The $5 Test
Past studies have shown that when given the opportunity to save, for example, $5 on a $25 item or a $500 item, people in general would put in more effort to save the money on the lower-cost product than the more expensive item.
They believe they are getting a better deal because the ratio of cost to savings is higher. In fact, the $5 saved is the same for both items and the perfect, or optimal choice, would be to look at the absolute savings and work equally hard to save each $5.
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CURATED FROM
New Theory of Decision-Making Seeks to Explain Why Humans Don’t Make Optimal Choices
neurosciencenews.com
4 ideas
·1.12K reads
IDEAS CURATED BY
People consider relative differences and not only absolute differences when making various economics decisions, even in those cases where the rational model dictates that people should consider only absolute differences. A new theory seeks to explain why.
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