the hidden forces that shape our decisions 1 3
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The hidden forces that shape our Decisions
Are we Predictably Irrational?
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When we make decisions we think we're in control, making rational
choices. But are we?
Lets unmask the subtle but powerful tricks that our minds play on us.
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Truth about Relativity
Why Everything Is Relative – Even When It Shouldn’t Be
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Economist Magazine Subscription – Which will you choose ?
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Human Behavior & Relativity
• Humans rarely choose things in absolute terms.
• We don’t have an internal value meter thattells us how much things are worth.
• Rather, we focus on the relative advantageof one thing over another, and estimate value accordingly.
• Most People don’t know what they want unless they see in context.
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Few Examples of Relativity
1. TV Sales : – 36-inch Panasonic $690 – 42-inch Toshiba $850– 50-inch Philips for $1,480
2. Restaurant Menu– High Priced Menu first on display; – people will buy second highest.
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How our Mind is Wired?
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Everything we do in Life is Relative
• Like Airplane pilot landing in the dark, we want runaway lights on either side of us, guiding us to the place where we can touch down our wheels.
• Thinking is difficult & sometimes unpleasant.• Offer NO-BRAINER
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What is a Decoy?
• Buying a Home, Bread Baking Machine, Rome & Paris Vacation.
• ONCE YOU SEE the DECOY effect in action, you realize that it is the secret agent in more decisions than we could imagine.
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Human Face Valuation
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We tend to compare things that r easily comparable & avoid comparing things that cannot be compared easily
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Where to apply & Where not to.• Relativity can make us Miserable – Jealousy & Envy by
comparing our lives.• Employee with 3 yrs exp right from college expectation
exceeds coz of comparing with guys next desk.• Nobel Prize aspirant comparing to Wall Street friends
Salary• Pen & Suit – 7$ Saving, Catering Bill extra 200$,
Leather Sofa & Car Seat• Think Broadly• Control the circles around us• Break the cycle of relativity.
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Moral
Have a decoy to the product you want to sell.
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THINK
• Apply this now to Polestar.• How will you design courses with decoy?• How will you display your course offerings in
Brochures?
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for Truth on Relativity
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Fallacy of Supply & Demand
Why the Price of Pearls – and Everything Else is Up in the Air
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Pearl Story
• World War II (1939 – 1945)
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• James Assael, Italian Diamond Dealer flee to Cuba from Europe.
• American army requires water proof watch
• James Assael supply watch through his contact from switzerland
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• Contract with US Gvmt ended after Worldwar but Assael was left with thousands of watches
• Japanese Watch Requirement• Japan had no Money & Traded Pearls
• Son of James, Salvador Assael came to be known as Pearl King
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• 1973 Assael Meets French Man Jean-Claude Brouillet travelling in adjacent Yacht
• Jean & his Tahitian wife had purchased an atoll in French Polynesia (is a French overseas collectivity in the southern Pacific Ocean. It is
made up of several groups of Polynesian islands).
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• Jean & his wife explained about black-lipped oysters in the turquoise waters which gives black pearls.
• Salvador & Jean got into Pearl Harvesting• Marketing efforts failed at first!• Waited for one year for better operation &
specimen• Didn’t compromise with discounts or bundling with
other jewels.
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• Partnering with Gem-stone dealer. String of Tahitian Pearls @ NYC, Fifth Avenue with spray of diamonds, rubies & emaralds with an outrageously HIGH price tag. Rest is history. How did PEARL-KING do it?
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Mark Twain’s Quote
• In Tom Sawyer “Tom had discovered a great law of human action, namely, that in order to make a man covet a thing, it is only necessary to make the thing difficult to attain’
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Goslings & Imprinting
Do our first impressions & decisions become imprinted like Goslings?
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Anchor & Imprint
• Anchor : DO we accept the first price that comes before our eyes when we encounter a new Product?
• Imprint : Stick with the Anchor once its been made.
• Pearl King “anchored” his pearls to the finest gems in the world – and the prices followed forever after.
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Arbitrary Coherence• Arbitrary : Although Initial Price are Arbitrary,
once those prices are established in our minds they will shape not only present prices but also future prices(so coherent)
• Experiments conducted and proved humans do behave like Goslings.
• First Decision becomes habit. (Be careful in Pricing, we cant erase memory of our consumers)
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Herding & Self-Herding• Herding : Follow queue in crowded restaurant or
coffee shop• Self-Herding : Following our own action. E.g.
StarBucks & Dunkin Donuts or ( Chn Saravana Bhavan & Sangeetha)
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• How did Starbucks anchor over previously anchored price of Dunkin Donuts?
• Answer : Separated Starbucks from other coffee shops through AMBIENCE. Make Experience feel different-SO DIFFERENT that would be open to new anchor.
Short, Tall, Grande & Venti
High pedigree names like Caffe Americano, caffe Misto, Macchiato, Frappuccino
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Original Decision – Wise?• E.g. Tom Sawyer : Make his friends Whitewash. Pleasurable
or Painful depends on the first choice we make.• Trivial to Profound choices anchoring plays a role• Have we made some random decisions in the past and
sticking to it assuming that our original decisions were wise?
• Suppose we are nothing more than the sum of our first, naïve random behaviors, what then?
• First decision is crucial as it affects every other decisions henceforth.
• Inventory Anchors & Imprints in our lives. • Reconsider old choices
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Traditional & Behavioral Economics
• Prices determined by a balance between supply group and purchasing power of demand group
• Std. Economic Framework states consumers willingness to pay determines Market price (against proven Arbitrary Coherence)
• Willingness to pay can be manipulated as per new behavioral economics(Tom sawyer + Experiments conducted)
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Moral• Anchors & Imprints• PRICE CAN BE MARKETED, MADE AS ANCHORS,
SET AS IMPRINTS.• Relationship between demand and supply is
dependant unlike traditional economics• This is based on memory and not on
preferences –wine & milk price• Humans are like goslings unless u differentiate• Herding & Self-Herding
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THINK
• How can we apply to Polestar?
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for Fallacy on Demand & Supply
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Cost of ZERO Cost
Why We Often Pay Too Much When We Pay Nothing
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History of Zero
• From Babylona• Greeks mused “How could something be
nothing”• Indian Pingala paired zero with digits to form
double digits. Sanskrit “Sunya”• Become part of numerals for Mayans & Romans• AD 498 Aryabata sat on his bed and said
“Sthanam Sthanam Dasa Gunam”
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Power of ‘FREE’
FREE SMS, FREE SOFTWARE, FREE RINGTONES, FREE SHIPPING, FREE BIKE\CAR SERVICE
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Why Free ATTRACTS us?
• Humans afraid of Loss. • When FREE or ZERO Price we see only positive
and not bothered about Negative• Few Success Stories : Amazon Shipping, AOL
Pay per hour to monthly package, BMW Car 3 years oil change offer, DVD Player offering Free DVD’s.
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Moral
• To attract crowd there’s nothing like ZERO PRICE
• To sell more, make part of your product free.
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THINK
• How can we apply to Polestar?
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for Cost of ZERO Cost