Bigness bias

I did some experiments at my workshop on 26th March. One was about what is called “bigness bias”. Maybe you’d like to try it, it could help you save a lot of money.

 

Imagine that you go to a shop to buy a lamp that is £100. At the shop, you find that at a branch 2 miles away it is on sale for £75. Do you go to the other branch to get the lower price?

 

Think about that, and decide before you read on.

 

At the workshop about 70% of the audience said yes and 30% said no (I got them to stick little labels on a sheet hanging on the wall, to “vote”).

 

Now imagine that you go to the shop to buy a dining room set, which is £1,775. At the shop, you find that at a branch 2 miles away it is on sale for £1,750. Do you go to the other branch to get the lower price?

 

Think about that, and decide before you read on.

 

This time, at the workshop about 20% of the audience said yes and 80% said no. How about you?

 

The results I got are pretty much what everybody has got when that type of experiment has been run (and it’s been done thousands of times). The thing is, the £25 discount is the same – so lots of people think you “ought” to make the same decision each time. But very few real people do. We tend to think that the “big picture” is important and small amounts are trivial.

 

But imagine that you’re going to buy a household appliance, costing £600. You’ll probably spend a lot of time trying to get a discount, find the best deals, get free delivery etc. While you’re doing it, consulting Which? and so on, you’ll go on with your life.

 

You leave home for work on Monday morning and on the way to the station you pick up a paper and a decent cup of coffee. Mid-morning you send out for a cappuccino and at lunchtime (because you’re on a bit of a healthy eating programme) you get a nice organic sandwich a bowl of fresh fruit and an organic smoothie. During the afternoon you get a latté and on the way home you stop for a quick glass of wine and get an evening paper. All trivial, right?

 

At a rough estimate, you’ve spend about £20 (in money after tax) on coffee, papers, lunch and drinks. Do that every day and you’ve spent £100 in a week. That is about £400 in a month, and £4,800 in a year. If that went into a pension scheme you’d get tax relief on it and perhaps be saving £7,500 each year.

 

But I bet you tell people you can’t save, you just don’t have any money, it is so hard to make ends meet these days, you are even working really hard to save 10% on the new appliance!

 

You are probably doing this sort of thing. It is the reason lots of people buy useless extended warranties, buy expensive add-ons they don’t need for new cars and so on – we all lose the small amounts in the big ones.

 

You’re human, you’re almost certainly not going to be logical, or be able to do what you “ought” to do. Just be aware of it, and think about all the little expenditures, because they add up to very big ones.

 

 

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