Post by Emily Leung on Apr 24, 2016 22:29:04 GMT
While reading through "Choices, Values, and Frames" article, the study where subjects were told that a calculator was $5 cheaper but at a store 20 minutes away particularly interested out to me. Similarly, the example of a tennis player who buys a membership to a tennis club and then becomes injured will keep on playing because he wants to get his money's worth of the membership stood out to me. Both of these situations have a factor that lacks a direct value. In the calculator experiment, the time you spend to go buy that cheaper calculator is hard to value, and in the tennis player example, we cannot stick a price on the pain the player endures.
In these situations, we don't logically think through the opportunity costs of our decisions. For example, the tennis player's injury can get much worse after playing more tennis, and thus require expensive medical attention. But because those costs have not been incurred yet, the only cost that is associated with the tennis club is the cost of the membership. This idea can also be connected back to the study where participants were asked if they would rather lose $750 or have a 75% chance of losing $1000 but a 25% chance of losing nothing at all. In a sense, not utilizing that membership is like losing that $750 and continuing to play is like the 75% chance of losing $1000 (in the sense that the medical fees will add more cost to the cost of the membership) and the 25% of losing nothing at all (the injury turns out to be okay to play on). It seems as if any chance we get to lessen our chances creating a dead-loss we will take, even though we have higher chances of being worse off in the end.
A few questions arise out of this study:
- Why do you think we are more people are willing to take that $1000 loss at a 75% chance vs that 100% chance loss of only $750?
- Why is this study significant to field like marketing?
- How have you seen this concept applied to different life situations?
In these situations, we don't logically think through the opportunity costs of our decisions. For example, the tennis player's injury can get much worse after playing more tennis, and thus require expensive medical attention. But because those costs have not been incurred yet, the only cost that is associated with the tennis club is the cost of the membership. This idea can also be connected back to the study where participants were asked if they would rather lose $750 or have a 75% chance of losing $1000 but a 25% chance of losing nothing at all. In a sense, not utilizing that membership is like losing that $750 and continuing to play is like the 75% chance of losing $1000 (in the sense that the medical fees will add more cost to the cost of the membership) and the 25% of losing nothing at all (the injury turns out to be okay to play on). It seems as if any chance we get to lessen our chances creating a dead-loss we will take, even though we have higher chances of being worse off in the end.
A few questions arise out of this study:
- Why do you think we are more people are willing to take that $1000 loss at a 75% chance vs that 100% chance loss of only $750?
- Why is this study significant to field like marketing?
- How have you seen this concept applied to different life situations?
