Relative Thinking

Relative Thinking

Reviewed by Faisal Zaidi

Judging a saving or a price difference as a share of the price, not as a sum of money.

What it is

Five dollars off 15 is a third of the price and five dollars off 125 is four per cent, so the same saving looks larger on the cheap item. Saini and Thota found the habit stronger under high cognitive load, with products rich in feeling and among people who prefer intuitive decisions. It is drawn from work by Amos Tversky and Daniel Kahneman (1981).

In effect

In the article on why we drive across town to save a little, it explains the calculator and jacket problem and the later studies of it.

What it does not say

The tendency varies with conditions such as cognitive load and the kind of product, and a recent replication project revisited the classic problems. It does not say that every shopper judges every saving by its share of the price.

Sources

  1. Saini, R., & Thota, S. C. (2010). The psychological underpinnings of relative thinking in price comparisons. Journal of Consumer Psychology, 20(2), 185-192.
  2. Azar, O. H. (2011). Relative thinking in consumer choice between differentiated goods and services and its implications for business strategy. Judgment and Decision Making, 6(2), 176-185.
  3. Darke, P. R., & Freedman, J. L. (1993). Deciding whether to seek a bargain: Effects of both amount and percentage off. Journal of Applied Psychology, 78(6), 960-965.
  4. Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453-458.