Question 1Would you rather buy an item
A) here for $100 or
B) nearby for $50?
The $50 difference looks huge. Depending on your perspective, you could buy the item for half the price nearby or double the price here.
Question 2Would you rather buy an item
A) here for $1,000 or
B) nearby for $950
Now the gap doesn't seem as big but is the same $50. The seller has a better of chance of getting you to buy here.
Question 3Would you rather buy a house
A) here for $299,900 or
B) nearby for $295,500
Assume that all other factors are the same.
The gap looks tiny in comparison to the overall price. Yet the gap is $4,400. That's enough to buy you four each of items 1 and 2 at full price. You could easily get four of the best iPad and lots of nifty apps.
AnswersWe make odd decisions (or know others who do). How did you make your last $500 purchase?
Would you spend a bonus or lottery winnings as carefully as your hard-earned money? Maybe not, but money is money.
Perhaps you haggle over price but agree to hefty delivery charges, expensive financing or costly extended warranties. Maybe you get a nice deal on a new car but lose on your trade-in.
If a stock drops in value, do you sell or wait for it to return to the purchase price. The stock has no memory of the starting point, but we do.
Our foibles interfere with our decisions and can be used to manipulate us. Unless we're vigilant.
- The A-B-Cs of 1-2-3: The key to numeracy (financial literacy)
- Three reasons financial literacy eludes us
- Predictably Irrational by Dan Ariely (Wikipedia)
- image courtesy of Billy Alexander (North Carolina)
Podcast Episode 106 (3:03)
direct download | Internet Archive page
PS When the police nab a speeder, we're attentive … for a while.