the hidden forces that shape our decisions 1 3

The hidden forces that shape our Decisions

Are we Predictably Irrational?

When we make decisions we think we're in control, making rational

choices. But are we?

Lets unmask the subtle but powerful tricks that our minds play on us.

Truth about Relativity

Why Everything Is Relative – Even When It Shouldn’t Be

Economist Magazine Subscription – Which will you choose ?

Human Behavior & Relativity

• Humans rarely choose things in absolute terms.

• We don’t have an internal value meter thattells us how much things are worth.

• Rather, we focus on the relative advantageof one thing over another, and estimate value accordingly.

• Most People don’t know what they want unless they see in context.

Few Examples of Relativity

1. TV Sales : – 36-inch Panasonic $690 – 42-inch Toshiba $850– 50-inch Philips for $1,480

2. Restaurant Menu– High Priced Menu first on display; – people will buy second highest.

How our Mind is Wired?

Everything we do in Life is Relative

• Like Airplane pilot landing in the dark, we want runaway lights on either side of us, guiding us to the place where we can touch down our wheels.

• Thinking is difficult & sometimes unpleasant.• Offer NO-BRAINER

What is a Decoy?

• Buying a Home, Bread Baking Machine, Rome & Paris Vacation.

• ONCE YOU SEE the DECOY effect in action, you realize that it is the secret agent in more decisions than we could imagine.

Human Face Valuation

We tend to compare things that r easily comparable & avoid comparing things that cannot be compared easily

Where to apply & Where not to.• Relativity can make us Miserable – Jealousy & Envy by

comparing our lives.• Employee with 3 yrs exp right from college expectation

exceeds coz of comparing with guys next desk.• Nobel Prize aspirant comparing to Wall Street friends

Salary• Pen & Suit – 7$ Saving, Catering Bill extra 200$,

Leather Sofa & Car Seat• Think Broadly• Control the circles around us• Break the cycle of relativity.

Moral

Have a decoy to the product you want to sell.

THINK

• Apply this now to Polestar.• How will you design courses with decoy?• How will you display your course offerings in

Brochures?

for Truth on Relativity

Fallacy of Supply & Demand

Why the Price of Pearls – and Everything Else is Up in the Air

Pearl Story

• World War II (1939 – 1945)

• James Assael, Italian Diamond Dealer flee to Cuba from Europe.

• American army requires water proof watch

• James Assael supply watch through his contact from switzerland

• Contract with US Gvmt ended after Worldwar but Assael was left with thousands of watches

• Japanese Watch Requirement• Japan had no Money & Traded Pearls

• Son of James, Salvador Assael came to be known as Pearl King

• 1973 Assael Meets French Man Jean-Claude Brouillet travelling in adjacent Yacht

• Jean & his Tahitian wife had purchased an atoll in French Polynesia (is a French overseas collectivity in the southern Pacific Ocean. It is

made up of several groups of Polynesian islands).

• Jean & his wife explained about black-lipped oysters in the turquoise waters which gives black pearls.

• Salvador & Jean got into Pearl Harvesting• Marketing efforts failed at first!• Waited for one year for better operation &

specimen• Didn’t compromise with discounts or bundling with

other jewels.

• Partnering with Gem-stone dealer. String of Tahitian Pearls @ NYC, Fifth Avenue with spray of diamonds, rubies & emaralds with an outrageously HIGH price tag. Rest is history. How did PEARL-KING do it?

Mark Twain’s Quote

• In Tom Sawyer “Tom had discovered a great law of human action, namely, that in order to make a man covet a thing, it is only necessary to make the thing difficult to attain’

Goslings & Imprinting

Do our first impressions & decisions become imprinted like Goslings?

Anchor & Imprint

• Anchor : DO we accept the first price that comes before our eyes when we encounter a new Product?

• Imprint : Stick with the Anchor once its been made.

• Pearl King “anchored” his pearls to the finest gems in the world – and the prices followed forever after.

Arbitrary Coherence• Arbitrary : Although Initial Price are Arbitrary,

once those prices are established in our minds they will shape not only present prices but also future prices(so coherent)

• Experiments conducted and proved humans do behave like Goslings.

• First Decision becomes habit. (Be careful in Pricing, we cant erase memory of our consumers)

Herding & Self-Herding• Herding : Follow queue in crowded restaurant or

coffee shop• Self-Herding : Following our own action. E.g.

StarBucks & Dunkin Donuts or ( Chn Saravana Bhavan & Sangeetha)

• How did Starbucks anchor over previously anchored price of Dunkin Donuts?

• Answer : Separated Starbucks from other coffee shops through AMBIENCE. Make Experience feel different-SO DIFFERENT that would be open to new anchor.

Short, Tall, Grande & Venti

High pedigree names like Caffe Americano, caffe Misto, Macchiato, Frappuccino

Original Decision – Wise?• E.g. Tom Sawyer : Make his friends Whitewash. Pleasurable

or Painful depends on the first choice we make.• Trivial to Profound choices anchoring plays a role• Have we made some random decisions in the past and

sticking to it assuming that our original decisions were wise?

• Suppose we are nothing more than the sum of our first, naïve random behaviors, what then?

• First decision is crucial as it affects every other decisions henceforth.

• Inventory Anchors & Imprints in our lives. • Reconsider old choices

Traditional & Behavioral Economics

• Prices determined by a balance between supply group and purchasing power of demand group

• Std. Economic Framework states consumers willingness to pay determines Market price (against proven Arbitrary Coherence)

• Willingness to pay can be manipulated as per new behavioral economics(Tom sawyer + Experiments conducted)

Moral• Anchors & Imprints• PRICE CAN BE MARKETED, MADE AS ANCHORS,

SET AS IMPRINTS.• Relationship between demand and supply is

dependant unlike traditional economics• This is based on memory and not on

preferences –wine & milk price• Humans are like goslings unless u differentiate• Herding & Self-Herding

THINK

• How can we apply to Polestar?

for Fallacy on Demand & Supply

Cost of ZERO Cost

Why We Often Pay Too Much When We Pay Nothing

History of Zero

• From Babylona• Greeks mused “How could something be

nothing”• Indian Pingala paired zero with digits to form

double digits. Sanskrit “Sunya”• Become part of numerals for Mayans & Romans• AD 498 Aryabata sat on his bed and said

“Sthanam Sthanam Dasa Gunam”

Power of ‘FREE’

FREE SMS, FREE SOFTWARE, FREE RINGTONES, FREE SHIPPING, FREE BIKE\CAR SERVICE

Why Free ATTRACTS us?

• Humans afraid of Loss. • When FREE or ZERO Price we see only positive

and not bothered about Negative• Few Success Stories : Amazon Shipping, AOL

Pay per hour to monthly package, BMW Car 3 years oil change offer, DVD Player offering Free DVD’s.

Moral

• To attract crowd there’s nothing like ZERO PRICE

• To sell more, make part of your product free.

THINK

• How can we apply to Polestar?

for Cost of ZERO Cost