What a $1 sub is really worth

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As you leave our lab and take a narrow walkway down to one of the main streets in Durham, you pass through a small parking lot and a few chain restaurants. Yesterday afternoon, that parking lot was packed tightly with a long line of patrons waiting to buy a $1 sub for Jimmy John’s “Customer Appreciation Day.”

If the crowd was any indication, the promotion was a success (although it’s hard to tell how “appreciated” the customers felt without distributing some surveys—maybe next time…). It was clear, however, that they were willing to wait an incredibly long time to get a cheap sub. And that might very well change where they get lunch in the future.

In standard economics, the way we decide to spend our money reflects how useful or enjoyable we expect a product or service to be. We pay five dollars for a sub because we expect to get five dollars of value from eating it, and so on. But findings in psychology and behavioral economics suggest that the choices we make can do more than simply reveal our preferences—they shape them, too.

One classic study by Leon Festinger and James Carlsmith showed the effect that actions can have on our preferences. Participants in their experiment performed a mind-numbing task and were asked to describe it to another person while pretending to have enjoyed it. But there was one crucial difference between two groups: They were paid either a low or high amount of money to do this. Compared to those who were well compensated, the participants who were paid a small amount of money enjoyed the experiment more and reported a higher likelihood of returning to perform a similar experiment.

Festinger and Carlsmith concluded that their low-paid participants experienced a dissonance between the amount of money they were paid and their own willingness to perform the task. And since they couldn’t take back their efforts, they justified their behavior by increasing their enjoyment of the task. Here, we could say quite a bit about what Festinger and Carlsmith called “cognitive dissonance,” but let’s instead focus on how this affected their participants’ later behavior.

When we look back on our past actions, we tend to ignore situational factors and assume instead that we made that decision for good reasons. This actually changes how we feel about those decisions later, and that can change our future behavior. This process, where we look to our past behaviors to guide our future decisions, is called self-herding. To provide a simple example, imagine that you got a particularly flattering evaluation last Friday at work. You were feeling pretty happy about this and decided to celebrate by inviting some co-workers to a bar for a drink. The next Friday, as you’re considering what to do that evening, you might look back on your past excursion and decide to do it again. You look to the past behavior (going out for drinks) rather than the situational factors (the glowing report) that led you to the behavior.

So the people waiting in a long line for a cheap sub that everyone seems excited about might look back tomorrow and like Jimmy John’s more than they otherwise would have. Though they might look herded to one another, standing in a line that stretches out the door and into the parking lot, it’s how they’re herded to themselves that matters in the long run.

~Vlad Chituc~

Read more:
Chapter 2 in Predictably Irrational and Chapter 10 in the Upside of Irrationality
Dan Ariely and Michael Norton (2007), “How Actions Create—Not Just Reveal—Preferences.” TRENDS in Cognitive Sciences. Vol. 12, No. 1: 13 – 16.