How our minds make us spend more money
Hi there,
I was buying wine in the supermarket the other day. Like many people, I avoid the cheap bottles and the top shelf and go for the middle of the road option. While perusing the £12-15 range, I thought, who actually buys those expensive wines?
The answer: almost no one.
Supermarkets often have pricey wines in stock even though they hardly sell. People like to buy the middle option. Being able to see expensive options means that the price of the middle goes up.
This is just one example of how our minds make us spend more money.
How the decoy effect influences our choices
When making a purchase, choosing between two options can be difficult. They’re different, but which one is right for me?
The introduction of a third option changes things. Suddenly one of the original options might seem like the obvious choice.
If this happens, you might be experiencing the decoy effect.
People tend to change their original preference between two options when they are presented with an asymmetric third option. The third option is the decoy: no one expects you to actually buy it, but it’s used to make one of the other options look better and influence you to make a certain choice.
For example, Apple uses the decoy effect when pricing its products. Let’s take a look at the cost of a new iPhone 13.
The price difference between the 256GB and 128GB models is £100, while the 512GB model is £200 more than the 256GB model. This makes the 256GB model seems like a good deal - you can get double the storage for just £100 more. It feels like a rational choice.
I wouldn’t expect many people to choose the 512GB model - it’s a decoy, there to make the 256GB option look good and nudge people away from choosing the cheaper 128GB option.
But do you really need 256GB of storage on your phone?
Many people won’t even think about this. Their purchase decision will be driven by the idea that this option seems like better value for money. The decoy effects mean we don’t necessarily consider which choice is right for us. It can lead us to pick a more expensive option that we don’t really need. For example, I only use about 50GB of storage across both my phone and laptop, so if I was making this choice based purely on my needs, the cheapest option would be more than enough.
And impacts our health
1 in every 4 adults in the UK is obese.
Obesity can lead to serious conditions including type 2 diabetes, coronary heart disease, and stroke. It impacts quality of life and can lead to psychological issues, such as low self-esteem and depression.
One of the main causes of obesity is eating unhealthy foods, which tend to be high in fat and sugar.
Companies use psychological phenomena like the decoy effect to get us to buy these unhealthy foods.
For example, with the offer above, a twin pack of Jaffa Cakes is the same price as a single packet. The single packet is there as a decoy: no one is going to buy it, but it makes the twin pack look like a great deal. Even if you weren’t intending to buy biscuits when you went into the shop, it feels like a sensible purchase decision from a value for money perspective.
This is dangerous.
The decoy effect is designed to give you a clear rationale for making the choice that the company wants you to make. You have to fight against what may initially seem logical and go a step further: consider whether this is the right option for you and your health.
This is easier said than done. If you’re hungry or in a rush after work, your brain will make a quick decision without contemplating all these factors.
Regulations on these products could help consumers make better decisions for their health, but unfortunately, we’ll have to wait for these to come into place.
Yesterday, Boris Johnson decided to delay the ban on buy-one-get-one-free deals for unhealthy food products until October 2023. The basis for the decision was the cost of living crisis. This doesn’t make sense because these offers actually get us to spend more money. Former Tory leader William Hague described the decision as “morally reprehensible.”
Question of the week
As seen with the decoy effect, we tend to assess choices and make decisions based on the characteristics of the options.
This impacts our finances, as well as other aspects of our lives. Do I take this new job? Do I go to a party this Saturday? Do I buy these Jaffa Cakes?
It can be difficult to figure out what is right for us.
If you want to change this, here’s a question to get you started: What feels important and meaningful to me right now?
You can use a list of values to help. I’d recommend narrowing it down to 10 and then prioritising the top 3-5.
Links of the week
Spain is planning to introduce leave for women who suffer from severe period pain.
A draft bill says women could have 3-5 days of sick leave a month for painful periods. This would require a doctor’s note and the length of leave would be circumstance dependent.
This would be the first bill of its kind in Europe. Though other countries, including Japan and some parts of China, have similar legislation in place.
It’s an exciting move that acknowledges that women have different needs. However, granting women the ability to take menstrual leave doesn’t mean they will feel free to use it. In Japan, women have had a right to menstrual leave since the 1970s, but there’s a stigma against taking it. One Japanese employee stated: “If you’re trying to prove yourself in a man’s world, you’re not going to take menstrual leave in case it’s interpreted as a sign of weakness.”
We discuss menstrual leave and more, including whether opposites actually attract, on this week’s episode of the Avocado Proust podcast (Spotify, Apple, Acast).
That’s all for now. Have a great rest of the week!