Please choose what you’d like.
Sounds silly? Is there a possibility that you could opt for Rs 1,000?
In this blogpost is an example where you might just opt for the thousand in that example above and feel better about it. It is about context. Context. Context.
Michael Shermer in The
Mind of the Market (a splendid book which I highly recommend) says: …studies
show that when it comes to money, neither utility nor logic prevails. Let us take one of Nobel prize winning
economist Richard Thaler’s favourite examples
He presented people with a choice of being either Mr. A or Mr. B in the following scenario:
Mr. A is waiting in line at a movie theatre. When he gets to the ticket window he is told that as the one-hundredth-thousandth customer of the theatre, he has just won $100.
Mr. B is waiting in line at a different theatre. The man in front of him wins $1,000 for being the one-millionth customer of the theatre. Mr. B wins $150.
Are you now smiling? 😊
This irrational behaviour, Dr. Thaler says, is regret aversion. At a generic level, people are willing to earn absolutely less if they can make relatively more. We are willing to pay a price for relative rank and status, which is traded in a different form of currency – social capital.
Research has shown that silver medallists feel worse, on average, than bronze medallists. (Gold medallists, obviously, feel best of all.) The effect is written all over their faces, as psychologists led by Thomas Gilovich of Cornell University found out when they collected footage of the medallists at the 1992 Olympic games in Barcelona. Gilovich's team looked at images of medal winners either at the end of events – that is, when they had just discovered their medal position – or as they collected their medals on the podium. They then asked volunteers who were ignorant of the athlete’s medal position to rate their facial expressions. Sure enough, the volunteers rated bronze medallists as consistently and significantly happier than silver medallists, both immediately after competing, and on the podium.
The reason is to do with how bronze and silver medallists differ in the way they think events could have turned out – what psychologists call “counterfactual thinking”. In a follow-up study, the team went to the 1994 Empire State Games and interviewed athletes immediately after they had competed. Silver medallists were more likely to use phrases like "I almost…", concentrating their responses on what they missed out on. (we are Home sapiens, after all. Whew!).
Bronze medallists, on the other hand, tended to contemplate the idea of missing out on a medal altogether. These differences in counterfactual thinking make silver medallists feel unlucky, in comparison to a possible world where they could have won gold, and make bronze medallists feel lucky, in comparison to a possible world where they could have returned home with nothing!
So the research seems to add a bit of scientific meat to Hamlet's famous line "there is nothing either good or bad, but thinking makes it so", as well as revealing something about the psychology of regret. Even though we must deal with the world as it is, a vital part of life is imagining the world as it could be – thinking about a job you should have applied for (or said “no” to), or a stock that you should have bought when it was a quarter of its current price (but nobody remembers the reverse!).
Lesson : Phrase an offer in a negotiation in a way that does not cause regret in the other person’s mind (such as, “had you come to me last month, I would have offered you a million more"…or "you could have had the opportunity to go onsite if you had come to office last Monday when we took the decision").
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