Learning with Lisa Tan
Say we encounter something we’ve always wanted.
It’s on sale!!! 50 per cent off! Exciting, right?
But stop for a second. Why do we care about the sale? Why do we care about what it used to cost? It shouldn’t matter what the cost was in the past, since that’s not what it costs now.
But because we have no way of really knowing how much this precious item is worth, we compare the price now to the price before the sale, and take that as an indicator of its high current amazing value.
Bargains also make us feel special and smart. They make us falsely believe we’re finding value where others haven’t. Lots of places like supermarkets use this tactic.
Another place we see this kind of comparison is with quantity – so-called bulk discounts. If a bottle of expensive shampoo is $16, and one twice the size of $25, all of a sudden the larger, more expensive bottle looks like a great deal, making it easy to forget the question of whether we really need that much or that brand of shampoo in the first place. Moreover, the bulk discounting practice also serves to hide the fact that we have no idea how to value the cocktail of chemicals that make up shampoo.
Source: Book / Small Change – Money Mishaps and How to Avoid them by Dan Ariely and Jeff Kreisler