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Why Do You Buy Crap that You Don't Want?

Do you buy things that you later regret? Do you wonder why you keep making this mistake?

Dan Ariely thinks he knows why.

An accomplished economist, with a literally disfiguring past, Ariely treats us in his new book, Predictably Irrational, to a series of novel experiments designed to show that "people make repeated mistakes without being about to learn much from their experiences."

So why do we buy crap that we don't want?

Ariely says that it that it all has to do with "irrelevant alternatives."

Like an unwanted in-law, dropping an irrelevant outcome into our choice space can make us behave badly.

Here is his observation, backed up with a number experiments.

Suppose that you are given an choice between A and B, ways to subscribe to the Economist.

A: Internet only for $59.

B: Print and Internet for $125.

Well, this seems a bit of a hard trade-off, and I don't know how I would choose.

Apparently, I am not unusual in this as most of Ariely's MIT students were similarly conflicted. About half of them picked A and the other B.

What happens if an "irrelevant alternative" A' is introduced?

A': Print only for $125.

Then, the number of people who will chose A over A' and B, shoots up to around 2/3's!

Ariely surmises that the the introduction of the "irrelevant alternative" A' makes the choice between A and A's more salient and trumps the differences between A and B.

Although this effect has been well documented in the laboratory, does it have any significance outside the laboratory?

Ariely, and his writing partner Erik Calonius, think so.

They point out a number of consumer traps. The one I like the best is the introduction of a high priced item on the menu, put there just to induce consumers to pick the second highest priced item!

So how do we avoid this trap? Well things are less clear here. But Ariely thinks that we need to "break the cycle of relativity" and stop valuing items on comparison basis.

I am not sure that this recommendation is going to help. Later on in this fascinating book, chapter 8, Ariely notes that there is another problem with too many options: we cannot choose between equally attractive options.

But then, in a Burdian's Ass situation, the name of the tale describing a donkey equidistant between two bundles of hay who starved because he was unable to make a decision, the introduction of an irrelevant alternatives would break the deadlock.

I guess the moral of story is: to avoid buying crap, you need to know your ass from an irrelevant alternative.

Full post as published by Misleading Advertising Law on March 04, 2008 (boomark / email).