## November 27, 2007

Ouch, don't the units in that diagram hurt your brain? (Yeah, I understand what it means and it does make sense, but it looks soooo wrong. Especially in my part of the world where an ounce is a unit of mass or weight, not of volume.)

I think you can use this logic to explain why movie theaters sell small, medium, large, and extra large popcorn for \$5, \$6, \$7, and \$8 respectively. With the less attractive options priced relatively high, people are more likely to pay the unreasonable price of \$8 for the extra large.

Hmmm...

29/36 * \$2.00 = \$1.61
7/36 * \$9.00 = \$1.75

While the average prices (equivalence values) placed on these options were \$1.25 and \$2.11 respectively

I guess people don't carry calculators with them?

The math is easy if you just ignore the /36 which is the same in both casts. 2*29=58 and 7*9 = 63. No calculator required.

I bought my brother a huge gold buttplug for \$250 (top of the line) rather than a medium range coat from The North Face.

"2*29=58 and 7*9 = 63. No calculator required."

Maybe for you.

I suggest tumbleweeds.

"Naturally, those so-called "lotteries" were a failure. They had no moral force whatsoever; they appealed not to all a man's faculties, but only to his hopefulness. Public indifference soon meant that the merchants who had founded these venal lotteries began to lose money. Someone tried something new: including among the list of lucky numbers a few unlucky draws. This innovation meant that those who bought those numbered rectangles now had a twofold chance: they might win a sum of money or they might be required to pay a fine--sometimes a considerable one. As one might expect, that small risk (for every thirty "good" numbers there was one ill-omened one) piqued the public's interest. Babylonians flocked to buy tickets."

-Jorge Luis Borges, The Lottery in Babylon.

Long ago I was discussing this passage with a friend trained in economics (I am not). He insisted that is was silly and that people would never prefer deliberately the option with added penalties for losing. Glad to see he was wrong!

When buying \$10 dust specks, do not get carried away and buy 3^^^3 of them. You won't save any money that way.

But don't forget the main lesson of the economics of present giving: "It's the thought that counts". If you can find a €40 item that seems personalised and full of meaning, it's valued much more than the €50 bottle of mindless perfume.

Of course, it's much easier to be considerate if you know the person well. The closer you are, the more you know their preferences, and the more they will value your consideration. So be cheap and attentive to those closest to you, moving up to spendthrift and indifferent for strangers...

(that actually is my pattern of spending - are others in the same boat?)

It's also possible to be hit by this bias if you're not thinking of it while shopping. Last year, I was invited over to watch the Super Bowl at a friend's, and they were also celebrating his niece's birthday. Of course, I brought a gift -- a Cookie Monster plushie. Unfortunately for me, someone else brought a teddy bear that was obviously much larger and higher quality! Oops.

The moral, I suppose, is that if you're going to get a cheaper gift, shoot for something that's very different than what other people are likely to buy.

This advice on Christmas gifts will only work if you leave the price tag on, or if your recipient is sophisticated enough to recognize, say, that a particular scarf is worth \$45. I once opened a package that I received in a gift-swap game that contained a (to my eyes, rather ordinary) Christmas ornament. My face must not have shown the proper appreciation, as my wife then whispered to me that this was a *very expensive* ornament. Evidently the givers had instinctively followed the "expensive junk" philosophy but the effect was nearly lost on unsophisticated me.

Thanks for this over the holidays. (You asked for feedback from practical applications).

It helped me come to the realization on why some stores can get away with put horribly, stupidly expensive chocolates on display right at the counter top: not only do they want you to buy it (duh), but it also lets your recipients know that you bought them a \$5.99 bar of chocolate that would otherwise be indistinguishable from the larger \$1.49 chocolate bars at the grocery store (assuming that your recipients have shopped at the same stores as you and are aware of how "nice" the gift is).

As a result we bought several overpriced chocolate bars to show how generous we were.

Another good item which I bought for someone for his birthday (unconciously following the above advice) was a \$15 version of the fifteen puzzle. Compare vs. an \$18 paperback book I was considering for that gift.

Now I'm wrestling with the inverse problem. I find myself wanting an Asus Eee PC, and justifying it to my wife because of how cheap it is - \$399. Which is the same price as the PS3, which I don't even bring up because of how expensive it is - \$399.

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