Imagine you have been tasked with choosing a vendor for your new website. Which will you choose? Would you pick the same vendor whether it was one of two options or one of ten? Behavioral economics (the psychology of why people buy things) shows that the context of the options being presented will impact which one you think is best. Choice, as it turns out, is all relative. 

Dan Ariely, a renown behavioral economist, completed a foundational study while at MIT that perfectly demonstrates how easily choices shift when an extra option is added and removed from the equation. While the test was conducted more than ten years ago, "The Economist Relativity experiment" (as it has come to be known) is still relevant.

In the experiment, an advertisement offered customers three options for consuming media:

  • Digital only: $59
  • Print only: $125
  • Digital + Print: $125

If you are like most people, you would have picked the bundle. In Ariely's study, 84 out of 100 students at MIT (people who arguably understand numbers very well) chose the bundle in this original version. All of the remaining 16 chose Digital Only, and no one opted for Print Only. 

In business, it is tempting to remove options no one chooses. It isn't uncommon to hear statements like, "Clearly no one wants that product, we should eliminate it to save staff resources." Or, if you are in the marketing department, maybe it is about an opportunity for some "white space" on an ad. 

Whatever the justification, it isn't unreasonable to think someone would try to remove an option no one ever chooses, so Ariely did just that and tested again with two options:

  • Digital Only: $59
  • Digital + Print: $125

This time around, 68 people chose Digital Only (up from 16 the first time around) and only 32 opted for the bundle (84 had chosen it previously). What happened? The words and numbers for the two remaining options are exactly the same as before. So why does removing an option no one wanted make everything feel different?

This study perfectly showcases relativity, a main concept of behavioral economics. Relativity is about context--essentially, our brains can't value one-off items. The value of each option is considered based on the other choices nearby. And, because our brains are busy and lazy, when a choice is removed it is out of sight out of mind. 

The problem with the second option is there is no stated value for what a print subscription is worth. Without that being made clear, the brain has to assume it is the difference between the two prices ($125-$59). When it is listed as its own line-item with a value much higher than $66, it instantly looks like a great deal. 

1. Know your best offer.

When I say "best" that means best in every possible context: best for your business, best for your employees, best for the customers, and any other parties involved. Once you know the best offer, put all the proverbial eggs into its basket. Ensure it is as profitable for the business as possible. Align employee incentive plans to encourage them to want to talk about that offer. Create all ads to showcase why this is the clear and obvious choice.

2. Understand your comparison points. 

The value of Print Only as far as The Economist was concerned didn't change when it wasn't shown explicitly within the offer. Unfortunately, you can't assume people will know or remember that number (even if they saw it only a few seconds before). When Print Only is shown, the value proposition is about what you want to use, the benefits of the two options. Without any value for print, the conversation is about the only comparison point the two offers have: cost. 

Understanding the best offer (step one) will define those comparison points. If you can't come up with anything other than cost as a comparison point, consider recreating the best offer so it is clearly the best. 

3. Create a decoy.

Now that you know what is best and why it is best, you need to create a decoy offer. I like to call this the "wingman" of the best offer--its only job is to make the best offer look good. It needs to be more expensive (incorporates anchoring, another concept of behavioral economics) so that the best offer is less expensive by comparison. 

Now that you know the rules, there are countless applications beyond product advertisements. Try it with:

  • Offering retirement plans for employees
  • Budget requests
  • Nudging your indecisive friend or significant other to actually choose a restaurant
  • And, yes, choosing a website vendor

Where will you start?

Published on: Feb 12, 2020
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