September 10, 2009
I recently read Predictably Irrational.
It's a fascinating examination of why human beings are wired and conditioned to react irrationally. We human beings are a selfish bunch, so it's all the more surprising to see how easily we can be manipulated to behave in ways that run counter to our own self-interest.
This isn't just a "gee-whiz" observation; understanding how and why we behave irrationally is important. If you don't understand how these irrational behaviors are triggered, the marketing weasels will use them against you.
In fact, it's already happening. Witness 10 Irrational Human Behaviors and How to Leverage Them to Improve Web Marketing. Don't say I didn't warn you.
Let's take a look at the various excerpts presented in that article, and consider how we can avoid falling into the rut of predictably irrational behavior -- and defend ourselves from those vicious marketing weasels.
1. Encourage false comparisons
When Williams-Sonoma introduced bread machines, sales were slow. When they added a "deluxe" version that was 50% more expensive, they started flying off the shelves; the first bread machine now appeared to be a bargain
When contemplating the purchase of a $25 pen, the majority of subjects would drive to another store 15 minutes away to save $7. When contemplating the purchase of a $455 suit, the majority of subjects would not drive to another store 15 minutes away to save $7. The amount saved and time involved are the same, but people make very different choices. Watch out for relative thinking; it comes naturally to all of us.
- Realize that some premium options exist as decoys -- that is, they are there only to make the less expensive options look more appealing, because they're easy to compare. Don't make binding decisions solely based on how easy it is to compare two side-by-side options from the same vendor. Try comparing all the alternatives, even those from other vendors.
- Don't be swayed by relative percentages for small dollar amounts. Yes, you saved 25%, but how much effort and time did you expend on that seven bucks?
2. Reinforce Anchoring
Savador Assael, the Pearl King, single-handedly created the market for black pearls, which were unknown in the industry before 1973. His first attempt to market the pearls was an utter failure; he didn't sell a single pearl. So he went to his friend, Harry Winston, and had Winston put them in the window of his 5th Avenue store with an outrageous price tag attached. Then he ran full page ads in glossy magazines with black pearls next to diamonds, rubies, and emeralds. Soon, black pearls were considered precious.
Simonsohn and Loewenstein found that people who move to a new city remain anchored to the prices they paid in their previous city. People who move from Lubbock to Pittsburgh squeeze their families into smaller houses to pay the same amount. People who move from LA to Pittsburgh don't save money, they just move into mansions.
- Scale your purchases to your needs, not your circumstances or wallet size. What do you actually use? How much do you use it, and how frequently?
- Try to objectively measure the value of what you're buying; don't be tricked into measuring relative to similar products or competitors. How much does buying this save you or your company? How much benefit will you get out of it? Attempt to measure that benefit by putting a concrete dollar amount on it.
3. It's "Free"!
Ariely, Shampanier, and Mazar conducted an experiment using Lindt truffles and Hershey's Kisses. When a truffle was $0.15 and a kiss was $0.01, 73% of subjects chose the truffle and 27% the Kiss. But when a truffle was $0.14 and a kiss was free, 69% chose the kiss and 31% the truffle.
According to standard economic theory, the price reduction shouldn't have lead to any behavior change, but it did.
Ariely's theory is that for normal transactions, we consider both upside and downside. But when something is free, we forget about the downside. "Free" makes us perceive what is being offered as immensely more valuable than it really is. Humans are loss-averse; when considering a normal purchase, loss-aversion comes into play. But when an item is free, there is no visible possibility of loss
- You will tend to overestimate the value of items you get for free. Resist this by viewing free stuff skeptically rather than welcoming it with open arms. If it was really that great, why would it be free?
- Free stuff often comes with well hidden and subtle strings attached. How will using a free service or obtaining a free item influence your future choices? What paid alternatives are you avoiding by choosing the free route, and why?
- How much effort will the free option cost you? Are there non-free options which would cost less in time or effort? How much is your time worth?
- When you use a free service or product, you are implicitly endorsing and encouraging the provider, effectively beating a path to their door. Is this something you are comfortable with?
4. Exploit social norms
The AARP asked lawyers to participate in a program where they would offer their services to needy employees for a discounted price of $30/hour. No dice. When the program manager instead asked if they'd offer their services for free, the lawyers overwhelmingly said they would participate
- Companies may appeal to your innate sense of community or public good to convince you to do their work at zero pay. Consider carefully before choosing to participate; what do you get out of contributing your time and effort? Is this truly a worthy cause? Would this be worth doing if it was a paid gig?
- When it comes to the web, make sure you aren't being turned into a digital sharecropper.
5. Design for Procrastination
Ariely conducted an experiment on his class. Students were required to write three papers. Ariely asked the first group to commit to dates by which they would turn in each paper. Late papers would be penalized 1% per day. There was no penalty for turning papers in early. The logical response is to commit to turning all three papers in on the last day of class. The second group was given no deadlines; all three papers were due in the last day of class. The third group was directed to turn their papers in on the 4th, 8th, and 12th weeks.
The results? Group 3 (imposed deadlines) got the best grades. Group 2 (no deadlines) got the worst grades, and Group 1 (self-selected deadlines) finished in the middle. Allowing students to pre-commit to deadlines improved performance. Students who spaced out their commitments did well; students who did the logical thing and gave no commitments did badly.
- Steer clear of offers of low-rate trial periods which auto-convert into automatic recurring monthly billing. They know that most people will procrastinate and forget to cancel before the recurring billing kicks in.
- Either favor fixed-rate, fixed-term plans -- or become meticulous about cancelling recurring services when you're not using them.
6. Utilize the Endowment Effect
Ariely and Carmon conducted an experiment on Duke students, who sleep out for weeks to get basketball tickets; even those who sleep out are still subjected to a lottery at the end. Some students get tickets, some don't. The students who didn't get tickets told Ariely that they'd be willing to pay up to $170 for tickets. The students who did get the tickets told Ariely that they wouldn't accept less than $2,400 for their tickets.
There are three fundamental quirks of human nature. We fall in love with what we already have. We focus on what we might lose, rather than what we might gain. We assume that other people will see the transaction from the same perspective as we do.
- The value of what you've spent so far on a service, product, or relationship -- in effort or money -- is probably far less than you think. Be willing to walk away.
- Once you've bought something, never rely on your internal judgment to assess its value, because you're too close to it now. Ask other people what they'd pay for this service, product, or relationship. Objectively research what others pay online.
7. Capitalize on our Aversion to Loss
Ariely and Shin conducted an experiment on MIT students. They devised a computer game which offered players three doors: Red, Blue, and Green. You started with 100 clicks. You clicked to enter a room. Once in a room, each click netted you between 1-10 cents. You could also switch rooms (at the cost of a click). The rooms were programmed to provide different levels of rewards (there was variation within each room's payoffs, but it was pretty easy to tell which one provided the best payout).
Players tended to try all three rooms, figure out which one had the highest payout, and then spend all their time there. (These are MIT students we're talking about). Then, however, Ariely introduced a new wrinkle: Any door left unvisited for 12 clicks would disappear forever. With each click, the unclicked doors shrank by 1/12th.
Now, players jumped from door to door, trying to keep their options open.They made 15% less money; in fact, by choosing any of the doors and sticking with it, they could have made more money.
Ariely increased the cost of opening a door to 3 cents; no change--players still seemed compelled to keeping their options open. Ariely told participants the exact monetary payoff of each door; no change. Ariely allowed participants as many practice runs as they wanted before the actual experiment; no change. Ariely changed the rules so that any door could be "reincarnated" with a single click; no change.
Players just couldn't tolerate the idea of the loss, and so they did whatever was necessary to prevent their doors from closing, even though disappearance had no real consequences and could be easily reversed. We feel compelled to preserve options, even at great expense, even when it doesn't make sense.
- If your choices are artificially narrowed, don't passively get funneled towards the goal they're herding you toward. Demand choice, even if it means switching vendors or allegiances.
- Don't pay extra for options, unless you can point to hard evidence that you need those options. Some options exist just to make you doubt yourself, so you'll worry about not having them.
8. Engender Unreasonable Expectations
Ariely, Lee, and Frederick conducted yet another experiment on MIT students. They let students taste two different beers, and then choose to get a free pint of one of the brews. Brew A was Budweiser. Brew B was Budweiser, plus 2 drops of balsamic vinegar per ounce.
When students were not told about the nature of the beers, they overwhelmingly chose the balsamic beer. When students were told about the true nature of the beers, they overwhelmingly chose the Budweiser. If you tell people up front that something might be distasteful, the odds are good they'll end up agreeing with you--because of their expectations.
- Whatever you've heard about a brand, company, or product -- there's no substitute for your own hands-on experience. Let your own opinions guide you, not the opinions of others.
- Just because something is labelled "premium" or "pro" or "award-winning" doesn't mean it is. Research these claims; don't let marketing set your expectations. Rely on evidence and facts.
9. Leverage Pricing Bias
Ariely, Waber, Shiv, and Carmon made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours.
When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief. When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief. The more pain a person experienced, the more pronounced the effect. A similar study at U Iowa showed that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs.
- Price often has nothing to do with value. Expensive is not synonymous with quality. Investigate whether the price is justified; never accept it at face value.
- Don't fall prey to the "moneymoon"; just because you paid for something doesn't mean it's automatically worthwhile. Not everything we pay money for works well, or was even worth what we spent for it. We all make mistakes when buying things, but we don't want to admit it.
What I learned from Predictably Irrational is that everyone is irrational sometimes, and that's OK. We're not perfectly logical Vulcans, after all. The trick is training yourself to know when you're most likely to make irrational choices, and to resist those impulses.
If you aren't at least aware of our sad, irrational human condition, well ... that's exactly where the marketing weasels want you.
Posted by Jeff Atwood
Wow, this is your top entry this year so far imho. I'm going to keep a bookmark to this this page forever.
"When a truffle was $0.15 and a kiss was $0.01, 73% of subjects chose the truffle and 27% the Kiss. But when a truffle was $0.14 and a kiss was free, 69% chose the kiss and 31% the truffle.
According to standard economic theory, the price reduction shouldn't have lead to any behavior change, but it did."
Then standard economic theory is stupid. You're thinking of buying an ipod. Do you want the ipod touch or the ipod nano? The ipod touch is 300 and the nano is 100. (Making this up). $200 difference. Which do you choose? Now I tell you you can have a nano for free for an ipod touch for $200. Now which do you choose. Of COURSE you are going to choose what's free. You get *something* for *nothing*. Doesn't seem irrational at all to me.
Replying to myself: "You will tend to overestimate the value of items you get for free. Try to resist this by viewing free stuff skeptically rather than welcoming it with open arms. If it was really that great, why would it be free?"
Of course, this does *not* apply to the free health care we'll all be getting soon. That's perfect.
Great post Jeff.
Now reworking pricing table to include the platinum edition, plz don't tell anyone else about this.
i think your numbering is screwed
If you are _definitely_ buying an ipod (in your example), then you might as well already be out the $100 for the nano. The only question is whether you are willing to pay $200 to "trade" your nano for an ipod. That's why "theory" (actually, a deliberately simplified model) predicts you would only care about the price difference.
But this is assuming the prices you are offered are market prices! If someone offers you a free ipod nano, you know you are receiving something with a market price above zero. You could turn around after the offer ends and sell the ipod nano on ebay. You are not as sure that the ipod touch is really worth more than $200 as that the nano is worth more than zero. So you are right that it can be rational to reverse your decision, given that you participate in a market where you can buy and sell as well as consume.
I have similar concerns about whether other "irrationalities" mentioned here (and in similar discussions of behavioral economics) are really either rational reactions to concerns outside the frame of reference of the experimenters, or are non-selfish behaviors that have positive effects in a group. As a (possible) example of the latter, consider the "relative discount" example (people will drive 15 minutes to save $7 on a pen, but not on a suit). This could be explained as a desire to punish high relative markups. In a world where people did not have this behavior, cheap items would frequently be sold at very high relative prices, and the aggregate cost (of paying or avoiding these prices) would be high. In the world where people will make an irrational effort to avoid high relative prices, such prices are rare and the effort to avoid them is not necessary.
"Irrational" behavior FTW.
I haven't read "Predictably Irrational," but it sounds a lot like "Influence" by Robert Cialdini, which was first published in the late 1970's (I can't find the exact date of the first publication, but I think it was 1976). These are really interesting ideas, and it's nice to see them in a book accessible to the general public. But, while some of these studies are relatively new, the general principles have been around for a while.
For a second there, I thought I wasn't reading Coding Horror.
When you are an undergrad your choices are basically ramen or cheap ramen, I go for cheap ramen. This clearly book don't apply to me.
When you are a teenager without a credit card to buy things online, there are two options for software or music or movies: free, or piracy.
Defiantly a good read, thanks!
I'm surprised this slipped past both the book's authors and you about the free legal aid item: pro bono. Lawyers aren't required to provide some of their time for such uncompensated services, but it is enocouraged by the various bar associations. So to the lawyer, doing that work for $30 means taking a big pay cut (and, rememebr these are lawyers, so the thought that it's setting a precendent must loom large, too); doing it for free, at least as long as it's not too great an amount of work per lawyer per year, gets them the pro bono practice to make them look good to their peers. It's not hard at all, at all, to see why they preferred to donate their time for free.
Even Wikipedia knows about pro bono...
Interesting stuff, but as far as the last point with the painkillers goes:
If the placebo effect works, is that necessarily bad?
If the users genuinely think that they are feeling better, maybe it is worth the extra "wasted" money.
Come to think of it, this might explain why mac users are so fanatical... it cost more, it must be better!
@TM, thank you so much, I've been saying this for years. We actually have to use macs in one of my classes, and while trying *very hard* to like the thing and get used to it so I can properly study the OS, I so far see nothing that makes it any better or worse than a PC. Safari actually regularly crashes when playing Youtube videos in HQ, among other things.
The difference of course is Apple's closed-source attitude and higher prices. By closing the system and raising the price (and advertising on the merit of design) they create the illusion that their product is somehow more valuable than another *equivalent* piece of hardware with the exact same specifications.
This isn't me harping on Mac, I don't think they're bad, I just don't think they're all that great either. My point is, this line of thinking applies to marketing everywhere, and it's something I've been closely watching for years. I'm glad to hear I'm not the only one who approaches most marketing with skepticism. ^_^
(sorry, didn't mean to make this two comments)
@void: Damn. Just.. damn. That's an excellent way to interpret an interpretation of an interpretation of a theory. I mean... wow. And the best part is, you made a good point. ^_^
I can buy the book from your links, pay $18.47 and you get a kickback or I can but it from B&N with my membership, pay $20.15 and have same day delivery in Manhattan.
I can feel like I helped out someone who gives me something to read for free every day and get a book for less by buying it through Amazon, but I won't know if I was manipulated by the marketers until I read the book.
Maybe I should just see if someone I know has a copy and read that one?
10. Stupid humans explanation
Watch out for weasly marketers selling booksthat tell you how stupid people are so you can realize how smart you will be.
@Chris: You should really bother to read the book, research the author, or read his previous publications before making judgments like that. The author is a professor of behavioral economics at MIT, so educating people is kind of his "thing".
I disagree. We're actually trained like this. Most of the time we enjoy "free" stuff, because it is free. If it wasn't there, you wouldn't get anything at all and most of the times it is not there. We don't see the stuff as completely free, but we are indulged by it.
Remember that "you get what you pay for" applies equally well when you've just paid for overpriced junk.
10. Giving you a list of N things.
This post itself is also kind of taking advantage of an easy way to manipulate you. This is a "List of N Things" type post which Paul Graham just wrote about ( http://www.paulgraham.com/nthings.html). This one even has lists inside lists, for double the effect, eh? This post is easy to read, even easier to _not_ read but still think it's good, and is just the kind of thing which could end up on the Digg front page.
And I'm not saying this is a bad post :)
I see this all the time. My friend, like many people, isn't rational when it comes to purchasing. He's a bit skint (that means cheap) and will drive 10km out of their way, or do heaps of price comparison on something that's only $50 just to save $10.
Time and time again I try to explain that they've wasted not only a day price comparing, but have also spend $8 in gas to save $10. Net price difference of a whopping $2 for a wasted weekend.
Better to pay $50 and $5 for doorstep delivery and spend the day at the beach.
The same person will, on impulse, buy a $200 outfit without thinking.
But then some people just like shopping I guess.
Interesting stuff. A couple of the examples don't seem so irrational, though.
People moving from Lubbock to Pittsburgh can't afford a big house. People moving from L.A. to Pittsburgh can afford one and probably get a capital gains tax cut for buying one.
If someone overcharges me $7 for a pen, they're ripping me off and I will go elsewhere to avoid letting them think they can rip me off. If someone charges an extra $7 for a $450-dollar suit, I might figure the extra time to get it somewhere else is worth more to me than the $7.
About the Duke basketball tickets, the students probably couldn't afford to pay more than $170, but there might be alumni able and willing to pay $2400.
Anybody notice that giving Kiss's for free made a difference of only 4%? I'm not saying people don't behave irrationally when they see FREE, but the example provided is kinda weak, showing only 4% difference.
These are interesting examples but I think many of them fail to account for all the factors that go into someone's decision.
In the case of the $7 difference between a $25 pen and a $400+ suit, you're talking about something that's a relative commodity vs. an investment. Most people own far more pens than suits, so the value must take into account the utility which includes the purchase itself. How friendly is the staff at either suit store? How reliable or informative are they? What is their return policy, etc.
In the example of the 3 doors, it's really hard to guage what's irration and rational in this made-up example. If the students stood to make more than a few dollars then I bet they always optimize for price regardless of the loss of the other doors. Being that they were in a study, it's quite possible that their decisions were based on attempts to try to figure out what the study is trying to uncover. Maybe the introduction of the disappearing doors led people to believe there would be some benefit to keeping all three doors available, as if perhaps the values would change and they would miss out on something. If those students truly beleived that the disappearing doors had consistently less value than the other door, I don't think you would see the same behavior.
And regarding the Budweiser, I suspect you could add a lot of things to that beer to make it taste better. ;-)
Several years ago, I carefully examined a presentation aimed at marketing one of our software products. Boy, that was shocking. By choosing the correct wording and presentation style it succeeded in creating the impression that the product is awesome and perfectly solves every problem in its domain without making any explicit promise. This way, customers will not be able to say they were decieved.
I don't think I'll ever be able to prepare such presentation.
I was wondering who gives kisses away for free, I had to read it 3 times to notice it's about sweeties, not real kisses ;)
Acutally, when you move from one country to another you usually change your job so that your new pay is relative to your new home, not your old town - but you're still bound to the old pricings, that's the irrationality in it.
"And regarding the Budweiser, I suspect you could add a lot of things to that beer to make it taste better."
Cheap tequila. And if it tastes worse, at least you get hammered faster, or does standard economic theory say otherwise?
"Brew A was Budweiser. Brew B was Budweiser, plus 2 drops of balsamic vinegar per ounce.
When students were not told about the nature of the beers, they overwhelmingly chose the balsamic beer."
So why don't Bud add 2 drops of vinegar to their beers to improve the flavour? :)
So you've been employing this knowledge then Mr Atwood?
I feel duped.
I read it recently too - and also enjoyed it. I was thinking about the first one - yes, it's irrational from a purely personal economic point-of-view, but possibly not from other perspectives. If a $455 suit varies in price by $7 (1.5%) then it's most likely a pricing inefficiency: nobody's going to get rich on the number of extra $7s they're getting. If a $25 pen is overpriced by $7 (28%) then someone's trying to rip me off and I'm prepared to go to some additional effort to deny them the satisfaction. It's not a tangible economic benefit, sure, but I'm going to feel better in myself and that's worth something. Even better, if we all behave similarly "irrationally" then the rip-off merchant will either adjust his prices or be replaced by a vendor who operates fairly. Then we won't have to drive that 15 minutes and more.
6 is silly, when people say they will buy something for $X and sell it for $Y>X they are including the "cost" of sleeping out for weeks to get it. This is a statement that they would sleep out for weeks to get $2,230
What I just picked up from this post? Budweiser tastes better with 2 drops of balsamic vinegar added :) (Provided you don't tell anyone you added it that is)
Tried the vinegar trick with Nobelaner. True, it's no Budweiser (i.e. it has some taste on its own), but I don't notice any difference in the taste. It is slightly darker, which is usually perceived as good.
"Scale your purchases to your needs, not your circumstances or wallet size. What do you actually use? How much do you use it, and how frequently?"
It's disgraceful that the average citizen of the USA *still* needs a book to tell them this.
this is turning into cnn style article columns...
Is writing articles to entice readers to click affiliate links also in this book? (not that anything is wrong with that)
Speaking of affiliates, I wonder if there will ever be affiliate programs for selling ads on other sites (instead of selling products that is), for example for stackoverflow to start an affiliate program for selling ads on stackoverflow. How about it Jeff, maybe time for an experiment? ;)
"I dont fall for marketing BS."
Believing that's possible means you have fallen for some of the most basic marketing BS possible.
>"We feel compelled to preserve options, even at great expense, even when it doesn't make sense."
This sentnce perfectly apply to software design (at least for me).
If I have a feature in one of my applications, and I realize that no user really uses it, I fight hard to mantain it (at least hidden).
I cannot force myself to eliminate it completely. Maybe because I invested some time in designing and programming it, and the loss seems intolerable to me.
You obviously don't like marketing "weasels". Good, neither do I. But you also think that every software engineer should know how to market.
You say in that post, "Just because you're a marketer doesn't necessarily mean you're a marketing weasel."
So I'd be interested in how you distinguish between the two. At what point does good marketing turn bad?
What does this have to do with programming??? The quality of your posts is steadily going down. If you don't have anything relavent to post, don't post anything.
predictably irrational? look at these people who still come back after all the useless article this blog posted. i just get amused each time reading these comments even after a down-right meaningless blog. lol
"Don't fall prey to the "moneymoon"; just because you paid for something doesn't mean it's automatically worthwhile."... Good thing this site is free =)
Captcha "behaves Wieland" - act like a heroin addicted frontman
Thanks, Jeff, you have compressed the actual useful info from a long book, and I don't have to read it anymore - well done (although I don't think mr. Ariely would agree :)).
This is exactly the sort of thing when I hear 'Roadrunner with Powerboost'. What is powerboost anyway?
I dont fall for marketing BS. I know its all lies and manipulation. If I need something (and I know the difference between want and need), I go and purchase it. I will try to get the best price but if I dont, I dont care. My time and sanity has a price too.
More compelling arguments for why #4 appears to be the case is that a discounted rate a, reduces the subjective value of full fee offerings making them more difficult to internalize, and b, provides difficult but discounted clients the idea that because they are paying, they can be, well, clients. Providing these services for free strips the recipient of the moral authority to be a prick.
And of course, as stated, c. If services are offered at a discounted rate, not only are attorneys collecting fees 'beneath' them, they can't fulfill their pro bono requirement (if their firm has them) or brag about their community involvement on the cocktail circuit.
Ok, I just felt like mentioning I've seen these exact quoted points somewhere else a few months ago, and it wasn't from the linked site at the beginning of this post, nor ITS linked site. And they're both newer than the one I read.
"6 is silly, when people say they will buy something for $X and sell it for $Y>X they are including the "cost" of sleeping out for weeks to get it. This is a statement that they would sleep out for weeks to get $2,230"
Obviously, the people buying don't think (at the time) sleeping out is much of a cost to them. People who would only sell them for a 2,230 dollar markup aren't ever going to get that price for them -- since you need the other side of the view too. "Buyers" aren't willing to pay that much at first because they don't realize that the whole sleeping out business is nearly worthless. A $170 ticket that ends up "costing" them $2,230 more; they should definitely act on the whole 'walking away' bullet point. The irrational decision is freakin sleeping out for a ticket that obviously isn't worth the 2,230 dollars of sleeping out.
What does this have anything to do with coding? This blog used to mostly about software and programmers and coding. What happened?
It is a real plaisure to read you, always learning new stuff.
It is very impressive how you succeed on precisely presenting ideas and concepts. Very clear to the point and always with elegance.
Good Job Jeff, see you next post!
hmm. A book about common sense? Then again that's marketing for you. Only, those weasels can spin falsehoods about free software. I assume that's what you are talking about. I can't think of anything else that is "free".
I thought this post was interesting, but it was not immediately obvious to me what conent was Jeff's and what came from the linked page. I actually had to open the linked page and compare to see.
Great post...if you like this book, you'd probably like Freakonomics as well. Basic Economics by Thomas Sowell is good if you're looking for something more foundational, too.
You can see #6 in action throughout online reviews everywhere, especially on higher ticket items. The reviews are often justifications for that person making the purchase more than an honest review of the product ("falling in love with what they already have"). I feel much more confident in the accuracy of bad reviews for this reason.
Ok this is only the second article I have read on your blog. I am now feeding you. You are keenly aware in so many ways.
I didn't like the headline at all, could be because I have to market to sell my product and I am so challenged to do it authentically and within my core values because apparently people don't understand what you are saying above and if they do they just don't care. I look forward to your next insights tremendously.
"Just because something is labelled "premium" or "pro" or "award-winning" doesn't mean it is. Research these claims; don't let marketing set your expectations. Rely on evidence and facts."
"[advertisement] Interested in agile? See how a world-leading software vendor is practicing agile."
3 explains Linux adoption. All the downsides it has would be considered horrible bugs in Windows (or any OS you pay for), but are completely acceptable from a "free" OS.
About the Truffles vs. the Hershey Kisses, I *think* we're supposed to understand that the price for a Truffle was a great bargain. Let me translate the situation in that vein:
Given the choice between a dual-quad-core 3.76GhZ server with 4TB RAID-10 disk for $1,000, or a dusty old 386 PC for $50, 73% chose the server. But when offered the old dusty 386 PC for free, 69% of the people chose it over the server.
(Free junk is still junk.)
The lawyers refusing discounts in favor of pro bono look pretty rational to me.
First, they're giving up most of their fee anyway. They're not losing much*.
Second, they don't want to be perceived as $30/hour people. By not charging anything, they're expensive professionals doing pro bono (a lawyer term, and even in Latin) work. Image is important to a lawyer, probably quite important in dollar terms.
Third, they're probably being taken more seriously pro bono. If a client pays $30/hour, they won't take the work as seriously as if they were paying $240/hour. If it's a high-priced lawyer waiving a fee, the work will still be seen as worth the fee.
Fourth, they're avoiding any sense of client entitlement. A client that's paying what looks like good money will take on a "cash customer" attitude, and feel entitled to more work if they pay the $30/hour. A client getting pro bono service will be less likely to try to push the lawyer into more service, or at least will be more understanding when the lawyer refuses. It's easier socially to put limits on volunteering.
Fifth, there's the already discussed matter that lawyers get significantly more soft rewards for pro bono work than discount work.
*The discussion of absolute vs. relative dollar values is applicable when we're spending money. When we're making money, the ratio is far more important. $100 is much more significant to the guy who needs to work twelve hours to get it than the guy who gets it in two hours. To a $240/hour lawyer, the difference between $30 and pro bono isn't $30/hour; it's the difference between seven and a half minutes per hour, and zero minutes per hour.
I would grab all the kisses and punch him in the face. Win!
> We're not perfectly logical Vulcans, after all.
Speak for yourself, Dr McCoy.
It is amazing how little people know that they are being manipulated.
Open Source is one example. It is 'free' so viewed as crap. When in reality Open Source software is often times many times better. Because, it has no price tag, people assume it is crap software.
It is the MEDIA that crame Advertising in 25% of 1 hour of your TV show, and in ALL forms of Media, most have become BRAIN WASHED.
A good sales person, that makes you feel bad for saying NO to him, gets you to buy crap you would NEVER have on your own...
Some 'KEY' marketing terms to look out for, while watching TV or viewing ANY Ad are the following... and it is deception at its best.
1) _YOU_ will benefit
2) LIMITED TIME OFFER
3) Money Back Guarantee
4) Be the first 100...
5) As a free gift...
6) 2 for the price of 1
All of these things can be debunked as NOT added value, but simply deception tactics.
The point about whether or not to buy sometimes, is to buy it if you feel like YOU want it... not because of what the AD or sales pitch is saying... FORGET the sales pitch entirely.
Also, if it is too good to be true, than it is too good to be true and most likely a scam.
If you let your 'feelings' rule your choices, you will be working many extra hours slaving away because of your stupidity.
Marketing people know what YOU need... give me a break.
Changing from $1 to free is not a price reduction. If there actually are any economists baffled by the distinction, they're not very good economists.
"Whatever you've heard about a brand, company, or product -- there's no substitute for your own hands-on experience. Let your own opinions guide you, not the opinions of others."
"Once you've bought something, never rely on your internal judgment to assess its value, because you're too close to it now. Ask other people what they'd pay for this service, product, or relationship. Objectively research what others pay online."
These two seem to be exact opposites. How do you apply them both?
I think a lot of the advice you give looks good on paper but really doesn't contribute much in the real world. For example:
- "Try comparing all the alternatives, even those from other vendors."
- "Try to objectively measure the value of what you're buying; don't be tricked into measuring relative to similar products or competitors."
- "Research these claims; don't let marketing set your expectations. Rely on evidence and facts."
- "Investigate whether the price is justified; never accept it at face value."
- "Don't fall prey to the "moneymoon"; just because you paid for something doesn't mean it's automatically worthwhile."
These are all practically the same and obviously, this is what we would all do if we had the time, knowledge, and motivation to constantly do it. In the real world, however, most people don't. I'm a computer geek and a programmer, but that doesn't mean I can find enough insight to decide for sure whether a certain application suits my needs—and even if I did, there's only so much time I can spend researching before the couple of dollars I could earn don't matter anymore.
It's easy to blame bad purchases on "predictably irrational" behavior, especially when you're the one judging and somebody else is the one who actually has to make a decision amidst a jungle of products, with no reliable way to find out "the truth"—especially not in a reasonable amount of time.
"Thanks, Jeff, you have compressed the actual useful info from a long book, and I don't have to read it anymore - well done (although I don't think mr. Ariely would agree :))."
He wouldn't agree openly, of course, but ask yourself this: If he compressed all of his information into a four-page pamphlet or 2,000-word blog post, would he ever be able to sell it at the same price as his book?
This is specifically in regards to the example of the truffle and the kiss (or Tim's example of the two iPods). I think what these examples show is that people make their decisions based on value (enjoyment per dollar/cent in this case) rather than price. The net enjoyment of a particular product does not change with the price.
So let's assume a truffle has a net enjoyment of 16 (whatever that means) and the kisses have an enjoyment of 1. Now with the prices of 15 cents for the truffles the values is 16/15 = 1.07 and the value of the kiss is 1. So in this case the truffle offers a better value.
However, let's change those prices. Now the truffle has a values of 16/14 = 1.14 and the kiss has an infinite value.
Obviously these examples are simplified as things such as time need to be taken into account and the relative enjoyment will differ per person. It does show that there may be rational thought processes behind these decisions though. Humans simply aim to maximize value rather than look at net differences.
"According to standard economic theory, the price reduction shouldn't have lead to any behavior change, but it did."
I don't know what "standard economic theory" they're using, but in actual economics we have this thing called the Law of Demand. The magnitude of the change in consumption caused by the shift from "low price" to "zero price" is certainly an oddity, but that there was some change is definitely not unexpected.
What a boring post.. Sure, propably very relevant, but are you going to be a sociology professor or something?? You should talk about code and programming, not marketing...
Oy, I hesitate to go here, but this is just too inane. If you're saying that the public option is necessarily bad because it's free, you're dumb. It's not free. The public option is a _public insurance program_. Those who get it still have to pay premiums! The only people who will get free healthcare will be those who fall under the expanded medicaid program. If you're making less than $14,000/yr ($30,000 for a family of 4) that's you, and God help you, living on that. See this simple chart: http://voices.washingtonpost.com/ezra-klein/assets_c/2009/09/3907223778_1d54d0ed1f_o.html
And even that isn't "free". The gov't plans to recoup the costs by rolling back Bush tax cuts on the most wealthy. See here: http://features.csmonitor.com/economyrebuild/2009/08/11/economic-scene-%E2%80%98tax-me%E2%80%99-some-rich-americans-tell-obama/
This is the equivalent of saying, "Well, our roads are free to drive on, so they must be bad!" or "The US Military defends me from invaders for free, so they must be doing a bad job!" Duh: you pay for this stuff! It's called taxes.
The free vs. 1 cent kiss, is not specifically about a free item, but also about the friction of paying any money at all. There is a considerable effort in paying even 1 cent but the effort is similar whether the item costs 1 cent or 15 cents. An item that is free has no such effort required, and effort also matters. There are quite a few "free" things that I pass up when "free" means I have to sign-up, or fill out something.
stopped reading at "•Scale your purchases to your needs, not your circumstances or wallet size. "
What a bullshit. Many americansspend more then their wallet allows. Seems to be typical
Stopped reading at "•Scale your purchases to your needs, not your circumstances or wallet size. "
Seems to be typical american stupidity to spend more then the wallet allows
@Shinhan: Its 73:27 and 31:69, so quite a big differnce.
And I think it's only logical. With 1 cent, you have got to take out your purse and search for money, with 0 cents you just grab the sweet and run with it. The time you save might be worth much more than 1 cent.
I've always thought "free download" was hilarious (for some trial shareware or crapware). Is anyone really impressed that they are letting you download trial software for free?
Jeff: Did you implement similar reward systems on stackoverflow.com.
You can also write a blog of what you have noticed from human behavior on SO. I know once a while you mention some aspect on the podcast but a blog which consolidates your findings can be helpful.
Tim your the perfect example of how a mind is easily manipulated.
The only decision was the difference in price of 200 and yes you immediately opted for the free one even though the difference is the same. You, in your head, valued the freebie as more valuable, when it was free. That's the trap and you fell into it like everyone else does :).
I'm not sure what is wrong with number two. Pretty much everyone want the best accomodation they can get, but they also have a fixed amount of money they are willing to spend on that. That creates a situation where adapting what you can get before you adapt what you will pay is more rational. So a bit of a bad example I'd say.
When I read "Predictably Irrational", one thing I couldn't help but wonder is how different the web would be today if, years ago, the initial ad sellers had picked a much higher price for web ads and put effort into 'justifying' that anchor.
Sometimes I find it worth it to recognize I'm being manipulated yet go along with it. The most obvious example to me and the most iconic is Coke/Pepsi. I know that the typical person in a blind taste test prefers Pepsi and the general preference for Coke is simply years of marketing weasel success. I happen to have tested myself and can distinguish the two by taste, but that's not essential to my point here; if I'd never seen a commercial for either odds are I'd prefer Pepsi, it's just that I can't be "blinded". Anyway, I know I'm being irrational usually choosing Coke, but there's just no payoff for me to fight it. Coke and Pepsi usually cost the same, and even if they didn't Coke would be worth the premium to me because I do enjoy it more, my reason for enjoying it more notwithstanding. Basically, the marketing weasels won, and there's no reason for me to fight it.
I feel manipulated every time I come here. Is that because I'm waiting to see if the blog will revert to its former glory. Seeking counseling...
@James: [political] Do a direct number correlation between the "millions" uninsured and the "millions" unemployed along with the "millions" of (get ready PC term here) undocumented workers.
This issue is not necessarily access overall only a very small percentage, it is one of cost per value when the overall costs have to aggregate the cost of the pro-bono work that is legally required.
Factor in the cost of preventative measures that are again, legally required and you see why the costs are what they are. Not to mention the high price of legal settlement in the society of John Edwards types who make millions bilking doctors and insurance companies off lawsuit intimidation.
By definition "insurance" is a "just in case something bad happens" hedge against the risk. It is gambling plain and simple. Requiring the house to stack the deck in your favor via mandates of coverage only increases the premium to play.
A "public" option is a joke in the sense that it would, yes as you point out be paid for by taxes, yet who is paying those taxes if those who are unemployed (paying no taxes high cost to access) or undocumented workers (no access and/or high cost to access, also no taxes) or laid off workers are the beneficiaries that the system is meant to address?
I know, I know, I am omitting the hourly employees who may not have coverage at their job offered. They are at least paying taxes yet their issue to access is merely a cost factor as you do not have to get your employer provided or in their case non provided benefit.
This is a hoodwink by the political class to have more control over people's lives and you are falling hook line and sinker for it.
Fix the prices in the market by dropping mandates, stiffer penalties for lawsuits like "loser pays" and other tort reform measures, encourage more competition like selling policies over state lines etc. would be the better reform. Offering yet another money pit program (SSN,Medicare,Medicaid,Fannie Mae, Freddie Mac, etc..) at the cost of the taxpayers to address an issue where the issue itself has been too much government involvement in the wrong way in the first place is quite a ridiculous proposal.
Insanity is defined as doing the same thing over an over again expecting a different result. Having government stick their nose in to where they have stuck their nose in to fix a problem that they created is well.. crazy.
Great post Jeff. I think the lawyer item as others discussed is focusing purely on the economic factor of the charge vs. the soft money factor of the perception. In the end to the lawyer with their "image" the pro-bono is more cost effective than the greedy do anything for a buck image the discounted rate suggests. Provides validation to their already high rates. It in itself is a weasel marketing ploy and very rational.
Why are you only referring to the marketing weasels? There's all sorts of weasels out there...
From the linked article...
"In contrast to the recommendations for offering something for free, be aware that users who get your product/service for "free" will place less value on it than those who've worked for it or bought it themselves."
I wonder how much this contributes to the prevalence of poorly-designed software?
One may stick with a poor product because considerable effort has already been expended figuring it out, making it work, and overcoming its limitations with workarounds. It then becomes painful to embrace another product, even though it is better, because all that effort will be thrown away (and the effort of evaluating another product seems all the more unbearable when added to the effort already expended).
With badly documented freeware that will not work "out-of-the-box", being in the exclusive club of "those who spent days or weeks figuring it out" (even if it meant reading through the source code) might contribute to a certain pride that excludes (and mocks) new users who "just want it to work". Several corporate products that have license fees in the 10's of K's seem to suffer from the same problem, but they are still widely used.
It would be sad if incompetence turned out to be a deliberate strategy for success.
Recently saw a US-made documentary which claimed that the US free-market medical system costs far more per capita and provides lower-quality care for fewer people (even for those who can afford it) compared to countries where medical care is provided by the government for all.
"Don't fall prey to the "moneymoon"; just because you paid for something doesn't mean it's automatically worthwhile."
Not only is this correct, but the exact opposite is true: the moment you buy something, it is *monetarily worthless* until you decide to on-sell it. The only value you can place on a product you own and intend to retain is how it affects your life, comfort or living conditions. It can still have been a poor purchasing decision, but that will inevitably be in the past.
You are not using OL tags for that list. HTML failure!
@(those picking on Jeff because of the lack of coding articles): It is Jeff's blog, he can write what he wants. I would suspect that means that he will write about what interests him at the moment. It's obvious that his current interests involve learning more about the business aspects of software development rather than the technical aspects. While I personally am still interested in the coding/development/technical aspects I can certainly appreciate that he shares some of the interesting articles he comes across in doing his *business* research.
@Dana - Pepsi better than Coke? Are you trying to be a troll? Pepsi tastes flat. Coke has some zip in its taste. Although, I'll try to be fair. I think the taste preference depends on where you grew up. Northeasterners prefer Pepsi. Southerners prefer Coke. Thus, these blind taste tests you mention depend entirely where the test takes place. As for me, when I go to a restaurant and ask for a Coke, and they say we only have Pepsi products, then I have to opt for the Root Beer. There is that big of a taste difference IMO:)
Here's a similar experiment:
People were asked to take part in an experiment. They were given two choices.
Option number one: They get $20, right now, there's nothing they have to do for that. If they choose this option, all the other people taking part will only get $5.
Option number two: They get $50, right now, more than twice the amount from option one! However, if they pick this option, everyone else will get $100.
If you look only at the money you (personally) will get, everyone will rather take $50 than $20, right? Why would you settle for less than half the money you could get? The outcome is surprising: The big majority took the $20. How can this be?
If you take $20, you get more than everyone else. You are the winner, you are the champ, you are the king of the hill! Everyone else is only a loser. If you take the $50, you got more than twice as much, but as everyone else got more than you, YOU are now the loser, everyone else is the winner, everyone else "scored better" than you. People always want to be the winner. They always want to get a better treatment than everyone else. And for getting such a better treatment, they are willing to accept any real loss. As giving $100 to everyone else looks like a virtual loss to them (they lost $50 compared to everyone else), but taking $20 means they made $15 more gain than anyone else. Every gain is better than the smallest virtual loss.
This is important if you work in support business. Giving people the impression they are treated in a special way makes them feel so good that even the fact that they just lost a big opportunity won't bring them down. Just turn the experiment around: People are willing to pay twice as much as everyone else, as long as that means they get something that nobody else gets! On this simple idea bases a whole industry of luxury goods.
"WAAAH WRITE ABOUT WHAT I LIKE OR I'M TAKING MY TEARS ELSEWHERE WAAAH"
#6 is so true, especially with real estate. Anyone ever watch "Property Intervention?"
Now, to exploit these when I list my home in the future. Premium paint through-out home & exterior...upgraded crown molding...
Very interesting I enjoyed this post a lot. I don't really think the truffle vs. kiss example is irrational though. I know I've done similar things myself. If I'm going to spend money anyway, I'd rather buy the high quality item. If I don't have to spend money then I usually won't. In some cases I'd take the pricey item over the free item if the free item was just bad, or more trouble than it's worth.
@Mecki - I totally get that study. Why should other people get more than the person in control?! Kinda sounds like how every "modern" society ends up working.
had to share my captcha..
captcha: Harrlot bearded
Aversion to loss is what makes me suck so badly at RTS games. :P
"* You will tend to overestimate the value of items you get for free. Resist this by viewing free stuff skeptically rather than welcoming it with open arms. If it was really that great, why would it be free?
* Free stuff often comes with well hidden and subtle strings attached. How will using a free service or obtaining a free item influence your future choices? What paid alternatives are you avoiding by choosing the free route, and why?
* How much effort will the free option cost you? Are there non-free options which would cost less in time or effort? How much is your time worth?
* When you use a free service or product, you are implicitly endorsing and encouraging the provider, effectively beating a path to their door. Is this something you are comfortable with?"
Someone should send this to the Mono devs...
I've long been a fan or Dan Ariely and this is a great post as it applies to marketing.
Ariely's own analysis of how his work applies to financial markets is also a must read at the Ted Blog: http://blog.ted.com/2009/05/dan_ariely_2008.php. Here and in his last TED talk, Ariely discuss his work as it applies to our financial breakdown - specifically the contribution to our crisis from those (notably Greenspan and his disciples) applying to free market fundamentalism that is based on a treatment of actors as fully rational economic decision makers.
This statement from Ariely is worth noting - and like this post - recognizes there are lessons to take from this research for anyone designing systems.
"When it comes to building the physical world, we kind of understand our limitations. We build steps. And we build these things that not everybody can use obviously. We understand our limitations. And we build around it. But for some reason when it comes to the mental world, when we design things like healthcare and retirement and stockmarkets, we somehow forget the idea that we are limited. I think that if we understood our cognitive limitations in the same way that we understand our physical limitations, even though they don't stare us in the face in the same way, we could design a better world. And that, I think, is the hope of this thing."