1. The Principle of Relativity:
People tend to make decisions based on relative comparisons rather than absolute values.
Our perception of value is influenced by the context in which options are presented.
Example: Ariely's experiment with magazine subscription offers, where he presented three options: an online-only subscription, a print-only subscription, and a print-and-online subscription. The presence of the print-only option made the print-and-online option appear more valuable.
2. The Fallacy of Supply and Demand:
Our perception of value is often influenced by the availability of a particular resource or item.
Scarcity increases the perceived value of an item, leading to irrational behaviour and decision-making.
Example: The experiment where Ariely conducted auctions for items such as chocolate and cash. The scarcity of chocolate made people bid higher for it, even though the cash had higher objective value.
3. The Influence of Social Norms:
Social norms significantly impact our decision-making processes and behaviour.
We often conform to social expectations, even if they go against our own personal preferences or beliefs.
Example: The experiment where Ariely asked participants to complete a simple task for various amounts of money. When the monetary compensation was removed, participants were less motivated to complete the task, highlighting the influence of social norms.
4. The Power of Free:
The concept of "free" has a profound impact on our decision-making, often leading to irrational choices.
The allure of free items or offers can override our rational evaluation of the overall value.
Example: Ariely's experiment where he offered participants a choice between a 15-cent Lindt truffle and a 1-cent Hershey's Kiss. While the truffle had a higher perceived value, the free Hershey's Kiss attracted more participants.
5. The Cost of Zero Cost:
Zero-cost items often come with hidden costs that we fail to consider in our decision-making process.
We tend to overlook the long-term consequences or potential drawbacks associated with free items or services.
Example: Ariely's research on the use of free shipping promotions. Consumers were willing to spend more on additional items to qualify for free shipping, even if the overall cost ended up being higher.