We veer towards easy decisions.
The Dominated choice
2 options above, which would you pick? Ok, so a complete no-brainer. Obviously the one on the right, from Great-deals.com. And as it turns out, your brain is extremely happy to see a choice like this, when the answer is obvious. You love it when one option dominates the rest; there is no objective argument for this, there is no chance of you being wrong.
Ok so this is pretty straightforward. And it's a good thing right - to identify dominated choices? Yeap, to a certain extent But it also leaves us open to some manipulation.
Let's say you have 2 products that do roughly the same thing.
Product A is cheaper
Prouct B is more expensive
You want to sell Product B because it gives you a bigger profit. But how you get unsuspecting customers to buy B and not A? Well, you introduce a fake Product B' - dominated by Product B. Let's take a look at an example.
Example from Dan Ariely's "Predictably Irrational".
As you can see in the above example, the Economist truly understands and exploits this concept.
A web subscription is worth $59.
The print subscription is $125.
But print +web is the same price, also $125.
So clearly, the third option dominates the second option.
Predictably, when asked which package they would subscribe to, no one picks the 2nd option, the one that is dominated.
16% picks the first option, and 84% picks the 3rd option.
Great. But the question is, why would the Economist offer the 2nd option? Did they somehow not know that people would not pick it? Or... had they planned it all along?
What if the 2nd option of Print-subscription was removed altogether?Great
Something quite remarkable happens. Suddenly, the popularity of the options reverse. Option A, the web subscription, is now more than twice as popular as the print and web subscription.
This is closer to reflecting our true preferences. How many of us read print magazines anyway, when it's much more convenient to just read it online? And how many of us are willing to pay for the same content for twice the price?
But think about this from the Economist's perspective: they would much prefer customers order the print & web subscription. It pulls in more than twice the money, for the same content. Printing cost is low, so the profit margin is very high.
So how can the Economist persuade people to pick something they don't want? They present B' - the print only option: a dominated choice, knowing that this would exaggerate the attractiveness of B, the print and web subscription. And as you can see in the picture above, it worked (going from 32% to 84%).
Next, suppose you are thinking about taking a trip and there are 2 countries you are considering: Tokyo or Paris. (for some folks, one city might be obviously more attractive compared to the other. In which case, you can simply substitute Tokyo and Paris for 2 cities which you equally like to visit). You are undecided. Both places are attractive with so much see and experience. You find it very difficult to choose between the 2.
Now, suppose the airline to Tokyo is offering free airport transfers to and fro city centre during your travel period.
"Tokyo with free airport transfer" dominates the "Tokyo" only option. If you think about it, the airport transfer is not a big deal, a small part of the travel experience, certainly not a pivotal reason to select one over the other. But because your brain had mentally established that:
Paris and Tokyo are comparable; both are attractive (Paris = Tokyo)
Now there is a choice that is clearly better than Tokyo (Tokyo (free transfer) > Tokyo)
You start placing a more than proportionate emphasis on the free transfer (Since Tokyo = Paris, and Tokyo (free transfer) > Tokyo...)
Instead of really evaluating which option we really want to experience first, Tokyo or Paris, our decision sways towards a minor point in the considerations, simply because it is the most obvious and indisputable (Tokyo (free transfer) > Paris or Tokyo)
In other words, we avoid the difficult decision for a simpler one, even though the difficult decision is the one that we really need to consider.
Image from Mageworx.com; experiment done by William Poundstone
The Bracketing Guide
Here's an example of how your choices can be deliberately manipulated without you knowing. Take a look at the picture above.
In the case where there are only 2 types of beer, "premium" and "bargain":
Since both beers are quite cheap, and the difference in price between the 2 is not large, most people prefer the "premium".
Introducing a third beer:
Now, what can I do I if I wanted the customer to buy the "bargain" beer (perhaps because it has the highest profit margin?) Well, I introduce a third beer, "super bargain" beer, which is even cheaper than the "bargain" beer. What happens? Again, we see a reversal in the popularity of the choices. While the "premium" beer was previously the most popular, the middle option - the "bargain" beer- is now the choice for 80% of the consumers.
When there are 3 (or more) options, the choices at each end become less attractive, and we tend towards the middle option, the easy option. Why? With 3 options, picking the most expensive appears to be very extravagant while picking cheapest seems to be compromising on quality. By picking the middle option, you seem to get the best of both worlds - reasonably good quality, while not being too expensive.
We can observe this effect in the 3rd scenario - where instead of the "super bargain" beer, the 3rd beer that is introduced is a "super premium" beer. The "premium" beer is now the middle option, and drumroll.... is now the most popular option with 85% of people picking it. The previous champion, the "bargain" beer, now the cheapest option, is also the least popular.
In other words, it really doesn't matter what are the 3 types of beer. The same beer may be the most popular in one instance and the least popular in another even if its price remains the same. What really matters is not the type of beer itself, but the relative position of the beers. This is termed as "bracketing" - we often avoid the extremes: the most expensive and the cheapest options, and pick what lies between the brackets.
Avoiding the extremes and what stands out, isn't limited to just pricing. Stephanie Johnson, David Hekman, and Elsa Chan from the University of Colorado found some sobering reslts
photo credit: charterworld.com
Belonging to the same family of Bracketing above is the concept of Anchoring.
Take a look at the picture above, and you'd notice there are a lot of premium cars on display for sale. On first thought, this seems a little strange: why sell cars when people are going to buy yachts? But if we think about it just a little more we realise it's a clever strategy. After looking at the prices of yachts, you'll find that the cars (no matter which brand or how expensive) are a lot cheaper. The yacht prices act as an "anchor" - an easy and memorable point of reference. Since the prices of cars are relatively much cheaper than this anchor, we become more open to spending more money to buy the car - what was an extravagant purchase on its own suddenly becomes an impulse buy.
Indeed, we see brands like Rolls Royce, Maserati, and Lamborghini increasing showcasing their cars at yacht shows and air shows. You might argue that if someone is going shopping for a yacht or a private jet, they are really rich; a million-dollar car can't be too extravagant for them. And you'll be right. But not everyone who goes to yacht and jet shows can definitely afford a yacht or a jet. Some might be aspiring buyers. They really want to get a yacht or a jet, but alas it's currently out of their reach. But then they walk about and they see a car. They can afford a car, it's a fraction of the yacht. Maybe they will get one.
I had a friend the other day who was considering purchasing an app that gave access to live rugby action. The app was $20 a month. He lamented that this was a real rip-off, Netflix was only $11.99. I pointed out to him that he would pay at least $80 to watch a rugby game with reasonable seats. At "just" $20, he would get access to hundreds of rugby games per month at a high quality. At which point he immediately bought the app. (No, I am not associated with the app in any way. I am just a firm believer that rugby is terrific and we should all watch more.)
By changing the anchor that you compare to, the appeal of the product at its price also changes.
There have been many studies on the effect of pricing - whether it is anchoring or bracketing. If you're interested, good books on this include "Priceless" by William Poundstone and "Alchemy" by Rory Sutherland.
The option presented to us (choice architectue)
Choice architecture refers to how choices are framed and presented to us, and how this then affects our decisions, again without us really noticing.
Take a look at the graph above:
On the left, we see in the gold bars countries with low effective consent percentages - ranging from about 4% to 28%.
And on the right, in the blue bars, a number of countries with close to 100% consent rate.
What are they consenting to? Some of you might already recognise this graph - what it shows is the consent rate of organ donation after death.
They are all countries in Europe but what explains the drastic difference between the golds and the blues? The answer lies in the consent form itself*.
For the countries in gold, the consent form was an opt-in option. The default is you do not want to donate your organs; if you wanted to do so, you had to actively indicate your preference.
For the countries in blue, the consent form was an opt-out option. The default is you do want to donate your organs; if you did not want to do so, you have to actively indicate your preference.
Think about this: should you donate your organs or not - this is not a question many of us are used to considering. And there are rational and emotional forces at work: rationally it makes sense to donate our organs for research and medicine when we die and don't need these organs anymore, but emotionally, we do not like to think about our deaths and there is a reluctance to give up our organs. This is a difficult question, and for most people, we cannot come to an answer.
So what do we do? Again, we pick the easiest option. We go with the default, which is the option that is indicated for us. Unless we really object violently, we cannot bring ourselves to actively indicate otherwise. We just go with the flow.
(*how do we know that it is purely just based on consent form, and not say cultural factors or government messaging? There are countries on the left which are very similar to that those on the right in terms of culture, religion, demographic make-up, and governance; for example, Denmark and Sweden; Austria and Germany; the Netherlands and Belgium all share deep commonalities. Additionally, out of all the countries covered, it was one of the gold countries, the Netherlands, that ran the most comprehensive government campaign to encourage citizens to donate their organs. This is reflected by their higher percentage among the golds. But this shows how information, education, and mass communication is no match for our innate wiring).
Opt-in vs opt-out is not limited to organ donation. It is such a powerful and unconscious force that many governments take conscious steps to debate and regulate what can qualify for opt-out. For example, many websites now require you to opt-in so that they can send you newsletters or email updates, as opposed to the opt-out option in the past. A more interesting example -at the 2009 annual Behavior, Energy and Climate Change Conference, participants had a choice of vegetarian or meat options for meals. In 2010, the chairwoman of the conference, Karen Ehrhardtz-Martinez, decided to set the default meal option to be vegetarian (which is more environmentally friendly). The result? Only 20% of participants chose meals with meat in 2010, compared to 83% in 2009. It is a bit ironic that people attending this particular conference who were discussing how to change behaviours towards climate change did not out of their own initiative pick the environmentally friendly option; their behaviour had to be "manipulated" with the default option mechanics.
The default option and the opt-in/opt-out mechanism is but just one form of how the choices presented to us. Restaurants are a great example of choice architecture at work - we are presented with what seem like choices that we are free to decide, but we don't notice that:
we are given only a limited set of choices which we are pressured to pick from.
some choices are deliberately left out
Even among the choices we have, the framing shepherds us towards an action that the restaurant wants.
Most of us often end up picking what is presented to us, and because we do actually pick something, it appears that we have truly decided for ourselves. What we have is in effect an illusion of choice, rather than choice itself. Let's take a look:
The highest profit-margin actually comes from drinks, where the mark-up a few hundred percent as compared to the tens of percent for food.
When you ask for water, you get the inevitable "still or sparkling" - obviously restaurants prefer that you order bottled water as compared to tap water which has no cost. Recall also, "Would you want coffee or tea?" "Would like white or red wine?"
Speaking of wine, ave you ever wondered why restaurants have such a long wine menu, with only a small section of non-wine drinks? This gives the customer the impression that wine is indeed the more popular and common choice and therefore needs a longer menu. The short non-wine menu might not have what you want, but the long wine-list is very likely to have at least something you like.
Additionally, there is often only one drinks menu per table, compared to multiple food menus. This puts pressure on the person who gets the drinks menu. Uncoincidentally, this is also by design - it is not very possible to share a Coke or a coffee or a cocktail, but it is possible to share a bottle of wine or spirits. This increases the chances of customers ordering wine.
It's also interesting to note that it's hard to find an anchor for wine. Think about it, you have a rough idea how much a Coke or a coffee or a cocktail or even a bottle of whiskey should cost. But wine? There are so many that it's hard to pinpoint a reference. Moreover, across may studies, we realise people, including wine connoisseurs, are not really able to tell apart good or bad wine; in fact, what affects how good wine tastes to the majority of people is in fact the price, the more expensive the wine, the better we think it is. Finally, appearing to know a lot about wines is associated with higher social status; people are hence far more likely to try and wing it as an "expert". Without an anchor, and with most of us not able to tell good wines from bad ones but yet wanting to pretend to be able to, many of us end u getting suckered into buying drastically overpriced wines.
In this chapter, we've gone through some examples that show:
There are many decisions we have to make in life.
Making a decision can be very difficult and takes up a lot of brain-power.
There is also the potential for regret when we make a wrong decision.
Hence, our brain has evolved to look for the easy decision.
Besides the examples above, most of us can also recall:
Present Bias: We overvalue the present and undervalue the future. Just think about how we succumb to the easier option - eating what we want (and perhaps too much), postponing something unpleasant (tomorrow I will finish this, tomorrow I will exercise, tomorrow I will have that difficult conversation). Read more about present bias here.
Contagion: Making the decision by following how others make the same decision. This is another chapter in this series which you can find out more here.
Avoiding the difficult decision: When an easy decision is not possible, we freeze-up and make no decision at all. We see this in people who avoid medical check-ups or medical results, who avoid bad news so that they don't need to make a decision, or who decide not to take action because the right decision is a difficult one to carry out. This is related to one of our most prevalent emotions: fear. Read more about fear and how it affects us here.
Our preference for easy decisions makes it possible for others to manipulate us. When choices are presented to us, our brains automatically focuses on finding quick and simple measures to determine which choice is better.
This process is so automatic, we sometimes miss out on how others might have restricted what choices are made available to us, or have been framed in such a way that one choice is "easier" to make.
And because we eventually do make a choice, we end up thinking we had indeed thought through the options and made a decision, not knowing that we might have merely had an illusion of choice.