the decision to buy a ticket or not. There was no correlation. And yet, financially the two test cases are exactly the same. An item worth $20 was lost.

The Atlantic tells this story,
[Economist Dan] Ariely 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.
It's all a matter of perception.

Item's with 9's sell better. We may think $19.99 is a silly price but our mind locks onto the first digit '1' and we know in our gut that '1' is less than the '2' in $20.00.
"In the number 9, the bargain-hunter/discount-gatherer corner of our brain spots a pluckable deal."
Rebates and Warranties are money makers for business
"The first buys the illusion of wealth ("I'm being paid money to spend money!"). The second buys peace of mind ("Now I can own this thing forever without worrying about it!"). Both are basically tricks."
Business is counting on you to forget to submit the rebate form or to forget to follow-up if the rebate never arrives. As for Warranties, they are rarely collected upon so it's just extra money for the company for doing nothing.

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