MONEY AND SHOPPING
Another way that credit cards expose our financial irrationality is with
the minimum monthly payment. Research in 2008 by Neil Stewart at the
University of Warwick focused on credit-card users who pay off some,
but not all, of their balance each month. Crucially, the amount they
chose to pay off was related to the credit card’s set minimum payment.
This is an example of anchoring (see Chapter 5). It’s as if knowledge
of the minimum required payment had the effect of dragging down
people’s choice of how much to pay off. Stewart has created an online
tool to help people to choose how much to pay off (www.stewart.psych.
warwick.ac.uk/decisiontool/).
Shopping
It’s common for people to set off for the shops knowing what they want
to buy, only to arrive back home with something the shop wanted them
to buy. One reason is the zero-price effect – the lure of anything that’s
free. The behavioural economist Dan Ariely of MIT’s Sloan School of
Management showed this in an experiment in which he gave people a
choice between a Hershey’s Kiss chocolate for one cent and a more luxu-
rious Lindt truffle for 15 cents. In this case, 73 percent chose the truffle.
Next, Ariely reduced the price of both options by one cent, so that the
Hershey Kiss was free and the Lindt truffle was 14 cents. The difference
in price between the options had of course remained the same, but now
69 percent of customers opted for the free Hershey Kiss, so swayed were
they by the appeal of something for nothing.
Shops exploit the zero-price effect when they package up products with
the offer of an extra item for free. You might arrive at the shop hoping
to buy your favoured brand of shampoo, but you end up buying not one,
but two bottles of an inferior product because the shop bundled it with
a third, free bottle. Luxury items like televisions and DVD players are
also often bundled together with “free” gifts, such as DVDs, to enhance
their appeal and sway people’s product choices. The lure of something
for nothing is so great that Ariely has even shown that given the choice of
a free Amazon voucher valued at $10 or a $20 voucher available for a fee
of $7, most people opt for the free voucher. Of course, if they’d overcome
the lure of the free and gone for the second option they’d have ended up
three dollars better off.
Another trap that awaits shoppers is the decoy effect. Imagine
purchasing a bicycle for the first time. If you’re like most people, you’ll
make your choice through a process of comparison. The store manager