Ariely Presentation Final

8/8/2019 Ariely Presentation Final

1/48

www.danariely.com


2/48

The psychology of money

Opportunity cost

Relativity

Pain of paying

Mental Accounting

Fairness

Price of 0

Self herding


3/48

Opportunity cost

How should we make decisions about money?

Decision makers confronted with a showcase of

beluga caviar consider how much hamburger they

could buy with the money [that] a pound of caviar

costsPeople intuitively take opportunitycosts into account (Becker, Ronen &

Sorter, 1974)


4/48

We found we really missed going to thetheatre and eating in nice restaurants, so

we gave our kids away


5/48

$700 $1000

Sony Pioneer

+

$300worthof

CDs

$1,000


6/48

Shadow value of price

The concept of the shadow value of price is

crucial for people to be able to make tradeoffs

between goods

Can people do it?

Naturally -- not, but maybe under some

conditions?

What does that means for spending and for

savings??


7/48

Relative size matters !!!


8/48


9/48


10/48


11/48

The importance of relativity


12/48


13/48

Relativity

Because it is hard to estimate

absolute levels (pleasure) we userelativity as a decision rule

We use it in many decisionsacross many domains


14/48

Pain of paying


15/48

3 components of the aversion to making a payment

Totaldisutilityofa

payment

Disutility of money spent: theutility that could be realized by

spending the money is the best

available alternative if the payment

were not made

Hassle, effort, or annoyance of

actually executing the payment

Pain of paying: psychological

aversion to parting with the

payment, above and beyond the

economic disutility and the hassle


16/48

Payments over time


17/48

The utility of pain of paying

-30

-10

10

30

50

t1 t2 t3 t4 t5 t6 t7

Consumption Spending Utility


18/48

The AOL story


19/48

Can the pain of payingdiminish over time?


20/48

Pain of paying: summary

The pain of payment is an additional aspect of

disutility

It is influenced by the timing of the payment,

and by the coupling of experience with payment

Club med? Subscriptions? Micro payments?

Can the pain of paying be useful?


21/48

Mental Accounting


22/48

Bought ticket(cost $100)

Lost ticket

Buy new ticket?

Lost $100 on the way totheater

Buy ticket?


23/48

Theater tickets Restaurant meals


24/48


25/48

Theater tickets Restaurant meals

Sunk moneyfeels free


26/48

Are there benefits for MA?

Mental accounts causes many mistakes in

decision making

But, it might also help people fight the problems

of making monetary decisions (shadow value of

price, trading off goods and money etc.)....

Having savings as a mental account can help

people save more


27/48

Mental accounting summary

Money is not fungible in peoples minds!

Money has budgets which in turn have effects onspending

Where money comes from determines where itcan be spent


28/48

Fairness


29/48

Price of 0


30/48

Halloween


31/48

Experiment 2 Results

1 oz Snickers 2 oz Snickers Nothing

%c

hoice

0

10

20

30

40

50

60

70

80

90

100

7

93

0

70

30

0

1&2

0&1


32/48


33/48

How should people

decide about buying acup of coffee?

What is the self herdingversion of these decisions?


34/48


35/48


36/48

???


37/48

Arbitrary Coherence ...


38/48

Just because youve always done it that way

doesnt mean its not incredibly stupid.


39/48


40/48

$600

$400

? ?


41/48


42/48


43/48


44/48

Social and MarketNorms


45/48

Theatertickets

Restaurantmeals

0 25


46/48

Lessons


47/48

VS.


48/48

www.danariely.com

Ariely Presentation Final

Documents

Transcript of Ariely Presentation Final