Skip to 0 minutes and 5 seconds Hello everyone, and welcome to week two of The Mind is Flat, Roundup Session. Jess, what have been the issues this week? So this week we’ve been talking about how the brain is actually very bad at making absolute judgements, that we don’t have these internal scales by which we can absolutely determine how much we value a new car or how much we enjoy what kind of foods, how much we’re willing to pay for it. And this ties back to the mind is flat idea that we introduced in the first week, I think, because it suggests that we don’t have these depths of our mind that tell us exactly what our preferences are or exactly what we value.
Skip to 0 minutes and 43 seconds So I thought maybe we could start by discussing, if it’s the case that we’re really bad at making these absolute judgements and saying how much we value things, how is it possible that we manage to make any decisions at all? How do we go about the world choosing what to buy, choosing who to spend time with, what music to listen to if we don’t know how much we value them? Yes. It’s a very good question. So I think the answer to that is that, although we’re very bad at absolute judgement, we’re really good at comparisons. Yeah.
Skip to 1 minute and 8 seconds So the trick is, thinking I want a coffee or at least wanting a drink and maybe thinking, well, which drink do I want more, coffee over tea, and then looking at various coffee options and thinking, well, I haven’t got much money. I’ll have a cheap one, or maybe I don’t want that much coffee, so I’m now moving towards the small coffee, which is very elaborate and so on and so on. So the strategy you’re using to make your decision is, at every stage, comparative. What you’re not doing is thinking, I’ve got this much desire for a coffee. It’s going to give me this much pleasure, and that’s about the right amount of pleasure I’d expect to get from £1.50.
Skip to 1 minute and 42 seconds That’s the way that a kind of very sort of cartoon economics decision maker would work. They’d think, how much pleasure and value am I going to get from each thing? Let me spread my money around to get as much value as possible. But actually we’re much more localised than that. So, for example, if you’re in your own kitchen, if you had the opportunity to spend money on various drinks, if there were tea bags that cost, say, £1.50 versus tea bags that cost 2 pence, the idea of using a £1.50 tea bag would seem absolutely outrageous, because compared to the 2 pence, it’s just staggeringly expensive.
Skip to 2 minutes and 12 seconds But you might, in fact, be doing something very like buying or using a £1.50 tea bag if you get tea– In a coffee shop. –in a coffee shop. Yeah. Yeah. I mean I often think that it’s kind of ridiculous that you spend that much money for a tea bag and hot water, but you will do it in the context. You will do it, yeah. The very reason we do it. So I think some people might be hearing that and then thinking, OK, that makes sense. So what? So what of the fact that we can’t make absolute judgements.
Skip to 2 minutes and 35 seconds Why is that notable and something that you’re bringing up, and why do you think potentially our inability to make absolute judgements in real life might be problematic, unless some context in which the fact we can only think relatively actually becomes a problem for people. Yes. Yes. I think it does become a problem for us when we jump between contexts. So the kind of case is that supposing you’re trying to buy a house, and there’s some minor question about how much you’re going to pay for something like the carpets.
Skip to 3 minutes and 5 seconds Now, the carpets might be 1% or less, in fact, of the value of the house, but if people feel they’re getting a bad deal on the carpets, they may actually pull out completely. So if I try to sell somebody carpets at twice what they think they’re worth, they’re going to be outraged by that and think this is a terrible deal, I’m not having it. But now they’ve lost the house, which is so valuable, it’s dwarfed any issues about the carpets. And I think that kind of phenomenon goes on a lot.
Skip to 3 minutes and 32 seconds So, again, people will buy a car, and they’ll think, oh, well, I may as well have all kinds of additional bits of flash air conditioning and all kinds of additional features, because it’s small in relation to the value of the car. If you had to buy those things separately, and you were told, oh, a bit nicer air conditioning, that’s another 500 pounds. You’d think, no way. So depending on the way things are bundled together or not bundled together, you’ll behave in a really different way. Now, that means that if you’re selling things to people, you want to understand this very well and, roughly speaking, you’ll want to bundle things together as much as possible.
Skip to 4 minutes and 4 seconds If you’re a consumer, of course, you want to be very careful so that when you’re spending a lot of money on something you don’t end up wildly spending far more than you need to to get the features which seem trivial in cost, because they’re only a small amount of the value of the car. But actually, if you think about them individually, they don’t seem trivial at all. So, again, going back to the house. If the carpets were bundled into the price of the house, you’d not notice them, but if they’re separated out, you suddenly start to become much more sensitive. So those sorts of factors, I think, can make a big difference to the way we behave.
Skip to 4 minutes and 35 seconds There’s definitely a fear, as you raised, that salespeople and marketers might be taking advantage of this relativity and therefore sort of getting us to spend more money than we might otherwise. I remember hearing an example of a study that I’m sure lots of supermarkets and shops use, this idea that if you had two bottles of wine on a shelf, like a cheap one and a medium-priced one, people would generally go for the cheap one.
Skip to 5 minutes and 0 seconds But if you added a more expensive one, which is much more expensive than actually you expect people to buy, a lot more people will go for the medium-priced one, because they’re then kind of like, oh, in relative terms, I’ll go for the medium one, and then you actually end up spending a lot more money. And I think this is a trick that actually a lot of people do use, and so understanding this is maybe also just useful for people taking this course to be aware of and make sure that they don’t end up getting too exploited by these things. Yeah. And, of course, the same arises for the pack sizes and sizes of drinks and so on.
Skip to 5 minutes and 28 seconds By changing the range, the person selling you something can change what you’re actually going to choose, because you’re going to think, I want a middle-sized thing, or I want to pay a medium amount for a glass of wine or a bottle of wine, so I guess this seems to be what the medium is. I’ll take that. And, of course, that– you need to be very aware of that. And the trick, if you want to try to oppose this trick of the marketing methods, is to try to think in as comparative a way as possible with standards you’re used to. Think, how much do I normally pay for a bottle of wine?
Skip to 5 minutes and 59 seconds How much coffee do I normally drink, or whatever it is, and if you can think about what you normally do, then you’re breaking out of the frame of reference that you’ve been lured into. Specifically, yeah. And I think the one thing I was going to say that is helpful for this is the fact that the more experience you have in a certain domain, like buying a certain kind of coffee, then the harder it is in the case of people selling you things for one person to go and – if in one shop they decided to be, like, oh, well we’ll just make all of our coffees cost £10, £10.50, or £11, then people would just pick the middle option.
Skip to 6 minutes and 30 seconds People obviously wouldn’t do that, because they’re like, well, I can go and get a coffee for £2.50 elsewhere. So having lots of experience makes it easier to deal with these sorts of things. Another thing that’s worth saying to wrap up is that one might think this is all about consumerism and buying and selling, and that’s true. These absolute factors are very important from that point of view, but they’re also very important in other areas too. So, for example, if you’re thinking about trying to be greener, a very easy trick to fall into is to recycle one’s yoghurt pots extremely carefully and go on lots of transatlantic flights.
Skip to 7 minutes and 3 seconds And you can feel, well, I did one green thing, and the other wasn’t so green, but that kind of balances out, and that is just wildly inappropriate, because the effects are so different, but if we don’t have sensitivity to absolute value, then we don’t tend to notice that. OK. Well, that’s us for now, and we’ll see you again next week.
Talking Point and Summary: Week 2
It always seems amazing to me just how bad we are at judging absolute magnitudes. You might think our lives would depend on it, but it seems that they do not! Our brains have evolved to make comparisons; in particular, to compare things that are very nearby and/or very similar.
In this video I talk with Jess about the common themes of the second week. Jess has also summarised the week’s themes here.
Next time, we will see how the fact that we can only compare and do not really know the absolute value of any quantity (size, money, risk, pain) can help explain some of the puzzling, and apparently irrational, peculiarities of human decision making.
Week 2 Experiment
Now, for this week only, I have two things for you to try.
First, you can take the experiment for Week 2.
Second, you can explore for yourselves how good we are at comparative judgements and how bad we are at absolute judgements. This is a kind of ‘interactive demo’, which you are invited to explore.
Please note that these experiments ran in 2013 and, now that the results have been processed, the website is no longer maintained, so may not be fully accessible or current and technical support is not available. Participants are encouraged to try the experiments in order to test this week’s theories in practice and see how their results compare with the overall findings. However, participation in the experiments is not essential to the learning outcomes of the course.
Before we move to Week 3 we’d be really interested to know how you’re finding the course this week, so please leave a comment or share some part of your experience so far in the discussion below:
- Can you see examples in the news or popular literature of the Easterlin Paradox in action?
- Is a ‘flat’ mind essential to be successful in an environment of trading risk and return?
- In light of the unstable and imperative nature of the human mind, as I discuss with Rory Sutherland, what does this mean for how we make decisions?
On a scale of 1 to 10 (where 10 is a ‘believer’ and 1 is not) how much do you now subscribe to the idea of a ‘flat’ mind? It’ll be interesting to compare your answer here to last week’s and see if anything has changed in either your understanding or appreciation of the idea or concept of a flat mind.
Don’t forget to contribute to the discussion by reviewing comments made by other learners, making sure you provide constructive feedback and commentary. You can also ‘like’ comments or follow other learners throughout the course.
Next week we will see how the fact that we can only compare and do not really know the absolute value of any quantity (size, money, risk, pain) can help explain some of the puzzling, and apparently irrational, peculiarities of human decision making.
© Warwick Business School, The University of Warwick