Evaluability (And Cheap Holiday Shopping)

Followup toThe Affect Heuristic

With the expensive part of the Hallowthankmas season now approaching, a question must be looming large in our readers' minds:

"Dear Overcoming Bias, are there biases I can exploit to be seen as generous without actually spending lots of money?"

I'm glad to report the answer is yes!  According to Hsee (1998)—in a paper entitled "Less is better:  When low-value options are valued more highly than high-value options"—if you buy someone a $45 scarf, you are more likely to be seen as generous than if you buy them a $55 coat.

This is a special case of a more general phenomenon.  An earlier experiment, Hsee (1996), asked subjects how much they would be willing to pay for a second-hand music dictionary:

  • Dictionary A, from 1993, with 10,000 entries, in like-new condition.
  • Dictionary B, from 1993, with 20,000 entries, with a torn cover and otherwise in like-new condition.

The gotcha was that some subjects saw both dictionaries side-by-side, while other subjects only saw one dictionary...

Subjects who saw only one of these options were willing to pay an average of $24 for Dictionary A and an average of $20 for Dictionary B.  Subjects who saw both options, side-by-side, were willing to pay $27 for Dictionary B and $19 for Dictionary A.

Of course, the number of entries in a dictionary is more important than whether it has a torn cover, at least if you ever plan on using it for anything.  But if you're only presented with a single dictionary, and it has 20,000 entries, the number 20,000 doesn't mean very much.  Is it a little?  A lot?  Who knows?  It's non-evaluable.  The torn cover, on the other hand—that stands out.  That has a definite affective valence: namely, bad.

Seen side-by-side, though, the number of entries goes from non-evaluable to evaluable, because there are two compatible quantities to be compared.  And, once the number of entries becomes evaluable, that facet swamps the importance of the torn cover.

From Slovic et. al. (2002):  Would you prefer:

  1. A 29/36 chance to win $2
  2. A 7/36 chance to win $9

While the average prices (equivalence values) placed on these options were $1.25 and $2.11 respectively, their mean attractiveness ratings were 13.2 and 7.5.  Both the prices and the attractiveness rating were elicited in a context where subjects were told that two gambles would be randomly selected from those rated, and they would play the gamble with the higher price or higher attractiveness rating.  (Subjects had a motive to rate gambles as more attractive, or price them higher, that they would actually prefer to play.)

The gamble worth more money seemed less attractive, a classic preference reversal.  The researchers hypothesized that the dollar values were more compatible with the pricing task, but the probability of payoff was more compatible with attractiveness.  So (the researchers thought) why not try to make the gamble's payoff more emotionally salient—more affectively evaluable—more attractive?

And how did they do this?  By adding a very small loss to the gamble.  The old gamble had a 7/36 chance of winning $9.  The new gamble had a 7/36 chance of winning $9 and a 29/36 chance of losing 5¢.  In the old gamble, you implicitly evaluate the attractiveness of $9.  The new gamble gets you to evaluate the attractiveness of winning $9 versus losing 5¢.

"The results," said Slovic. et. al., "exceeded our expectations."  In a new experiment, the simple gamble with a 7/36 chance of winning $9 had a mean attractiveness rating of 9.4, while the complex gamble that included a 29/36 chance of losing 5¢ had a mean attractiveness rating of 14.9.

A follow-up experiment tested whether subjects preferred the old gamble to a certain gain of $2.  Only 33% of students preferred the old gamble.  Among another group asked to choose between a certain $2 and the new gamble (with the added possibility of a 5¢ loss), fully 60.8% preferred the gamble.  After all, $9 isn't a very attractive amount of money, but $9/5¢ is an amazingly attractive win/loss ratio.

You can make a gamble more attractive by adding a strict loss!  Isn't psychology fun?  This is why no one who truly appreciates the wondrous intricacy of human intelligence wants to design a human-like AI.

Of course, it only works if the subjects don't see the two gambles side-by-side.

Similarly, which of these two ice creams do you think subjects in Hsee (1998) preferred?

Naturally, the answer depends on whether the subjects saw a single ice cream, or the two side-by-side.  Subjects who saw a single ice cream were willing to pay $1.66 to Vendor H and $2.26 to Vendor L.  Subjects who saw both ice creams were willing to pay $1.85 to Vendor H and $1.56 to Vendor L.

What does this suggest for your holiday shopping?  That if you spend $400 on a 16GB iPod Touch, your recipient sees the most expensive MP3 player.  If you spend $400 on a Nintendo Wii, your recipient sees the least expensive game machine.  Which is better value for the money?  Ah, but that question only makes sense if you see the two side-by-side.  You'll think about them side-by-side while you're shopping, but the recipient will only see what they get.

If you have a fixed amount of money to spend—and your goal is to display your friendship, rather than to actually help the recipient—you'll be better off deliberately not shopping for value.  Decide how much money you want to spend on impressing the recipient, then find the most worthless object which costs that amount.  The cheaper the class of objects, the more expensive a particular object will appear, given that you spend a fixed amount.  Which is more memorable, a $25 shirt or a $25 candle?

Gives a whole new meaning to the Japanese custom of buying $50 melons, doesn't it?  You look at that and shake your head and say "What is it with the Japanese?".  And yet they get to be perceived as incredibly generous, spendthrift even, while spending only $50.  You could spend $200 on a fancy dinner and not appear as wealthy as you can by spending $50 on a melon.  If only there was a custom of gifting $25 toothpicks or $10 dust specks; they could get away with spending even less.

PS:  If you actually use this trick, I want to know what you bought.


Part of the Death Spirals and the Cult Attractor subsequence of How To Actually Change Your Mind

Next post: "Unbounded Scales, Huge Jury Awards, & Futurism"

Previous post: "The Affect Heuristic"

Hsee, C. K. (1996). The evaluability hypothesis: An explanation for preference reversals between joint and separate evaluations of alternatives. Organizational Behavior and Human Decision Processes, 67, 242-257.

Hsee, C. K. (1998). Less is better: When low-value options are valued more highly than high-value options. Journal of Behavioral Decision Making, 11, 107-121.

Slovic, P., Finucane, M., Peters, E. and MacGregor, D. (2002.) Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics.  Journal of Socio-Economics, 31: 329–342.

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When buying $10 dust specks, do not get carried away and buy 3^^^3 of them. You won't save any money that way.

What is 3^^^3? I see it a lot here, why is it special?

It's a ludicrously large number in Knuth's up-arrow notation used in some posts as an example of a number which is finite, but large enough to ludicrously surpass reasonable finite numbers like the size of the universe, or the number of possible states of a volume the size of the Solar System, or whatever.

This advice on Christmas gifts will only work if you leave the price tag on, or if your recipient is sophisticated enough to recognize, say, that a particular scarf is worth $45. I once opened a package that I received in a gift-swap game that contained a (to my eyes, rather ordinary) Christmas ornament. My face must not have shown the proper appreciation, as my wife then whispered to me that this was a very expensive ornament. Evidently the givers had instinctively followed the "expensive junk" philosophy but the effect was nearly lost on unsophisticated me.

The math is easy if you just ignore the /36 which is the same in both casts. 229=58 and 79 = 63. No calculator required.

It is hard to ignore a whole /36 standing in front of you

"Naturally, those so-called "lotteries" were a failure. They had no moral force whatsoever; they appealed not to all a man's faculties, but only to his hopefulness. Public indifference soon meant that the merchants who had founded these venal lotteries began to lose money. Someone tried something new: including among the list of lucky numbers a few unlucky draws. This innovation meant that those who bought those numbered rectangles now had a twofold chance: they might win a sum of money or they might be required to pay a fine--sometimes a considerable one. As one might expect, that small risk (for every thirty "good" numbers there was one ill-omened one) piqued the public's interest. Babylonians flocked to buy tickets."

-Jorge Luis Borges, The Lottery in Babylon.

Long ago I was discussing this passage with a friend trained in economics (I am not). He insisted that is was silly and that people would never prefer deliberately the option with added penalties for losing. Glad to see he was wrong!

Why would that make you glad? You found out your prediction was correct, which is good, but you also found out people are idiots, which is very bad.

I know I might feel glad because I feel like I have a lot more control over whether I am right or wrong than the relative idiocy of the average person. On the other hand, being a person, I'd probably just be glad either way. The upside of being cynical.

Thanks for this over the holidays. (You asked for feedback from practical applications).

It helped me come to the realization on why some stores can get away with put horribly, stupidly expensive chocolates on display right at the counter top: not only do they want you to buy it (duh), but it also lets your recipients know that you bought them a $5.99 bar of chocolate that would otherwise be indistinguishable from the larger $1.49 chocolate bars at the grocery store (assuming that your recipients have shopped at the same stores as you and are aware of how "nice" the gift is).

As a result we bought several overpriced chocolate bars to show how generous we were.

Another good item which I bought for someone for his birthday (unconciously following the above advice) was a $15 version of the fifteen puzzle. Compare vs. an $18 paperback book I was considering for that gift.

Now I'm wrestling with the inverse problem. I find myself wanting an Asus Eee PC, and justifying it to my wife because of how cheap it is - $399. Which is the same price as the PS3, which I don't even bring up because of how expensive it is - $399.

It's also possible to be hit by this bias if you're not thinking of it while shopping. Last year, I was invited over to watch the Super Bowl at a friend's, and they were also celebrating his niece's birthday. Of course, I brought a gift -- a Cookie Monster plushie. Unfortunately for me, someone else brought a teddy bear that was obviously much larger and higher quality! Oops.

The moral, I suppose, is that if you're going to get a cheaper gift, shoot for something that's very different than what other people are likely to buy.

I think you can use this logic to explain why movie theaters sell small, medium, large, and extra large popcorn for $5, $6, $7, and $8 respectively. With the less attractive options priced relatively high, people are more likely to pay the unreasonable price of $8 for the extra large.

I find myself doing this, and even consciously recognizing it often doesn't change my actions. For example, if a half-rack of BBQ ribs costs $12.99 and a full rack costs $18.99, I'll 'upgrade' to the full rack since it seems like a waste to pay so much for a half rack. But if the only option was a full rack for $18.99, I'd order something else because that's too expensive.

I'm just a regular guy who stumbled on LessWrong some time ago, and it has helped me see a lot that I was missing in this world and, yes, to change my mind. Much of this stuff is hard to grasp for a man with limited math skills, but I think I may have an innate grasp of heuristics in some cases. At any rate, I have long made it a practice to budget an amount for a particular gift, and then seek out the smallest, most precious object that that amount will buy, rather than the biggest and most bountiful. (Except for children under 7 or so years of age--for them a big box trumps a small box no matter what's inside.) And I am not fooled by marketing tricks as often as my peers seem to be. Thank you all (commenters too!) for this great body of information. I intend to read every word in the whole wiki.

PS: If you actually use this trick, I want to know what you bought.

When my boss's son was born, I gave him an expensive stuffed animal hand-made from recycled material. I didn't deliberately use the trick -- when I was making the purchase, I remembered that I had read something about gifts to buy to appear generous on OB, but I couldn't remember the details. I took the price off the tag, but if my boss or his wife thought to Google the artisan, they would be able to see roughly how much I payed.

But don't forget the main lesson of the economics of present giving: "It's the thought that counts". If you can find a €40 item that seems personalised and full of meaning, it's valued much more than the €50 bottle of mindless perfume.

Of course, it's much easier to be considerate if you know the person well. The closer you are, the more you know their preferences, and the more they will value your consideration. So be cheap and attentive to those closest to you, moving up to spendthrift and indifferent for strangers...

(that actually is my pattern of spending - are others in the same boat?)

Ouch, don't the units in that diagram hurt your brain? (Yeah, I understand what it means and it does make sense, but it looks soooo wrong. Especially in my part of the world where an ounce is a unit of mass or weight, not of volume.)

"229=58 and 79 = 63. No calculator required."

Maybe for you.

I bought my brother a huge gold buttplug for $250 (top of the line) rather than a medium range coat from The North Face.

Depending on the mass of the former, it might have been a better deal in material costs.


29/36 $2.00 = $1.61 7/36 $9.00 = $1.75

While the average prices (equivalence values) placed on these options were $1.25 and $2.11 respectively

I guess people don't carry calculators with them?

All psychologically normal people carry a calculator between their ears. Most are just too lazy to use theirs, even for easy problems like this, which is the source of many biases.

I'd say embarrassment is a bigger issue than laziness. People don't want to be seen as nerdy, especially about little things. Also, if some people are slow at mental math, they wouldn't want others to know that.

Gosh, it's amazing the biases we have when the data is non-evaluatable, and then even when we can compare, we still have a bias towards an overflowing but smaller can, and an under filled but bigger can. The funny thing is I realize I've thought this way, too, until I read this just now. I shall not make the mistake again!

and your goal is to display your friendship, rather than to actually help the recipient

I don't think that appearing to have spent a lot is the best way to achieve that, even if you manipulate what amount of money they think of as a lot. You'd better give some imaginative present that suits the recipient's tastes well. (Making something yourself rather than buying it is even better.)

I'm collecting quotes to help me remember all the things that I should be remembering in order to overcome bias, and I'm wondering if someone has one for the sub-sequence on the Affect Heuristic.

PS: If you actually use this trick, I want to know what you bought.

I have a sister who is very sensitive to her financial situation and will refuse to accept most gifts I've offered. She allowed that I might bring a salad to her recent birthday party - so I brought one of the cheaper ones from Edible Arrangements. She loved it, and I was able to spend about my price range on a gift for her.

"Which is more memorable, a $25 shirt or a $25 candle?" I asked my younger brother and he said the shirt.

Also the 'theory' will only work if that person knows the worth(cost) of the item Or I guess you could leave the tags on.

Everyone I know always deliberately cuts the price tags off or goes over them with a permanent marker. It is considered gauche to show off how much or how little you spent on someone's gift. In this case, it might make more sense to put emphasis on how expensive the gift itself appears to be.

Is there a market, then, for products on which the price tag cannot be removed, thereby allowing you to demonstrate how expensive it is? Books are an example: often the price is listed on the cover (of course, unfortunately this mainly happens for paperback books, which are cheap).

I suppose you could also go over the price tag with an insufficiently opaque permanent marker.

Is there a market, then, for products on which the price tag cannot be removed, thereby allowing you to demonstrate how expensive it is? Books are an example: often the price is listed on the cover (of course, unfortunately this mainly happens for paperback books, which are cheap).

Where I am, it is customary for book stores to put a sticker onto the price printed on the cover when you ask them to wrap the book in wrapping paper.

A shirt is going to be more memorable because people use shirts constantly. The candle is used at most once.

Most of the shirts I've received as gifts I haven't actually worn, because they don't portray the image I'd like to (they're durable signals). A candle, as a private consumable, is something that I might burn even if it's incongruent, because burning it doesn't represent a commitment. (This is a strong, potentially non-obvious reason to prefer consumables over durables when getting gifts for others.)

Beyond that, memorable isn't just "amount of time it's used" but "remarkability." I rarely think about my underwear; I just grab the top one out of the drawer, and I buy the cheapest variety above some quality threshold. I own one pair that's bright green that I bought for the lulz; even though I wear it about a twentieth of the time as the first variety, it's much more memorable because it stands out.

When I am given a candle, which I can save for power outages or impromptu celebrations or even just give it to somebody else, I am glad because 1) I'm not likely to buy one for myself but every single time I see it in a shop I think I would, were it only slightly cheaper, 2) it is a focus point, a symbol of voluntary solitude, even a cheap one, and in this way very unlike a shirt (although I have a couple shirts which for me have symbolic significance), 3) I am a twin who likes having her own things even if I don't mind sharing, and I have loaned clothes when other people were in need, and candles when we all were.

So candles trump shirts on all counts!:))

A shirt that does portray the image the recipient would like to is a much better present.

Of course- in large part because the target is smaller, and thus it signals much more precise knowledge about the recipient. If you don't have a strong ability to discern other people's preferences, go with expensive consumables, because that's a broader target and expectations are lower.

Isn't signalling knowledge about the recipient pretty much the whole point of giving presents? Otherwise we'd just give people cash.

You can signal various other things too like sophisticated taste or having spent time picking/creating the present etc.

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