CNNMoney has an interesting interview with behavioral economist, Dan Ariely. In the interview, Dan talks about how price comparison (which we take for granted as a “good” habit for consumers to engaging in) may not be very helpful after all. Ha!
Question: How else do we act against our best interests?
A. By comparing prices on similar items.
Question: Wait, I thought that was smart to do.
A. It is, but only if you compare everything with everything. If you just compare items near one another, you open yourself up to being influenced. When you open a menu at a restaurant, you may not realize that the prices you see affect what you’re willing to pay.
If the most expensive entrée is $45, you might decide $30 is an acceptable price. Should the restaurant add a $60 dish, you may be willing to pay $45. The same issue comes up when shopping for real estate. Letting a broker show you a house above the top of your range can be costly.
Question: So how do we overcome irrationality?
A. There’s no cure-all. But when I see the word free, I now ask myself, “What’s the seller trying to do here?” Also, it sounds strange, but try not to look at price, not at first. Decide what you want and what you’re willing to pay without being influenced by outside factors.
Shhh! Don’t tell the consumers!
Why you’re a big sucker [CNNMoney]