Tag Archives: Dan Ariely

Is “A” Really the Best Option or is it Just that It’s Better Than “B”: List of Biases in Judgment and Decision-Making, Part 18

The other day, someone was talking to me about my series on biases in judgment and decision-making and it made me realize that I was missing a rather important bias — the contrast effect! I’m not sure how this one slipped through the cracks, but I’m glad to be able to write about it for you today.

It’s been almost a year and a half since I wrote something for this series, so let me refresh your memory. Each week, I took a cognitive bias and explained it. I provided an example and then I offered some ways for mitigating that cognitive bias in your own life. So, without further adieu, the contrast effect.

What’s the contrast effect? Well, as with many of the biases, it’s exactly what it sounds like: an effect that occurs because of a comparison. That is, people are more likely to perceive differences that are bigger or smaller because of something they’ve seen first. This is something that is used in sales — all — the — time. If you’re shopping for a new car, the salesperson may show a series of cars that are way out of your price range and then show you one that’s just a little out of your price range. After having seen so many cars that are way out of your price range, the one that’s just a little out of your price range won’t seem that far out of your price range. The contrast effect.

That’s not to pick on folks who sell cars, it can even happen with smaller purchases, shoes, for instances. Let’s say you’re looking for a particular kind of footwear. The salesperson may show you a bunch of shoes that don’t quite fit your needs and happen to be priced rather cheaply. Then, the salesperson shows you a shoe that does fit your needs, but is quite a bit more expensive. As you’ve seen all these shoes that aren’t what you need and now you’ve finally come to one that meets you’re needs, you may ignore the price and buy the shoes.

One of my favourite examples of the contrast effect comes from Dan Ariely‘s book, Predictably Irrational:

One day while browsing the World Wide Web (obviously for work-not just wasting time), I stumbled on the following ad, on the Web site of a magazine, the Economist.

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I read these offers one at a time. The first offer-the Internet subscription for $59 seemed reasonable. The second option-the $125 print subscription-seemed a bit expensive, but still reasonable.

But then I read the third option: a print and Internet subscription for $125. I read it twice before my eye ran back to the previous options. Who would want to buy the print option alone, I wondered, when both the Internet and the print subscriptions were offered for the same price? Now, the print- only option may have been a typographical error, but I suspect that the clever people at the Economist‘s London offices (and they are clever-and quite mischievous in a British sort of way) were actually manipulating me. I am pretty certain that they wanted me to skip the Internet- only option (which they assumed would be my choice, since I was reading the advertisement on the Web) and jump to the more expensive option: Internet and print.

But how could they manipulate me? I suspect it’s because the Economist‘s marketing wizards (and I could just picture them in their school ties and blazers) knew something important about human behavior: humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly. (For instance, we don’t know how much a six- cylinder car is worth, but we can assume it’s more expensive than the four- cylinder model.)

In the case of the Economist, I may not have known whether the Internet- only subscription at $59 was a better deal than the print- only option at $125. But I certainly knew that the print and-Internet option for $125 was better than the print- only option at $125. In fact, you could reasonably deduce that in the combination package, the Internet subscription is free! “It’s a bloody steal-go for it, governor!” I could almost hear them shout from the riverbanks of the Thames. And I have to admit; if I had been inclined to subscribe I probably would have taken the package deal myself. (Later, when I tested the offer on a large number of participants, the vast majority preferred the Internet- and- print deal.)

Before we movie into some of the ways for avoiding the Contrast Effect, I wanted to make it clear that sales isn’t the only place where this bias can creep up on us. Another good example is in evaluations (be they interviewing job candidates or marking term papers). If one doesn’t have a rubric by which one is scoring candidates (or papers), it can be easy to slip into the contrast effect: “Well, that candidate was much better than the last candidate, let’s put them through to the next round.” It could be that the latter candidate, while better than the first, still doesn’t meet your criteria to make it the next round, so putting them through would be wasting valuable resources — both yours and theirs.

Ways for Avoiding the Contrast Effect

1) Standardized Evaluation

In our most recent case involving interview candidates or term papers, creating a rubric or standardized method of evaluation prior to examining candidates/papers will go a long way to help one avoid falling into the trap of the contrast effect. This method could also be applied when it comes to shopping (i.e. sales). For instance, let’s say you’re looking for a car. Prior to arriving at the dealership, you could create a table for how you’re going to evaluate the cars you view while at the dealership. In this way, you can guard against the salesperson knowingly (or unknowingly) showing you cars at either end of the spectrum before showing you the cars you might actually purchase.

2) Are There Other Options?

Often times, when we’re succumbing to the contrast effect, we’re looking at option A versus option B. This is why it’s so important to have some sort of standardized evaluation (see #1), but short of a standardized evaluation, it’s important to remember that almost never are those two options your only two options. “Should I get this car or that car?” Well actually, you have another option — neither of those cars. And another option, you could consider buying a bike or maybe taking public transportation. Whenever you find yourself faced with a decision between two options, it can be useful to consider other options, just in case you’ve fallen into the trap of the contrast effect.

Note: the images in this post are all examples of the contrast effect.

If you liked this post, you might like one of the other posts in this series:

My Answers to the 13 Weirdest Interview Questions You’ll Hear in 2014, Part 3

Over the last two days, I’ve been going through Mashable’s list of the 13 weirdest interview questions you’ll hear in 2014. On the first day, the guesstimate question took a little of time to answer because I had to type it out as I was talking through it out loud. In yesterday’s post, I was thrown for a bit of a loop when I answered why tennis balls are fuzzy (note: tennis balls are fuzzy because, “The felt delays flow separation in the boundary layer which reduces aerodynamic drag and gives the ball better flight properties.”) Today, I’ll answer the last three questions.

11. Can you instruct someone how to make an origami ‘cootie catcher’ with just words? – LivingSocial

Yes. There are two tricks for doing this. One would be to actually make an origami ‘cootie catcher’ and then retell the process to someone else as I’m doing it. The second way, and probably closer to an answer your looking for would be for me to imagine that I were making the ‘cootie catcher’ as I was telling someone how to do it. In this second way, I’m able to flex that part of my brain that is used for spatial reasoning.

12. How honest are you? – Allied Telesis

The research from psychologist and behavioural economist, Dan Ariely, would indicate that I’m at least a little dishonest — as we all are. The degree to which I’m dishonest might vary depending on one’s perspective. I would say I’m more honest than the next person, but the next person might say they’re more honest than me. A testament to my honesty: I’m honest when no one’s looking. There are times in our lives, when we have the opportunity to ‘cheat’ and do something for which we know is dishonest. Of course, as Ariely would tell us, we rationalize our behaviour. In knowing that we have this inkling towards rationalizing our behaviour, I do as best I can to be aware in these moments, so that I can prevent myself from being dishonest. For instance, maybe I don’t take an extra cookie when no one’s looking. Or maybe I am honest about what time I arrived and sign in at the ‘right’ time rather than back-dating my time a few minutes.

13. If you were on an island and could only bring three things, what would you bring? – Yahoo

[Note: In arriving at this question at the end, it feels like a chance to say… “there’s always one…” with the implication being, that there’s always one of ‘these’ questions where you’re asked to name some things you’d bring to an island based on certain criteria. This one doesn’t seem to have any specific criteria. It’s also worth noting that there’s no specificity in the kind of island one’s on. Anyways…] If I were on an island and could only bring three things, I’d bring my laptop, my Aeropress, and a surfboard. I’d bring my laptop, so that I could continue to write — I really enjoy writing. I’d bring my Aeropress because — hands down — I make the best coffee using it. And I’d bring a surfboard because I always wanted to learn how to surf.

Can You Succeed in Politics if You Aren’t Selfish?

From time to time, I like to highlight what I think are important passages in books (Stockdale Paradox, The Art of War, etc.). As I begin my journey through some of the classics, there’ll probably be more and more posts where I’m sharing passages from books. While the passage I’m going to share in this post isn’t from a “classic,” it is highly lauded. Not only has it garnered 116 five-star reviews (out of a possible 161), it’s received glowing endorsements from the likes of: Daniel Pink, Susan Cain, Robert Cialdini, Gretchen Rubin, Daniel Gilbert, Dan Ariely, Martin Seligman, Chip Conley, and many more!

The book I’m talking about: Give and Take, by Adam Grant. In today’s post, I’d like to share with you a few pages from near the beginning of the book. In these few pages, Grant uses a story to support the case that givers can succeed in even the most cutthroat of professions — politics. It is a book that is absolutely worth reading, so I hope that this excerpt compels you to give it a look.

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[Excerpt Begins]

In some arenas, it seems that the costs of giving clearly outweigh the benefits. In politics, for example, Mark Twain’s opening quote suggests that diplomacy involves taking ten times as much as giving. “Politics,” writes former president Bill Clinton, “is a ‘getting’ business. You have to get support, contributions, and votes, over and over again.” Takers should have an edge in lobbying and outmaneuvering their opponents in competitive elections, and matchers may be well suited to the constant trading of favors that politics demands. What happens to givers in the world of politics?

Consider the political struggles of  a hick who  went  by the  name Sampson. He said his goal was to be the “Clinton of Illinois,” and he set his sights on winning a seat in the Senate. Sampson was an unlikely candidate for political office, having spent his early years working on a farm. But Sampson had great ambition; he made his first run for a seat in the state legislature when he was just 23 years old. There were 13 candidates, and only the top four won seats. Sampson made a lackluster showing, finishing eighth.

After losing that race, Sampson turned his eye to business, taking out a loan to start a small shop with a friend. The business failed, and Sampson was unable to repay the loan, so his possessions were seized by local authorities. Shortly thereafter, his business partner died without assets, and Sampson took on the debt. Sampson jokingly called his liability “the national debt”: he owed 15 times his annual income. It would take him years, but he eventually paid back every cent. After his business failed, Sampson made a second run for the state legislature. Although he was only 25 old, he finished second, landing a seat. For his first legislative session, he had to borrow the money to buy his first suit. For the next eight years, Sampson served in the state legislature, earning a law degree along the way. Eventually, at age 45, he was ready to pursue influence on the national stage. He made a bid for the Senate.

Sampson knew he was fighting an uphill battle. He had two primary opponents: James Shields and Lyman Trumbull. Both had been state Supreme Court justices, coming from backgrounds far more privileged than Sampson’s. Shields, the incumbent running for reelection, was the nephew of a congressman. Trumbull was the grandson of an eminent Yale-educated historian. By comparison,  Sampson had little experience or political clout. In the first poll, Sampson was a surprise front-runner, with 44 percent support. Shields was close behind at 41 percent, and Trumbull was a distant third at 5 percent. In the next poll, Sampson gained ground, climbing to 47 percent support. But the tide began to turn when a new candidate entered the race: the state’s current governor, Joel Matteson. Matteson was popular, and he had the potential to draw votes from both Sampson and Trumbull.

When Shields withdrew from the race, Matteson quickly took the lead. Matteson had 44 percent, Sampson was down to 38 percent, and Trumbull was at just 9 percent. But hours later, Trumbull won the election with 51 percent, narrowly edging out Matteson’s 47 percent.

Why did Sampson plummet, and how did Trumbull rise so quickly? The sudden reversal of their positions was due to a choice made by Sampson, who seemed plagued by pathological giving. When Matteson entered the race, Sampson began to doubt his own ability to garner enough support to win. He knew that Trumbull had a small but loyal following who would not give up on him. Most people in Sampson’s shoes would have lobbied Trumbull’s followers to jump ship. After all, with just 9 percent support, Trumbull was a long shot.

But Sampson’s primary concern wasn’t getting elected. It was to prevent Matteson from winning. Sampson believed that Matteson was engaging in questionable practices. Some onlookers had accused Matteson of trying to bribe influential voters. At minimum, Sampson had reliable information that some of his own key supporters had been approached by Matteson. If it appeared that Sampson would not stand a chance, Matteson argued, the voters should shift their loyalties and support him. Sampson’s concerns about Matteson’s methods and motives proved prescient. A year later, when Matteson was finishing his term as governor, he redeemed old government checks that were outdated or had been previously redeemed, but were never canceled. Matteson took home several hundred thousand dollars and was indicted for fraud.

In addition to harboring suspicions about Matteson, Sampson believed in Trumbull, as they had something in common when it came to the issues. For several years, Sampson had campaigned passionately for a major shift in social and economic policy. He believed it was vital to the future of his state, and in this he and Trumbull were united. So instead of trying to convert Trumbull’s loyal followers, Sampson decided to fall on his own sword. He told his floor manager, Stephen Logan, that he would withdraw from the race and ask his supporters to vote for Trumbull. Logan was incredulous: why should the man with a larger following hand over the election to an adversary with a smaller following? Logan broke down into tears, but Sampson would not yield. He withdrew and asked his supporters to vote for Trumbull. It was enough to propel Trumbull to victory, at Sampson’s expense.

That was not the first time Sampson put the interests of others ahead of his own. Before he helped Trumbull win the Senate race, despite earning acclaim for his work as a lawyer, Sampson’s  success was stifled by a crushing liability. He could not bring himself to defend clients if he felt they were guilty. According to a colleague, Sampson’s clients knew “they would win their case—if it was fair; if not, that it was a waste of time to take it to him.” In one case, a client was accused of theft, and Sampson ap- proached the judge. “If you can say anything for the man, do it—I can’t. If I attempt it, the jury will see I think he is guilty, and convict him.” In another case, during a criminal trial, Sampson leaned over and said to an associate, “This man is guilty; you defend him, I can’t.” Sampson handed the case over to the associate, walking away from a sizable fee. These decisions earned him respect, but they raised questions about whether he was tenacious enough to make tough political decisions.

Sampson “comes very near being a perfect man,” said one of his political rivals. “He lacks but one thing.” The rival explained that Sampson was unfit to be trusted with power, because his judgment was too easily clouded by concern for others. In politics, operating like a giver put Sampson at a disadvantage. His reluctance to put himself first cost him the Senate election, and left onlookers wondering whether he was strong enough for the unforgiving world of politics. Trumbull was a fierce debater; Sampson was a pushover. “I regret my defeat,” Sampson admitted, but he maintained that Trumbull’s election would help to advance the causes they shared. After the election, a local reporter wrote that in comparison with Sampson, Trumbull was “a man of more real talent and power.” But Sampson wasn’t ready to step aside forever. Four years after helping Lyman Trumbull win the seat, Sampson ran for the Senate again. He lost again. But in the weeks leading up to the vote, one of the most outspoken supporters of Sampson’s was none other than Lyman Trumbull. Sampson’s sacrifice had earned goodwill, and Trumbull was not the only adversary who became an advocate in response to Sampson’s giving. In the first Senate race, when Sampson had 47 percent of the vote and seemed to be on the brink of victory, a Chicago lawyer and politician named Norman Judd led a strong 5 percent who would not waver in their loyalty to Trumbull. During Sampson’s second Senate bid, Judd became a strong supporter.

Two years later, after two failed Senate races, Sampson finally won his first election at the national level. According to one commentator, Judd never forgot Sampson’s “generous behavior” and did “more than anyone else” to secure Sampson’s nomination.

In 1999, C-SPAN, the cable TV network that covers politics, polled more than a thousand knowledgeable viewers. They rated the effectiveness of Sampson and three dozen other politicians who vied for similar offices. Sampson came out at the very top of the poll, receiving the highest evaluations. Despite his losses, he was more popular than any other politician on the list. You see, Sampson’s Ghost was a pen name that the hick used in letters.

His real name was Abraham Lincoln.

[Excerpt Ends]
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Did that story knock you off your feet? It certainly did for me the first time I read it. This story is just the tip of the iceberg of what’s contained in Grant’s book. Seriously, go read it!

Perception vs. Reality: Revisiting Wealth Inequality in America

This past summer, I wrote a post that shared some information about wealth inequality in the US. I was actually sharing information that had been published the summer before (in 2011). There was a telling graphic that followed as a result of the study (I’ve included it below): Average Income by Family, distributed by income group.

Keeping in mind that this study was published in 2011, so the three boxes may have shifted. If anything, I would imagine that the actual distribution (the top box) is more pronounced in its inequality and because of Occupy Wall Street and books like Chrystia Freeland‘s Plutocrats (which I’m currently reading and will probably have a post on in the near future), I would guess that people would be more aware of the wealth inequality, so the middle box would also be more pronounced in its inequality.

The reason that I decided to revisit this information is because there’s a video that’s being passed around that uses the information from this study (and this graphic) and presents it in a much more effective way. Before reading on, I’d urge you to watch it:

Now, can you see how much more effective that is in accentuating the differences between perception and reality? I especially appreciated the way the creator of the video used the an aggregate of 100 people to illustrate the differences between the percentiles. I’ve found that when numbers get really large, it can be hard for people to conceptualize the differences. For instances, if we look at the graphic above (in this post), the differences are plain to see, but there’s something about the limits of the rectangle. The representation of the quintiles don’t make for easy transferability from one quintile to the next. That is, it might be hard for to conceptualize that each of those colors is suppose to represent 20% of the population. In watching the video, though, the creator so eloquently differentiated between quintiles by taking an aggregate of 100 people and then actually showing the people from each group.

I think the video was really well done and I hope that it raises public awareness around this important issue. More than that, I hope that it motivates the public to actually want something to get done. If enough of the population pressures their legislators, we just might be able to make a change.

Ethics: A Jagged Line

Earlier this calendar year, I had an ethics class. It was only a half-semester course, but I rather liked it. That’s probably because I really enjoy morality and ethics. In fact, some of the research I worked on during my undergraduate degree required me to read one of George Lakoff‘s books, Moral Politics. Even now, I really enjoy reading the work of researchers like Dan Ariely, who often write about ethics. Anyway, back to the ethics class from earlier this year.

Towards the end of the course, the class was having a discussion about something that I don’t remember. In the course of the discussion, it was clear that there were valid reasons (on both sides) of the dilemma. As the discussion was wrapping up, the professor drew a jagged line on the white board (much like the jagged line in the picture at the beginning of this post). I don’t quite remember the “exact” phrase that the professor said, but that’s not important. The important thing is that I remember the takeaway — ethics are not black and white.

Conveniently, the jagged line picture also has ‘black and white,’ but the metaphor I like to think of is the straight line (vs. the jagged line). Some might think that there’s a clear right and a clear wrong — in every situation (a straight line, if you will). However, I think that life is much more nuanced, much more complex than that — a jagged line. Sometimes doing “x” in a situation will be ethical, and sometimes doing “x” in a situation will be unethical. It’s important to understand the context to understand the ethicality of a situation. That’s certainly an important takeaway, if you watch Professor Sandel’s Justice course.

Before I end this post, I wanted to touch share something from the current President of George Mason University, Angel Cabrera. He’s only the 6th President in the school’s history and his most recent position was as the President of the Thunderbird School of Global Management in Arizona. He recently wrote a post for the World Economic Forum. An excerpt:

No matter how high the legal penalties may be, an opportunistic, self-interested manager within a large corporation can always find a way to make the pay-off of a bribe a no-brainer. This is so because the personal benefits of earning a contract can be significant and the probability of getting caught can be easily minimized. The very same factors that make the modern corporation so productive – specialization and localization of knowledge – also make it extremely difficult to control the decisions of each individual manager. The delegation of authority to managers with specialized knowledge makes the corporation vulnerable to decisions by those managers because they are often the only ones who understand the full complexity of a given contract (technical details of the products being sold, personal circumstances of the individuals involved in the transaction, dynamics of the social and institutional context in which the transaction takes place, etc).

When the golden opportunity presents itself to bribe, benefit from it and not get caught, the only thing that can stop him or her is a deeply engrained belief that the action is morally wrong.

Why We Lie, Cheat, and Steal: The Truth About Dishonesty

I’ve just finished the 5th week of my 4th year of graduate school. For folks that have been in graduate school this long, there’s usually a development of research interests. Because of the nature of my time in graduate school (1 year in a PhD program, 1 year completing my first Master’s, and now into year two of an MBA), I never really had to declare my research interests or choose a dissertation topic. Though, for my first master’s, I did have to write a final paper. That final paper was on a topic that, if I were asked, would probably appear on a list of my “research interests.” It was on intuition and decision-making. Ironically, I’m working with a professor at George Mason University to test whether or not one can improve the conditions for one’s intuition (in the context of decision-making).

If I were to list another research interest, I’d have to say that it’d be on the topic of ethics or morals. Ironically, during my time as an undergrad, I worked on a research project with a psychology professor where we were examining (among other things) people’s moral judgments. I’ve had an RSA Animate talk bookmarked for about two weeks and I just finished watching it — I think you’ll enjoy it.

It was given by Dan Ariely on the content of his new book: The Honest Truth About Dishonesty: How We Lie to Everyone—Especially Ourselves. Ariely is also the researcher I referenced a few months ago when I was talking about the research on American’s perceptions and misperceptions of wealth inequality. I’ve pulled a few important quotes from the video:

“The magnitude of dishonesty we see in society is by good people who think they’re doing good, but in fact cheating just a little bit, but because there’s so many of them — of us — it has a tremendous economic impact.”

“You can’t go and say to yourselves, chef really want their food to be eaten. And it’s really owned by a conglomerate that is really not that good. Some things lend themselves to a much higher degree of rationalization.”

“At some point, many people switch and start cheating all the time. And we call this switching point the ‘what the hell’ effect. It turns out we don’t have to be 100% good to think of ourselves as good. But if at some point you don’t think of yourself as good, you might as well enjoy. And many people, by the way, report this same thing with diets.”

“Your motivation influences how you see reality.”