Sunday, December 04, 2011

Rationalizing Irrational Choices: That $45 entree and presidential choices

By Gary Berg-Cross

The size of the Sunday supplement is one sign that officially holiday shopping season. Modern day products and their ads presents us many choices of conflicting quality, quantity and various extras (such as free delivery, insurance, return policy.) Cognitive Psychology & Decision Science tells us quite a bit about human choice behavior and it is in part a story of irrational decisions and inadequate knowledge employed in the service of “shopping”, but also with such things as political choices.

To be sure there is an external element of advertizing manipulation and demand characteristics of over stimulating, shopping environments that pump us full of misleading facts. Something similar might be said of political choices and their campaigns. The combo of exploding stimuli and controlled circumstances sometimes leads us to hasty decisions. Both commercial and political interests want this to be the case. But these type of manipulations works because there are cognitive biases built into the human info processing system by evolution. We are a mix of lofty reasoning layered on top of some tendencies for hasty, impression-based decisions that makes us prone to error.

The basic understanding of this comes from psychological theory, but there is a big, applied area of work done is other areas of Social Science. Economists investigate cognitive biases in a sub-area they call Behavioral Economics which uses experiments to study what people actually do when they buy, sell, change jobs, date, marry and make other real-life decisions such as what gifts to buy. (I find the behavioral term a bit of a misnomer since the behavior they observe is based on a thinking process, but it does get the point across that we are looking at realistic behavior, often scaled down a bit to be studied. Dan Ariely, formerly of MIT and now a Duke University professor of psychology and behavioral economics is one of the many researcher in this area. An overview of his findings on human quirks is in his book “Predictably Irrational as well as in an entertaining TED video here . Ariely studied,” which is a captivating read for those curious about the oddities of human nature starting with the role that relative choices have on our decisions.

The starting point for Ariely’s work, now a famous example in his book, came to him while browsing the Web he contemplated an ad, on the Web site of the Economist. A portion of his discussion of this is described below.

There were 3 subscription options:

  1. Internet subscription for $59 seemed reasonable.
  2. $125 print subscription-seemed a bit expensive, but still reasonable.
  3. a print and Internet subscription for $125 – expensive, but no more than print only????

Ariely wondered would want to buy the print option alone since both the Internet and the print subscriptions were offered for the same price. Reasoning through this he realized that the Economist folks, like political advisers, were actually manipulating readers using an important aspect of human behavior: humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much such things as a magazine subscription is worth. The same is sort of true in judging the value of candidates. How bad is it for a candidate to be extreme on immigration, but good on the environment? Such situations amount to a cognitive dilemma so we use a simplifying strategy. We focus on the relative values. We often ask how does one thing compare to another?

In the case of the Economist, we may not be certain that a $59 Internet- only subscription was a better deal than the $125 print- only option. But he could believe that:

“the print and-Internet option for $125 was better than the print- only option at $125. In fact, you could reasonably deduce that in the combination package, the Internet subscription is free! “

We might say that our choice in the print-only option slants us towards a different. The print-only choice is a phony choice because it makes us think relatively that the print-and-internet option is a better deal because it has something ‘free’, when in fact , this impression is just created because we’ve just been presented with a fake, worse deal.

Something similar happens with restaurant choices. A few years ago people noted a sudden rise of $40 entrees. It wasn’t just a price creep, but the result of sophisticated calculation by a new breed of menu “engineers” using what we know of relative choice. Research had proved that highly priced menu entrees increase revenue even if no one orders them. Why? Because a $45 steak entree makes a $36 lamb choice seem like “a deal.” As one of the menu consultant put it:

“Just putting one high price on the menu will take your average check up, …. “My mom taught me to never order the most expensive thing on the menu, but you’ll order the second.”

And looking at some of the political candidates it occurred to me that political engineers are counting of similar 'entree" strategies. It’s much more complicated than a restaurant situation, but I get the impression that the presence of some candidates slants voters towards other candidates as the reasonable choice. If there were not, for example, so many extreme conservative candidates in the Republican field than other candidates would seem too conservative to “independent voters.” If there were not so many choices on the right Obama would look more like the centrist politician he is and couldn't be portrayed as a socialist.

The political issues are too complex for most people to know exactly what they want in a candidate. But seeing them and reading about them in a particular context gives a hasty impression of who is extreme and who is moderate. Of course if candidates were like cars we could test drive one, but the closest we get to this is in these very artificial candidate debates with talking point sound bites. Not much rationality and knowledge of the facts shown there. It’s a sorry state for political shopping. A problem is that we can't easily exit this restaurant of inadequate choices for an old fashion political diner down the road serving better entrees.

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