Why we do economically stupid things

by robopanda

http://www.washingtonpost.com/wp-dyn/content/article/2005/07/13/AR2005071301609_pf.html

“What the research revealed was that the maximum price the subjects assigned was driven largely by the random offer they had received only moments before” [The Compromise Effect]

“Companies have relied on this “compromise effect” to manipulate their product lines to increase sales of their most profitable items. [. . .] retailer Williams-Sonoma Inc. was able to increase sales of its $275 bread machine a decade ago by adding a second, slightly larger model to its catalogue at a price of just over $400.”

“Another well-documented tendency in people’s economic behavior is that they assign higher value to things they already have.” [The Endowment Effect]

“Thaler notes that most people think it fair for an auto dealer to suspend a $200 rebate program for particularly hot models that are in short supply. But only half as many thought it fair for the dealer to impose a $200 surcharge, even though the final price would be the same.”

The “Mental Accounting” and “Guilt and Spending” sections also have interesting examples.

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