First, let me tell you how I got the book. I requested it from the library. When I got the email saying that it came, I went and picked it up. I believe it was raining, so I put the book in a plastic bag before putting it in my bike pannier. Then I biked home.
After that important part, I read the first chapter and a bit of the second.
The fact that we form our opinions in a relative fashion is clear to most people. You've probably heard the idea that within a certain range, our skin doesn't sense absolute temperature, but only changes in temperature. You acclimate to that temperature and then notice future changes. People think in terms of deltas that happen faster than some subconscious reference rate. I think of hedonic adaptation as a specific instance of this phenomenon.
Ariely says that, the irrationality being predictable, you could exploit this to your advantage. We already know that with hedonic adaptation, you practice negative visualization or intentional hardship, and knowing that marketers will try to exploit our need to compare, we can fight their attempts to steer our purchases. It might also help us overcome inaction if we can admit to ourselves that our desires to not do something might be rooted in the desire to avoid change, a delta. Kick yourself in the pants by saying, to the extent that the irrational part of me is fighting change, I'm going to discount that feeling. Overcome the inertia.
In the second chapter, Ariely introduces the idea of arbitrary coherence, the fact that we latch onto an initial anchor price and make future decisions relative to that. A friend of mine just got a new job, and the pay is double what he made before. Fortunately, he and his wife are sensible people. We got to talking about his bump in income, and as we looked around at the half million dollar houses around us, I introduced the idea of arbitrary coherence and tried to apply it to standard of living, how people decide their spending level based on their income level. It's not a perfect application of the idea, but it does seem somewhat arbitrary that someone would link their expense level to their income level, and a Mustachian link between between expenses and basic needs and luxuries would seem incoherent to most people. My friend agreed that if they kept their expenses at the same level, they would be much better off, and I was glad to hear it.
The holistic financial optimization approach that ERE folks advocate does a lot to fight both the desire to make purchases on the basis of relative comparison and marketers' attempts to set anchor prices for us. When you compare a purchase against all other possible purchases plus how many years of work it would add to your career, it gives you a much more concrete anchor than if you consider just the marketed rate or how much more comfortable your neighbors are. When you do buy, your bargaining position is much better. You're willing to not buy, knowing that you're already doing really well.
Are there other ways we can exploit these phenomena? Does anyone have examples of how they've been caught up in purchase-by-comparison or arbitrary coherence?
