Understand: Humans rarely make purchase decisions in absolute terms. Most of the time, we rely on comparison between options to make a purchase decision.

Prelude: This is an experiment to display the effects of applying simple lessons from economic behaviour studies. No real money has been exchanged during the experiment and the sample size is n = 50.

Imagine you walking in to Best Buy. You’re looking to buy a new TV but you don’t really have an idea about the current product landscape. You’re then given the three options by the sales agent (or identify them yourselves):

36-inch Samsung for $690

42-inch Samsung for $850

50-inch Toshiba for $1480

Which one would you choose?

Chances are high that most people would naturally choose the 42-inch Samsung for $850.

The third option falls away quickly. We don’t really know if the 50-inch model is worth $1480. In comparison, it is a lot more expensive.

We also don’t really know whether the 36-inch is worth $690. But accepting that price anchor subconsciously, we do know that the 42-inch then looks like a solid deal relative to the 36-inch.

Humans compare and weigh options available when making a purchase. We rarely choose things in absolute terms. We do not have an internal sensor that tells us how much things are actually worth, much rather we figure out how much things are worth compared to similar options.

Reflect on your last difficult purchase for a second.

We focus on the relative price advantage of one thing over another and estimate value accordingly. We do not know the worth of a six-cylinder car is but we can assume it is more expensive than the four-cylinder model.

More importantly, we prefer to compare between similar and easily comparable options, while we avoid comparing things that cannot be easily compared.