Themes

Raw Notes

• Decoy or something that looks similar to other thing but slightly worse. Ex: buying house, 3 options, 1 looks similar to 2 but slightly worse, so makes 1 look particularly good in comparison to 3, even tho it’s not similar.
• Price and medicine - healing and health is largely perception. People report feeling better from medicine that is more expensive, and people not only report feeling better but many times recover better just from placebo and the thought of being healed. Many surgeries are examples here.
• Signaling can change your perception. Ex: beer with vinegar added in. People didn’t like it when told before hand, but when they tried it before being told, they often liked it and even continues to put vinegar in when given a stopper of vinegar and a second beer. This speaks to the power of a brand.
• Market vs social norm - people will often do things for free and will actually prefer it be done for free. This is because it is a social norm to do it for free and once you ascribe a price to it, you take it out of the social world and into the market world. Ex: it would be very rude of you offer to pay someone who invited you over for a home cooked meal.
• At the same time, people will do something for a price if they feel the price is fair. If it’s low, they won’t do it, if it’s free, they’ll do it, and if it’s fair they will do it. This is not an economically rational behavior. Ex2: experiment where people passing by are offered nothing, 50 cents or 50 dollars to help move a couch into an apartment. People will do it for free, will not do it for 50 cents, and will do it for 50 dollars.
• This concept is important when thinking of social norms with market transactions. Ex: commenting about the price of a bottle of the bill when you’re on a date. To comment on it, you push the date (social) into the transactional or the market.
• This made me think about company culture too. People are far more motivated by company culture / work fulfillment than by salary (price). You need both, but the former makes someone go above and beyond.
• We over index when something is free. A buy one get one free always does better than a price reduction, even if the price reduction is actually more economically prudent for the buyer. The psychological reason that free makes feel as tho the burden of justifying your purchase is no longer there. If it’s free and it’s bad, then no big deal. You didn’t lose anything. If it costs something, even a little, that feels worse when it turns out with a bad experience.
• We over index on the positive qualities of things when faced with an alternative that requires us to give up ownership. We basically don’t want to give up the things we have even when it makes economic sense to do so.