Barry Schwartz

NOVELIST AND EXISTENTIALIST PHILOSOPHER ALBERT CAMUS POSED the question, “Should I kill myself, or have a cup of coffee?” His point was that everything in life is choice. Every second of every day, we are choosing, and there are always alternatives.

Kahneman and Tversky discovered and reported on people’s tendency to give undue weight to some types of information in contrast to others. They called it the availability heuristic. This needs a little explaining. A heuristic is a rule of thumb, a mental shortcut.

Anchoring is why department stores seem to have some of their merchandise on sale most of the time, to give the impression that customers are getting a bargain. The original ticket price becomes an anchor against which the sale price is compared.

Economist Richard Thaler provides another example of sunk costs that I suspect many people can identify with. You buy a pair of shoes that turn out to be really uncomfortable. What will you do about them? Thaler suggests:

The more expensive they were, the more often you’ll try to wear them.
Eventually, you’ll stop wearing them, but you won’t get rid of them. And the more you paid for them, the longer they’ll sit in the back of your closet.
At some point, after the shoes have been fully “depreciated” psychologically, you will finally throw them away.

Twenty-five years ago, economist Tibor Scitovsky explored some of the consequences of the phenomenon of adaptation in his book The Joyless Economy. Human beings, Scitovsky said, want to experience pleasure. And when they consume, they do experience pleasure—as long as the things they consume are novel. But as people adapt—as the novelty wears off—pleasure comes to be replaced by comfort. It’s a thrill to drive your new car for the first few weeks; after that, it’s just comfortable. It certainly beats the old car, but it isn’t much of a kick. Comfort is nice enough, but people want pleasure. And comfort isn’t pleasure.

Faced with this inevitable disappointment, what do people do? Some simply give up the chase and stop valuing pleasure derived from things. Most are driven instead to pursue novelty, to seek out new commodities and experiences whose pleasure potential has not been dissipated by repeated exposure. In time, these new commodities also will lose their intensity, but people still get caught up in the chase, a process that psychologists Philip Brickman and Donald Campbell labeled the hedonic treadmill. No matter how fast you run on this kind of machine, you still don’t get anywhere. And because of adaptation, no matter how good your choices and how pleasurable the results, you still end up back where you started in terms of subjective experience.

One high-end catalog seller of mostly kitchen equipment and gourmet foods offered an automatic bread maker for $279. Sometime later, the catalog began to offer a larger capacity, deluxe version for $429. They didn’t sell too many of these expensive bread makers, but sales of the less expensive one almost doubled! With the expensive bread maker serving as an anchor, the $279 machine had become a bargain.

Even if companies sell almost none of their highest-priced models, they can reap enormous benefits from producing such models because they help induce people to buy their cheaper (but still extremely expensive) ones.

we prefer a small, sure gain to a larger, uncertain one

When the possibilities involve losses, however, we will risk a large loss to avoid a smaller one. For example, we will choose a coin flip that determines whether we lose $200 or nothing over a sure loss of $100.