Tuesday, April 3, 2018

Story of 1000 rupees discount

Gyan on Treadmill dated 25-Mar-2018

In his Presentation made at IFA Galaxy Global Summit 2015, Prof.Sanjay Bakshi talks about the subconscious biases that each of us have when it comes to personal decisions. While the the decision parameters and the data are the same, we take totally different decisions depending on circumstances.

He gives the following example.

During a lecture, he gives the following scenario. Assume that you had always wanted to buy a beautiful lamp with a certain specifications.  The lamp costs 10000 rupees. After accumulating the money, you go to the shop to pick up the lamp. As you are picking up, the shopkeeper comes and tells you that a lamp with the exact same specifications is available at a nearby shop, 10 minutes walk from here, at a discount of 1000 rupees, at 9000 rupees.

What would you do?

Almost the entire class says that they will be ready to walk the extra 10 minutes to avail of the discount of 1000 rupees.

Now he gives a different scenario.

You are in a Car agency wanting to buy a car costing 10 Lakhs (On Million) Rupees. Just as you propose to pay, the shopkeeper says that a car with exact same specifications, is available at a nearby shop, 10 minute walk from here,  at a discount of 1000 rupees, at 999000 rupees. Would you walk the extra  10 minutes distance to avail of the discount?

Entire class says no.

Here is the problem. Every parameter and the amount are the same. Product specifications are same, the walk distance is the same and the discount amount is the same, what you can buy with the discount amount (the purchasing power) is the same...

But your decisions are different in these cases. Why?

Professor talks about the 'bias for percentages' in one's mind. 1000 in 10000 is 10%, huge in your mind, 1000 in 10 Lakhs is 0.1%, hardly worth the extra effort. The bias for percentage make you take different (probably wrong) decisions under the same decision parameters and amount.

Fascinating, ain't it?

No comments:

Post a Comment

As a policy I publish all the comments except SPAMS. Please be moderate and constructive in your comments