20
Nov
11

To save 5 dollars or to save 5 dollars?


courtesy of http://www.123rf.com

The way the mind works is not just efficient and logical. Sometimes, the shortcuts your mind takes can be deceptive. Consider this scenario:

 

You are in a shop buying a 125 dollar jacket and a 15 dollar calculator. The cashier tells you that if you just take a 500 meter walk down the street to another shop, you can get the same calculator for 10 dollars instead of 15 dollars. Would you do that?

 

…Then consider what you would do if you were in a shop buying a 15 dollar jacket and a 125 dollar calculator. The cashier tells you that if you just walk 500 meters down the street to a different shop, you can get the same calculator for 120 dollar instead of 125. What would you do?

 

In the first scenario, most people say they would gladly take that 500 meter walk to save 5 dollar on a 15 dollar calculator, in the second scenario most people choose not to go to the next shop to save 5 dollar on the 125 dollar calculator. The difference between the scenarios is proportion. But if you think about it: the proportion should be irrelevant becuase in both cases you save 5 dollars on taking a 500 meter walk.

 

This is a classic example of how our minds can deceive us by using something called heuristics. The term heuristics was first posited by two Israeli psychologists: Daniel Kahneman and Amos Tversky in the 80’s. It is basically a way to make up your mind about something without thinking analytically through every possibility (most of the time, there is no time to do that). They conducted several experiments (such as the calculator story above) showing that people very often rely on heuristics to make the process of thinking more efficient.

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