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Kamis, 20 November 2008

Relativity and Irrationality

Adapted from Dan Ariely's Predictably Irrational
Chapter 1: The Truth about Relativity: Why Everything Is Relative-Even When It Shouldn't Be


The more you have, the more you want. It is what Dan Ariely writes in his book, Predictably Irrational. He refers to that phenomenon as the cycle of relativity. Human is wired to relativity. We have difficulty to value anything, such as houses, internet subscriptions, physical attractiveness, in an absolute value. We compare things relatively. If we are shown a particular circle surrounded by small circles and the same size circle surrounded by large circles, we will perceive the first circle larger than the second same size circle.

The more you have, the more you want. It is the negative side of relativity. One prophet said if someone is given a mountain of gold, s/he will demand another mountain of gold. It is rooted from greedy and envy. That's why an executive of a company feel scared when asked by Dan Ariely should the salary of each employees in the company be publicly known. It is a real catastrophe. Everybody will require a raise, and it is always not enough, yet it cannot be stopped. You will easily guess what will happen next.

The more you have, the more you want. This cycle of relativity can happen to you and me and everybody. When you are about to buy a pen of $27, you will change your mind after knowing that in another store, let's say fifteen minutes away walking, the exact same pen costs only $20. You will chase that seven dollar save. However, if you are about to buy an expensive suit of $427 and someone tells you that in fifteen minutes away walking the same suit costs you only $420, you will ignore the same seven dollar save. It's not only you. Typical people will behave exactly the same, because we all are wired to a relativity judgement.

The more you have, the more you want. This relativity cycle represents the fact that we are not always rational. Indeed, we often make irrational decisions. Not randomly, but systematically. The irrational judgements and decisions we all make are predictable! You may need to read the whole chapters of Dan Ariely's book to convince yourself. Dan rediscovers this common knowledge (for some) through scientific social experiments. Here's one example. Dan selected the photos of MIT's George Clooney and Brad Pitt among his students'. He made a slightly distorted picture of each the Clooney and Pitt. He distributed 600 questionnaires to his female students. If they had the option, who would they choose? George Clooney, the distorted Clooney (minus Clooney, a decoy), or Brad Pitt? To ensure a fair contest, about half of questionnaires had a different menu. Brad Pitt, the distorted Pitt (minus Pitt, a decoy), or George Clooney?

The result? Seventy five percents of the time, the respondents chose the perfect Clooney (or Pitt) over the minus Clooney (or minus Pitt) and the perfect Pitt (the perfect Clooney). The presence of the decoy of Pitt made the perfect Pitt better than not only the decoy but also the perfect Clooney. On the same token, the presence of the decoy of Clooney made the perfect Clooney better overall. Beware, if someone asks you to join her or him a company. Probably, s/he needs you as a decoy (minus her or him) so that s/he will look better.

Another Dan's experiment originated from an ad at The Economists' website. The ad was something like the following.

Internet subscription only: $59
Print subscription only: $125
Internet and print subscription: $125

As you may think, the second option is really a decoy to lure readers choosing the third option, the combo. Dan Ariely tested this ad to his MIT students. When present, the decoy (the second option) made respondents choosing the combo option significantly more than when the decoy was not included in the menu. Needless to say, the decoy itself, the print subscription only, won no vote at all.

Now we know we are not as rational as we think we are. Therefore, now we know how to improve our judgements and decisions, especially related to relativity cycle and traps. When considering to buy an expensive stuff, we can think more broadly and consider alternatives that probably matter much more. We can defer our urge by discussing more with our spouses. Secondly, one of my teachers (ustadz - Y Pan) once said to me something like this. "If you are able to buy a BMW, buy a Camry. If you are able to buy a Camry, buy an Altis. If you are able to buy an Altis, buy a Kijang Innova. If you are able to buy an Innova, buy an Avanza." With this self restrain, we can break the relativity cycle. We can break the cycle of "the more we have, the more we want."

Next: The Law of Supply and Demand Sucks

25 komentar:

Anonim mengatakan...
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Anonim mengatakan...

I wish not concur on it. I think warm-hearted post. Particularly the title-deed attracted me to study the whole story.

Anonim mengatakan...

Nice dispatch and this post helped me alot in my college assignement. Thank you as your information.

Y Pan mengatakan...

ok, glad to hear it.

Anonim mengatakan...

Keep working ,great job!

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Y Pan mengatakan...

really happy to hear that this post helps. My apology, though, irrelevant comments and links are deleted.

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Sheron mengatakan...

I was so dead that I did not care for what can happen when my academic work was written by another person.
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