I went to buy something online today, for about £90. I did a google search and found the cheapest one, and went to the shopping basket to buy…. and then hit a warning saying that the security certificate was issued by an unknown company.

I then stopped. The site didn’t look dodgy, it was still an https connection, it was a boat chandlery store (I was buying an ecofan), it wasn’t selling viagra or heroin. I suspect it was fine, and safe, and the certificate thingy just expired or somesuch.

In the end, I paid an extra £5, and bought it on ebay. I therefore can state, that in my mind, a warning-free buy page from a vendor I have already purchased from, is worth at least £5 to me. (or is it 5% of the purchase?)

We all make decisions like this a lot, and I find the process to be fascinating. I often catch myself making irrational purchasing decisions. Here’s a famous example of what people do:

You go to buy a TV for £200. Just before you hand over your money, someone tells you the same TV is £195 in a store thats a 2 minute drive away. Do you drive to the other store? Most people say no.

You go to buy a book for £6. Just before you hand over your money, someone tells you the book is only £1 in a store thats a 2 minute drive away. Do you drive to the other store? Most people say yes.

Which is bullshit. It’s either worth £5 to you to drive for 2 minutes or it isn’t. This makes no rational economic sense.

We are easily tricked into spending money on stuff that makes no sense. The phrase 90% OFF! will trigger a completely irrational number of sales. The phrase “90% OFF ONLY TODAY!” sells even more. Logically, we should not give a damn what the original price is, or what it will be tomorrow. We should just look at what the product is, and what it is worth to us. But almost all the time, we are manipulated into making irrational purchase decisions.

The worst, most emotional, most irrational purchasing decision I made, was to buy a high spec sony vaio metallic finish laptop which I’m typing this on. It is an overpriced, over-heating and over-specced luxury toy that cost me too much money. I bought it out of pure lust, totally irrationally, about 2 years ago. What’s the most irrational purchase you have made?

21 Responses to “Online buying and rational decisions”

  1. hamelin says:

    iPad. I don’t regret it one bit.

  2. radio_babylon says:

    i presume youve read “predictably irrational” judging by the example you gave (a near-identical example is in the book) but if you havent, i think youd probably enjoy it… and some of the insights gained from the book have led the small (3 man) company i work for to devise some more effective (manipulative?) marketing strategies that have led to improved sales… the same kind of irrational behavior than can lead someone to pay an extra $5 for something (or drive to save a dollar) can be exploited to get customers to spend more and buy in greater quantities for longer durations as well…

  3. Lance says:

    Well… Mine is not so much an irrational purchase as an irrational decision, but it’s along the same lines. You see… I’m married. I guess I’ll leave it at that. =D

  4. m says:

    2 years later you are still using the laptop? Doesn’t sound like a complete waste to me. Buying something overpriced and never using it is irrational.

    Buying crappy new release games because I have been watching them develop for a year or so. And I continually do it too. Just bought Mafia 2. Fun game, but finished in 2 days. Not worth the price. :(

    Indies games are better.

  5. CountVlad says:

    Probably mine is purchasing a downloadable game from a company in Sweden rather than the USA despite it being cheaper from the US supplier just… well… because I’m European! lol.

    It’s interesting what you say about money off offers. Sometimes I can’t help feeling with manufactured products that if they can afford to give you money off then that’s actually the true value of the product. Sometimes it is just to get you in the store in the hopes that you’ll buy something else as well (while making a loss on the reduced item, but a large profit margin on whatever else you buy) but I’m sure not many companies take that risk.

  6. Will says:

    The reason I’d drive 2 minutes for the book, is down to (still irrational) ‘principle’. Clearly, the store I am at is trying to rip me off, therefore I hate them personally, therefore I will make great effort not to give them any money.

    Whereas the smaller, equally-valued price difference for the TV evokes no such burning hatred, because both stores have similar prices so neither one is trying to defraud me.

    It may not be entirely rational, but it is definitely reasoned.

  7. James says:

    I bought myself a Mac mini + Magic Mouse + Wireless keyboard earlier this year, out of pure lust! Although the Keyboard and Mouse were purchase a week or so after the mac.

    I hardly use them now – shame really.

  8. Mart says:

    My MacBook that I got last December. After a while, I realized that I like to game on-the-go as well, but the MacBook wasn’t suited for it. So I got an M11xR2 in June. The MacBook is now hardly used. :P

  9. I bet you would find Schwartz’s “The Paradox of Choice” an interesting book. He uses terms “satisfier” and “maximizer” to describe types of decision makers. It’s natural to be a satisfier when buying something mundane and cheap like milk. Some people tend to maximize when it comes to buying something personal and important.

    What they tend to miss is that with the choice comes an opportunity cost. As you decide to look for a “better” alternative you effectively trade in some of your time and may feel anxiety you shouldn’t need to. Often just finding a “good enough” alternative is all you need.

  10. flap says:

    Are the examples with the book, or the software from sweden (example from CountVlad) that irrational ?

    If we consider that the only point for the buyer is on immediate transaction, then he should try to buy the cheapest thing, and yes it is.

    If we consider that his point is also longterm, and wider. For example he is also carefull how its action structure its environment, then there is some good logic there. Id does not have to be consious or deep thought. But if you see a book sold 6 times more than its price, you might think “Screw that ! I don’t wan’t to give money to that robber !”. Not buying to him is a way to structure your environment by not helping him.

  11. Chris says:

    “the hardest trick in the world is to convince a woman that a bargin still costs money” ~ Socrates

    (this was one of his lesser known quotes, right after “at least I got chicken”)

  12. Patrick Rose says:

    You forget that £5 off £200 is £2.5% off the full price, whereas £5 off £6 is 83.333etc%. Putting it in that context, you can see why people would go to the other store.

    I’ve spent £45 in the last steam sale on roughly 25 cheap games, and I expect to only play about 4 of them. Was it rational? Yes. Each of the games I bought I was interested in.

    I’d argue my most irrational purchase was the first transformers game. Dear god that was a waste of £40.

  13. LN says:

    Actually, my most irrational putchases were your stuff! Democracy 2 I suck at, never got reelected. Rock Legend I maimed in one go. :D

  14. Veeku says:

    I bought a 60″ Pioneer Elite to play video games on. I am not unhappy with my purchase at all. It had the lowest video latency of all the TVs they had out at Best Buy.

  15. Anthony says:

    “You forget that £5 off £200 is £2.5% off the full price, whereas £5 off £6 is 83.333etc%. Putting it in that context, you can see why people would go to the other store.”

    That’s probably how most people think, but why is that rational?

  16. Jacek Wesolowski says:

    Rational is such an abused word. What I think people are doing when they do drive to that other book store, is coping with the feeling of being ripped off. Selling something at a 3% margin is just slightly expensive, but selling something at five times the price of reference is a ripoff. Hence, what they’re spending their time on in this case, is maintaining the principle of not letting someone rip you off. The principle is worth the added 2 minutes, not the book.

    I suspect most people will call it either rational or irrational, depending on whether or not they agree that ripoff avoidance is a worthy principle. I say it’s arbitrary and thus orthogonal to rationality. Rationality does not govern your assumptions, only conclusions.

    It seems there’s often an unspoken assumption that only tangible choices can be rational. As someone who tries to make a living by producing a very intangible quality called “entertainment”, I think this assumption is largely mistaken.

    By the way, the most irrational purchase I can think of was my current PC, which I bought a few years ago during the Christmas period, instead of waiting for another two months. I had already spent a year just thinking about the purchase, and I was getting somewhat impatient. Two months later, I could buy the same specs and save an equivalent of 200 pounds (to put things in proper perspective, it was a third of my monthly wage at the time).

  17. Sandra says:

    “Which is bullshit. It’s either worth £5 to you to drive for 2 minutes or it isn’t. This makes no rational economic sense.”

    Only if “not being ripped off” is not a value in itself for you. For me it is. I don’t like it if people take advantage of me.
    So in the example with the book you quoted, I would not buy in the first store, but probably not drive to the second store either, but wait until I’m in the second store anyway.

  18. Kylotan says:

    It’s funny how people are assuming that the book example is a ‘rip-off’. I expect most of the time these discrepancies are simply down to circumstance, eg. one shop being given a discount by a supplier, or needing to clear its shelves. It might even be the case that the company charging the higher price is making a smaller profit – eg. a boutique book shop which can’t buy in bulk, vs. Tesco who can. Few companies deliberately pick a price point 6x higher than a local competitor unless they have to. There’s definitely some utility in supporting companies that treat you well and vice versa, but it’s probably unwise to attribute malice where there was probably none, and if you’re going to cross the line into using your cash to encourage behaviour that you want to see, it’s wise to think about where your money’s actually going. Sometimes spending more is the better thing to do.

    Another example of this sort of pricing fallacy in action comes with shops that sell HDMI cables for SEVENTY-FIVE POUNDS OR MORE simply because they know they can bundle them in with your £1000 plasma tv and have it written off as a minor extra expense. It’s crazy that they get away with this when a cable a tenth of the price would suffice but the relative pricing issue combined with technical ignorance combines to make a salesman’s dream come true.

  19. hermitC says:

    A mouse for the original Playstation, ca. 15 years ago.

    I liked the idea of playing adventures like Discworld on my TV. I did not know that the PS had a mouse at all until I saw it in that game shop.

    The mouse lurks somewhere in my room, still in mint condition. Never used it. I don’t know why…

  20. hardy24 says:

    Cliff, this article by economist Tim Harford about Drip Pricing and “Anchor Pricing” might interest you : http://timharford.com/2010/08/illuminating-advice-on-the-dark-art-of-%E2%80%98drip-pricing%E2%80%99/

  21. gludion says:

    Your post reminds me the book ‘Predictably Irrational’ by Dan Ariely.
    For sure you would like it.