Yes, You’re Irrational, and Yes, That’s OK
Imagine that (for some reason involving cultural tradition, family pressure, or a shotgun) you suddenly have to get married. Fortunately, there are two candidates. One is charming and a lion in bed but an idiot about money. The other has a reliable income and fantastic financial sense but is, on the other fronts, kind of meh. Which would you choose?
Sound like six of one, half-dozen of the other? Many would say so. But that can change when a third person is added to the mix. Suppose candidate number three has a meager income and isn’t as financially astute as choice number two. For many people, what was once a hard choice becomes easy: They’ll pick the better moneybags, forgetting about the candidate with sex appeal. On the other hand, if the third wheel is a schlumpier version of attractive number one, then it’s the sexier choice that wins in a landslide. This is known as the “decoy effect”—whoever gets an inferior competitor becomes more highly valued.
The decoy effect is just one example of people being swayed by what mainstream economists have traditionally considered irrelevant noise. After all, their community has, for a century or so, taught that the value you place on a thing arises from its intrinsic properties combined with your needs and desires. It is only recently that economics has reconciled with human psychology. The result is the booming field of behavioral economics, pioneered by Daniel Kahneman, a psychologist at Princeton University, and his longtime research partner, the late Amos Tversky, who was at Stanford University.
It’s all about leveraging the unconscious factors that drive 95 percent of consumer decision-making.
It has created a large and growing list of
