Evaluability (And Cheap Holiday Shopping)

Followup to:  The Affect Heuristic

With the expensive part of the Hallowthankmas season now approaching, a question must be looming large in our readers' minds:

"Dear Overcoming Bias, are there biases I can exploit to be seen as generous without actually spending lots of money?"

I'm glad to report the answer is yes!  According to Hsee (1998) - in a paper entitled "Less is better:  When low-value options are valued more highly than high-value options" - if you buy someone a $45 scarf, you are more likely to be seen as generous than if you buy them a $55 coat.

This is a special case of a more general phenomenon.  An earlier experiment, Hsee (1996), asked subjects how much they would be willing to pay for a second-hand music dictionary:

• Dictionary A, from 1993, with 10,000 entries, in like-new condition.
• Dictionary B, from 1993, with 20,000 entries, with a torn cover and otherwise in like-new condition.

The gotcha was that some subjects saw both dictionaries side-by-side, while other subjects only saw one dictionary...

Subjects who saw only one of these options were willing to pay an average of $24 for Dictionary A and an average of $20 for Dictionary B.  Subjects who saw both options, side-by-side, were willing to pay $27 for Dictionary B and $19 for Dictionary A.

Of course, the number of entries in a dictionary is more important than whether it has a torn cover, at least if you ever plan on using it for anything.  But if you're only presented with a single dictionary, and it has 20,000 entries, the number 20,000 doesn't mean very much.  Is it a little?  A lot?  Who knows?  It's non-evaluable.  The torn cover, on the other hand - that stands out.  That has a definite affective valence: namely, bad.

Seen side-by-side, though, the number of entries goes from non-evaluable to evaluable, because there are two compatible quantities to be compared.  And, once the number of entries becomes evaluable, that facet swamps the importance of the torn cover.

From Slovic et. al. (2002):  Would you prefer:

1. A 29/36 chance to win $2
2. A 7/36 chance to win $9

While the average prices (equivalence values) placed on these options were $1.25 and $2.11 respectively, their mean attractiveness ratings were 13.2 and 7.5.  Both the prices and the attractiveness rating were elicited in a context where subjects were told that two gambles would be randomly selected from those rated, and they would play the gamble with the higher price or higher attractiveness rating.  (Subjects had a motive to rate gambles as more attractive, or price them higher, that they would actually prefer to play.)

The gamble worth more money seemed less attractive, a classic preference reversal.  The researchers hypothesized that the dollar values were more compatible with the pricing task, but the probability of payoff was more compatible with attractiveness.  So (the researchers thought) why not try to make the gamble's payoff more emotionally salient - more affectively evaluable - more attractive?

And how did they do this?  By adding a very small loss to the gamble.  The old gamble had a 7/36 chance of winning $9.  The new gamble had a 7/36 chance of winning $9 and a 29/36 chance of losing 5¢.  In the old gamble, you implicitly evaluate the attractiveness of $9.  The new gamble gets you to evaluate the attractiveness of winning $9 versus losing 5¢.

"The results," said Slovic. et. al., "exceeded our expectations."  In a new experiment, the simple gamble with a 7/36 chance of winning $9 had a mean attractiveness rating of 9.4, while the complex gamble that included a 29/36 chance of losing 5¢ had a mean attractiveness rating of 14.9.

A follow-up experiment tested whether subjects preferred the old gamble to a certain gain of $2.  Only 33% of students preferred the old gamble.  Among another group asked to choose between a certain $2 and the new gamble (with the added possibility of a 5¢ loss), fully 60.8% preferred the gamble.  After all, $9 isn't a very attractive amount of money, but $9/5¢ is an amazingly attractive win/loss ratio.

You can make a gamble more attractive by adding a strict loss!  Isn't psychology fun?  This is why no one who truly appreciates the wondrous intricacy of human intelligence wants to design a human-like AI.

Of course, it only works if the subjects don't see the two gambles side-by-side.

Similarly, which of these two ice creams do you think subjects in Hsee (1998) preferred?

Naturally, the answer depends on whether the subjects saw a single ice cream, or the two side-by-side.  Subjects who saw a single ice cream were willing to pay $1.66 to Vendor H and $2.26 to Vendor L.  Subjects who saw both ice creams were willing to pay $1.85 to Vendor H and $1.56 to Vendor L.

What does this suggest for your holiday shopping?  That if you spend $400 on a 16GB iPod Touch, your recipient sees the most expensive MP3 player.  If you spend $400 on a Nintendo Wii, your recipient sees the least expensive game machine.  Which is better value for the money?  Ah, but that question only makes sense if you see the two side-by-side.  You'll think about them side-by-side while you're shopping, but the recipient will only see what they get.

If you have a fixed amount of money to spend - and your goal is to display your friendship, rather than to actually help the recipient - you'll be better off deliberately not shopping for value.  Decide how much money you want to spend on impressing the recipient, then find the most worthless object which costs that amount.  The cheaper the class of objects, the more expensive a particular object will appear, given that you spend a fixed amount.  Which is more memorable, a $25 shirt or a $25 candle?

Gives a whole new meaning to the Japanese custom of buying $50 melons, doesn't it?  You look at that and shake your head and say "What is it with the Japanese?".  And yet they get to be perceived as incredibly generous, spendthrift even, while spending only $50.  You could spend $200 on a fancy dinner and not appear as wealthy as you can by spending $50 on a melon.  If only there was a custom of gifting $25 toothpicks or $10 dust specks; they could get away with spending even less.

PS:  If you actually use this trick, I want to know what you bought.

---

Hsee, C. K. (1996). The evaluability hypothesis: An explanation for preference reversals between joint and separate evaluations of alternatives. Organizational Behavior and Human Decision Processes, 67, 242-257.

Hsee, C. K. (1998). Less is better: When low-value options are valued more highly than high-value options. Journal of Behavioral Decision Making, 11, 107-121.

Slovic, P., Finucane, M., Peters, E. and MacGregor, D. (2002.) Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics.  Journal of Socio-Economics, 31: 329–342.

Comments

[g]

Ouch, don't the units in that diagram hurt your brain? (Yeah, I understand what it means and it does make sense, but it looks soooo wrong. Especially in my part of the world where an ounce is a unit of mass or weight, not of volume.)

[Brandon Thomson]

I think you can use this logic to explain why movie theaters sell small, medium, large, and extra large popcorn for $5, $6, $7, and $8 respectively. With the less attractive options priced relatively high, people are more likely to pay the unreasonable price of $8 for the extra large.

[Doug S.]

Hmmm...

29/36 * $2.00 = $1.61
7/36 * $9.00 = $1.75

While the average prices (equivalence values) placed on these options were $1.25 and $2.11 respectively

I guess people don't carry calculators with them?

[Elliot]

The math is easy if you just ignore the /36 which is the same in both casts. 2*29=58 and 7*9 = 63. No calculator required.

[Jafraldo Menendez]

I bought my brother a huge gold buttplug for $250 (top of the line) rather than a medium range coat from The North Face.

[Benquo]

"2*29=58 and 7*9 = 63. No calculator required."

Maybe for you.

[Tiiba]

I suggest tumbleweeds.

[Alejandro]

"Naturally, those so-called "lotteries" were a failure. They had no moral force whatsoever; they appealed not to all a man's faculties, but only to his hopefulness. Public indifference soon meant that the merchants who had founded these venal lotteries began to lose money. Someone tried something new: including among the list of lucky numbers a few unlucky draws. This innovation meant that those who bought those numbered rectangles now had a twofold chance: they might win a sum of money or they might be required to pay a fine--sometimes a considerable one. As one might expect, that small risk (for every thirty "good" numbers there was one ill-omened one) piqued the public's interest. Babylonians flocked to buy tickets."

-Jorge Luis Borges, The Lottery in Babylon.

Long ago I was discussing this passage with a friend trained in economics (I am not). He insisted that is was silly and that people would never prefer deliberately the option with added penalties for losing. Glad to see he was wrong!

[Zubon]

When buying $10 dust specks, do not get carried away and buy 3^^^3 of them. You won't save any money that way.

[Stuart Armstrong]

But don't forget the main lesson of the economics of present giving: "It's the thought that counts". If you can find a €40 item that seems personalised and full of meaning, it's valued much more than the €50 bottle of mindless perfume.

Of course, it's much easier to be considerate if you know the person well. The closer you are, the more you know their preferences, and the more they will value your consideration. So be cheap and attentive to those closest to you, moving up to spendthrift and indifferent for strangers...

(that actually is my pattern of spending - are others in the same boat?)

[Nic]

It's also possible to be hit by this bias if you're not thinking of it while shopping. Last year, I was invited over to watch the Super Bowl at a friend's, and they were also celebrating his niece's birthday. Of course, I brought a gift -- a Cookie Monster plushie. Unfortunately for me, someone else brought a teddy bear that was obviously much larger and higher quality! Oops.

The moral, I suppose, is that if you're going to get a cheaper gift, shoot for something that's very different than what other people are likely to buy.

[David W]

This advice on Christmas gifts will only work if you leave the price tag on, or if your recipient is sophisticated enough to recognize, say, that a particular scarf is worth $45. I once opened a package that I received in a gift-swap game that contained a (to my eyes, rather ordinary) Christmas ornament. My face must not have shown the proper appreciation, as my wife then whispered to me that this was a *very expensive* ornament. Evidently the givers had instinctively followed the "expensive junk" philosophy but the effect was nearly lost on unsophisticated me.

[iwdw]

Thanks for this over the holidays. (You asked for feedback from practical applications).

It helped me come to the realization on why some stores can get away with put horribly, stupidly expensive chocolates on display right at the counter top: not only do they want you to buy it (duh), but it also lets your recipients know that you bought them a $5.99 bar of chocolate that would otherwise be indistinguishable from the larger $1.49 chocolate bars at the grocery store (assuming that your recipients have shopped at the same stores as you and are aware of how "nice" the gift is).

As a result we bought several overpriced chocolate bars to show how generous we were.

Another good item which I bought for someone for his birthday (unconciously following the above advice) was a $15 version of the fifteen puzzle. Compare vs. an $18 paperback book I was considering for that gift.

Now I'm wrestling with the inverse problem. I find myself wanting an Asus Eee PC, and justifying it to my wife because of how cheap it is - $399. Which is the same price as the PS3, which I don't even bring up because of how expensive it is - $399.