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Good is not enough. It has to be relatively good

We've heard of this example before.

Would you rather earn $50,000 a year while other people make $40,000, or would you rather earn $60,000 a year while other people get $70,000? 

 

And the majority of people select the first option; they would rather make more money relative to others than more money absolutely. 

It turns out that relativity is deeply rooted in our minds. We are used to determining if something is good or not by relative comparisons rather than absolute ones.

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Take a look at the 2 orange circles above. Which do you think is bigger? 

 

The 2 orange circles are the exact same size but the one right looks bigger. the relative size of the orange circles compared to the circles around it causes us to misjudge the size. This is a simple example, but even now when you know the answer, the one on the right still looks bigger.

From circle, let's go on to something tastier. 

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Wansink, Painter, and North did a series of experiments to find out if people ate because they were hungry, or due to other factors.

One of these experiments was the bottomless soup experiment: Participants were invited to have a bowl of soup. What they didn't know was that the bottom of the soup bowl was connected to a tube that pumped in more soup. As a result, the level of soup dropped much slower than it normally would, and it would be near impossible to ever see the bottom of the bowl. 

What happened? Participants consumed 73% more soup than they normally would. Again, we see the effect of relative thinking. We don't just gauge our food consumption based on how hungry we are. We also gauge how much to eat based on how much food there is relative to the containers they come in.

You can check out the experiment here:

More examples. Take a look at the picture below. 

Let's say you are buying a $25 book. The sales assistant shares information that you can get the same book for $15 if you just walked to their sister store a few blocks away. Would you take the walk?

What if you were buying an expensive suit worth $1000? The sales assistant similarly shares that they have another outlet where you can get a $10 discount voucher for all purchases, including the same suit you wanted to buy. Would you take the walk?

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The vast majority of people would consider walking for the $10 discount in Scenario A. But only 2% of people would even consider walking for the $10 discount in Scenario B. Your bank account doesn't discriminate, of course. $10 is $10, and you end up saving $10 regardless of whether it is for a cheaper or more expensive purchase. But the relative value of the $10 discount to the price of your purchase shapes your decision. What's more, even the small number of people who walk for the discount in Scenario B reported that they were less happy about doing so than when they walked fro the discount in Scenario A.

Implications
 

Our brains prefer efficiency over accuracy. We meet so many people and encounter so many different situations in life that our brains prefer to be able to quickly assess and decide on something To do so, we use heuristics and simple strategies which are generally quite reliable. Relative measure is one of our favourite strategies.

 

Consider how hard it is to decide if something is good or not simply by its value. Is it worth buying a suit worth $1000 if you had nothing to compare it to? Is 95/100 good or not (what if everyone else got 98/100 or 50/100?). Relative comparison makes this assessment easier. It provides the additional benefit of insurance, that you are better than at last some people, which in turn naturally make you feel good (think about any example where you come out ahead of others). 


However, our inclination towards relative comparisons makes it easier for us to be manipulated.

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Let's say there is a business owner who wants to sell us more popcorn. the business owner is aware of our inclinations towards relative comparisons. So he comes up with 3 sizes of popcorn. It's hard to tell whether it's more value for money if we just looked at the small or large-sized popcorn. But by introducing a decoy, a "medium-sized" that is relatively much worse than large, the business owner has now made the large-sized popcorn much more attractive. As a result, we are much more likely to buy the large-sized popcorn, exactly what the business owner wants.

How can we avoid falling into traps where our inclination towards relative comparisons actually makes us worse off? There's a lot of popular advice that tells you, "don't compare!" For most people, it's impossible to stop yourself from comparing  - it happens too automatically. What you can do is to realise when you start comparing, that your brain is merely adopting a strategy it is used to. But the strategy and the answer you get is not necessarily right. Instead, start thinking about:

- what you actually want (for example, even if the large popcorn is better value for money, the small might be sufficient because you get sick of too much popcorn); or

- that just because something or someone is relatively better in one measure doesn't necessarily mean it's better on all measures. 

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One final example to illustrate a second implication
 

Relative comparison very naturally leads to an evaluation of fairness. 

The above is a simple but insightful game we call the Ultimatum Game. 
 

  • There are 2 players

  • Player 1 receives $10

  • He has to decide how he wants to split this $10 with Player 2

  • Upon receiving Player 1's offer, player 2 has 2 options:

    • If player 2 accepts, the 2 players walk away with the split proposed by player 1​

    • If player 2 rejects player 1's offer, both players walk away with nothing
       

Traditional economic or rational theory ​predicts that Player 1 will offer Player 2 $1. Why? Because anything is better than nothing. As long as player 2 walks away with something, even a minimal amount is better than $0. 

But this is not what happens. Very few people will accept any offer that is less than $7-$3 split. In other words, player 2s would rather walk away with nothing than $2? Why? Exactly because of what we have covered - the relative comparison and not an absolute judgement causes us to see an $8-$2 split as unfair. We compare, we can't accept such unfairness, and to punish the perpetrator, we are happy to walk away with nothing.

 

Relative comparison comes automatically to us. We can't help it.

In people relations, comparisons lead to evaluations of fairness; additionally, we are a lot more sensitive to whether things have been fair to us, and far less sensitive to whether things have been fair to the other party. As the ultimatum game shows, the cost of perceived unfairness could lead to a person becoming quite vengeful -  he/she will be more inclined to forgo being better off absolutely to prevent you from being better off relatively. (Find out more about how revenge is pleasurable in more complex variations of the ultimatum game here)

 

For those we care enough about, or if we are designing a system to manage a group of people, it is important to bear in mind that people will inevitably compare. And when they do, it pays to ensure that you have thought about fairness for all parties. 

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