A man comes to the rabbi and complains about his life: "I have almost no money, my wife is a shrew, and we live in a small apartment with seven unruly kids. It's messy, it's noisy, it's smelly, and I don't want to live."

The rabbi says, "Buy a goat."

"What? I just told you there's hardly room for nine people, and it's messy as it is!"

"Look, you came for advice, so I'm giving you advice. Buy a goat and come back in a month."

In a month the man comes back and he is even more depressed: "It's gotten worse! The filthy goat breaks everything, and it stinks and makes more noise than my wife and seven kids! What should I do?"

The rabbi says, "Sell the goat."

A few days later the man returns to the rabbi, beaming with happiness: "Life is wonderful! We enjoy every minute of it now that there's no goat - only the nine of us. The kids are well-behaved, the wife is agreeable - and we even have some money!"

-- traditional Jewish joke

Related to: Anchoring and Adjustment

Biases are “cognitive illusions” that work on the same principle as optical illusions, and a knowledge of the latter can be profitably applied to the former. Take, for example, these two cubes (source: Lotto Lab, via Boing Boing):

The “blue” tiles on the top face of the left cube are the same color as the “yellow” tiles on the top face of the right cube; if you're skeptical you can prove it with the eyedropper tool in Photoshop (in which both shades come out a rather ugly gray).

The illusion works because visual perception is relative. Outdoor light on a sunny day can be ten thousand times greater than a fluorescently lit indoor room. As one psychology book put it: for a student reading this book outside, the black print will be objectively lighter than the white space will be for a student reading the book inside. Nevertheless, both students will perceive the white space as subjectively white and the black space as subjectively black, because the visual system returns to consciousness information about relative rather than absolute lightness. In the two cubes, the visual system takes the yellow or blue tint as a given and outputs to consciousness the colors of each pixel compared to that background.

So this optical illusion occurs when the brain judges quantities relative to their surroundings rather than based on some objective standard. What's the corresponding cognitive illusion?

In Predictably Irrational (relatively recommended, even though the latter chapters sort of fail to live up to the ones mentioned here) Dan Ariely asks his students to evaluate (appropriately) three subscription plans to the Economist:

Ariely asked his subjects which plan they'd buy if they needed an Economist subscription. 84% wanted the combo plan, 16% wanted the web only plan, and no one wanted the print only plan. After all, the print plan cost exactly the same as the print + web plan, but the print + web plan was obviously better. Which raises the question: why even include a print-only plan? Isn't it something of a waste of space?

Actually, including the print-only plan turns out to be a very good business move for the Economist. Ariely removed the print-only plan from the choices. Now the options looked like this.

There shouldn't be any difference. After all, he'd only removed the plan no one chose, the plan no sane person would choose.

This time, 68% of students chose the web only plan and 32% the combo plan. That's a 52% shift in preferences between the exact same options.

The rational way to make the decision is to compare the value of a print subscription to the Economist (as measured by the opportunity cost of that money) to the difference in cost between the web and combo subscriptions. But this would return the same answer in both of the above cases, so the students weren't doing it that way.

What it looks like the students were doing was perceiving relative value in the same way the eye perceives relative color. The ugly gray of the cube appeared blue when it was next to something yellow, and yellow when it was next to something blue. In the same way, the $125 cost of the combo subscription looks like good value next to a worse deal, and bad value next to a better deal.

When the $125 combo subscription was placed next to a $125 plan with fewer features (print only instead of print plus web) it looked like a very good deal – the equivalent of placing an ugly gray square next to something yellow to make it look blue. Take away the yellow, or the artificially bad deal, and it doesn't look nearly as attractive.

This is getting deep into Dark Arts territory, and according to Predictably Irrational, the opportunity to use these powers for evil has not gone unexploited. Retailers will deliberately include in their selection a super deluxe luxury model much fancier and more expensive than they expect anyone to ever want. The theory is that consumers are balancing a natural hedonism that tells them to get the best model possible against a commitment to financial prudence. So most consumers, however much they like television, will have enough good sense to avoid buying a $2000 TV. But if the retailer carries a $4000 super-TV, the $2000 TV suddenly doesn't look quite so bad.

The obvious next question is “How do I use this knowledge to trick hot girls or guys into going out with me?” Dan Ariely decided to run some experiments on his undergraduate class. He took photographs of sixty students, then asked other students to rate their attractiveness. Next, he grouped the photos into pairs of equally attractive students. And next, he went to Photoshop and made a slightly less attractive version of each student: a blemish here, an asymmetry there.

Finally, he went around campus, finding students and showing them three photographs and asking which person the student would like to go on a date with. Two of the photographs were from one pair of photos ranked equally attractive. The third was a version of one of the two, altered to make it less attractive. So, for example, he might have two people, Alice and Brenda, who had been ranked equally attractive, plus a Photoshopped ugly version of Brenda.

The students overwhelmingly (75%) chose the person with the ugly double (Brenda in the example above), even though the two non-Photoshopped faces were equally attractive. Ariely then went so far as to recommend in his book that for best effect, you should go to bars and clubs with a wingman who is similar to you but less attractive. Going with a random ugly person would accomplish nothing, but going with someone similar to but less attractive than you would put you into a reference class and then bump you up to the top of the reference class, just like in the previous face experiment.

Ariely puts these studies in a separate chapter from his studies on anchoring and adjustment (which are also very good) but it all seems like the same process to me: being more interested in the difference between two values than in the absolute magnitude of them. All that makes anchoring and adjustment so interesting is that the two values have nothing in common with one another.

This process also has applications to happiness set points, status seeking, morality, dieting, larger-scale purchasing behavior, and akrasia which deserve a separate post