When publisher Hachette Book Group set its price for Michael Connelly’s latest suspense thriller, The Fifth Witness, it decided to charge $14.99 for the Kindle version and $14.28 for the hardback version, a difference of $0.71.

From a utility point of view, charging more for the Kindle version seems quite reasonable considering that Kindle books are delivered instantly and for free, that they take up no additional space or weight, that they can be read on any computer, and that they come with handy bookmarks and highlights of what other readers find interesting.

But how did customers respond to this pricing decision? They were outraged! As you can see on the product page, the book has been overwhelmed with one-star reviews based not on the quality of the book itself but instead on the perception of greed and unfairness on behalf of the publisher. “junk,” writes Amazon reviewer Juan M. “It’s ridiculous that the E-BOOK is as much as the physical copy. Greed indeed.”

Talia S. puts it this way: “I went and check the reviews and notice the many 1 star grading. I read some of them and changed my mind. I did not buy the book. We should not let the publishers hold us hostage because we prefer to read the electronic format.”

While standard rational economics tells us that consumers will be willing to pay more for items they derive more utility (pleasure and usefulness) from — in practice, other factors such as perceived fairness and perceived manufacturing costs play a very large role into our decisions of what to buy and how much we are willing to pay.

As someone who has published two books, and purchased a lot of them over the years, I find books to be one of the most puzzling categories in terms of how much attention people pay to their price.  Think about it this way — if you were going to spend 10 hours with a book, do you really care if it costs $3 more?  Shouldn’t you happily pay $0.30 more per hour of reading if the quality of the book was slightly higher or the experience was slightly better? Personally my more pressing problem is time, and if someone could assure me a better, even slightly better experience, I would pay a substantial amount more.  And for some books, those I really treasure and that have changed my view on life  —  if I were just thinking about the utility of my experience I would pay hundreds of dollars.

The problem is that it is really hard to think this way.  It is not easy to focus on what we really care about (the quality of the time we spend) rather than the salient attribute of price.  And on top of that the unfairness of the differences in price can make us mad ….

I don’t know how the book industry will deal with this problem, and I am looking forward to seeing how this story develops. But, I do know that as readers we should pay a little less attention to minor differences in price and more attention to the quality of the way we spend our time.

Irrationally yours

Dan

A tribute to my son, Amit who is 8 years old — and came up with a very similar poem by himself today

 

Sick

By Shel Silverstein

 

‘I cannot go to school today, ‘

Said little Peggy Ann McKay.

‘I have the measles and the mumps,

A gash, a rash and purple bumps.

My mouth is wet, my throat is dry,

I’m going blind in my right eye.

My tonsils are as big as rocks,

I’ve counted sixteen chicken pox

And there’s one more-that’s seventeen,

And don’t you think my face looks green?

My leg is cut-my eyes are blue-

It might be instamatic flu.

I cough and sneeze and gasp and choke,

I’m sure that my left leg is broke-

My hip hurts when I move my chin,

My belly button’s caving in,

My back is wrenched, my ankle’s sprained,

My ‘pendix pains each time it rains.

My nose is cold, my toes are numb.

I have a sliver in my thumb.

My neck is stiff, my voice is weak,

I hardly whisper when I speak.

My tongue is filling up my mouth,

I think my hair is falling out.

My elbow’s bent, my spine ain’t straight,

My temperature is one-o-eight.

My brain is shrunk, I cannot hear,

There is a hole inside my ear.

I have a hangnail, and my heart is-what?

What’s that? What’s that you say?

You say today is…Saturday?

G’bye, I’m going out to play! ‘

 

As you may or may not know, I am a fairly avid squash player (not so good but I love the game). One of my favorite aspects of squash, aside from being a great source of exercise, is the strategic thinking required.

The other day while playing, I had a slight itch to change strategies. It wasn’t a conscious, logical process, and it was more like a kind of the desire to itch or pick a scab. Like picking a scab, my better judgment told me that making this switch would be a bad idea, but the urge was too great, and I switched my playing style. And it worked!

After the game I wondered, where does this itch come from? Is it part of our creative instinct for exploring and trying out new strategies?  Do we have a desire to try new things?

Here is a letter I got a few days ago:

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Dear Dan,

I recently had an experience that I thought you might be able to appreciate and wondered if you had any thoughts on it.

Last fall (early October) I got into a small car accident. It was my fault and I was ticketed for not controlling the speed of my vehicle. As a part of my plea with the courts I agreed to take a defensive driving course. The last time I took one of these, I selected one Saturday that worked for me and met with a teacher in a classroom for 6 hours one day. But in my state (Texas), they don’t have face-to-face courses anymore; they only have online courses. Of course, the court can’t tell you where to go to sign up for these courses, you have to find it on your own. There are LOTS of options. In addition, taking the course basically requires a commitment of 6 hours, but there are no scheduled class times. Instead, you choose whenever you want to begin your course.

I teach at a Community College fresh out of graduate school. I’ve got a family and I’m super busy. Essentially, this means that I never have a block of 6 hours to devote to anything. As a result, I put off this course for longer than I should have and am now in contempt of court and have been summoned to appear in a little over a week. Today, actually, I’m taking the course…

Anyway, I feel like this is a perfect example of how the courts think they’ve made this process easier, when in fact they have shifted a lot of the decision-making burdens on the plaintiffs, making compliance a lot more difficult. I’m not a delinquent, but I feel like the burdens of completing this task have turned me into one. I don’t have access to data, but I’d be willing to bet that delinquencies are much higher under the new system as opposed to the old.

Unfortunately, irrationally, and procrastinatingly yours,

Nathan

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Dear Nathan,

The same basic thing happened a while ago in the scientific community.  The organization that funded science in the UK decided that instead of asking people to submit grants by 2 specific dates each year  (which is that the US funding agencies do), and get people all stressed over the deadlines — they will let people submit grant at any time and they will review the grants using the same 2 times a year.  What happened?  Much like your story, fewer grants were submitted and eventually the Brits changed back to the twice a year setup.

All this is to show us how useful deadlines can be.

Irrationally yours

Dan

How well do you know your friends? We have created a really fun game on Facebook that lets you measure just that. It’s called Friend Measure.

Here’s how Friend Measure works: every week Friend Measure asks you and your friends a question. For example:

Q: If the teller at your bank gave you an extra $1,000 and you could take it and never get caught, would you?

A: Yes

B: No

Here’s the twist: not only do you answer for yourself, but Friend Measure also asks you predict what your friends would answer as well. Once you’ve made your predictions, Friend Measure calculates your “Friend Score,” which lets you know how well you really know your friends. If you think about it, this “friend score” can tell us a lot about the kinds of questions we’re asking. So far we’ve found some really surprising results.

For example: we asked “Can you tell the difference between wine that costs about $10 a bottle and one that costs about $40 a bottle?” 75% of respondents admitted, no, they can’t tell the difference. Even more surprising though, is that they thought that about 58% of their friends could tell the difference. Respondents’ overall accuracy for predicting their friends was 53%, which is basically no better than chance.

Here’s one in which users were really good at predicting their friends’ responses: we asked, “Do you think that increasing the tax rate for the wealthy by 10% will get rich people to work less?” Respondents were 84% accurate in guess their friends’ responses, because we typically know our friends’ political affiliations really well.

From time to time, I’ll be sharing interesting findings like these here, but only if you participate! Enjoy!

Dear Friends,

Please pass this announcement on to undergraduate and graduate students who may be interested in applying to the Center for Advanced Hindsight’s first annual summer internship in behavioral science research. More information can be found below and here.

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The Center for Advanced Hindsight at Duke University is accepting applications from students interested in conducting experiments in behavioral economics in our summer research internship. The 5-week program begins on July 7, 2011 and ends on August 11, 2011. For more about the CAH team at the Center for Behavioral Economics, see http://becon.duke.edu.

From studies on the consumption vocabulary of vegetables to the effect of eye gaze on trust, there is never a dull moment in the Center for Advanced Hindsight. The CAH summer internship will be valuable for students who are interested in gaining experience with experiments in behavioral economics. Our lab includes researchers with training in social and cognitive psychology, behavioral economics, marketing, design, and general judgment and decision-making. Interns will spend approximately 20 hours each week working in collaboration with CAH research assistants, faculty and graduate students and will be involved with planning and conducting experiments in the lab and field, as well as some data entry and analysis. At the end of the five weeks, interns will propose a project of their own (a 2-page report) stemming from the research they carry out over the summer.

Interns will be provided with a stipend to cover living expenses, with details to be determined.

To apply, please submit the following as a single pdf  by April 20, 2011:

1. A resume or curriculum vitae. Please include your university, major, relevant courses, research experience, GPA, and email address.

2. A one-page cover letter describing your research interests, as well as your specific areas of strength and weakness. What experience do you have with the behavioral sciences? Why would you like to attend the program, and what do you hope to gain from your internship experience?

3. A letter of reference from a member of your academic community (a graduate student, post-doctoral researcher, or professor).

Materials (and any questions you may have about the internship) should not be sent to me, but should be submitted to advancedhindsight@gmail.com

FAQs and further information can be found here.

Applicants will be notified of their status by May 20, 2011

Imagine that you are shopping for a car, find a seller, and agree to purchase his car in a couple of days. The day before the sale, you find a better deal on a different car. Under what conditions would you renege on your original agreement? Would it be easier if your original agreement was made, so over the phone? Or over coffee?

Last week we put out a survey to find out, and here are the results:

As you can see, people have the hardest time reneging on deals made in person (compared with phone and email), and we have much less of a problem reneging deals made via a car dealer relative to one that was mediated by a mutual friend.

 

Zooming in on in-person agreements, we see here that agreements made over scotch and golf seem most likely to be reneged on, whereas we see significant improvement over various, even rudimentary, forms of signed contracts (napkin).

So next time you’re out selling a car, make sure at least to bring a napkin and pen with you, and next time you’re out buying a car, don’t sign anything unless you absolutely have to!

p.s here is an interesting academic paper related to this topic

My own worst enemy: procrastination and self-control

My problem with “Just Say No”

One of the main difficulties I face on a daily basis is an inability to say “no.”  Sometimes my difficulties bring me back to the song in Oklahoma! Where Ado Annie sings “I’m just a girl who can’t say no,” and it looks to me that I’m basically like her (granted, she and I are responding to quite different propositions).  I have always had this problem, but it used to be that nobody really asked much from me, so this weakness didn’t pose a real problem.  But now that behavioral economics has become more popular, I receive invitations to speak almost every day. Accordingly, my inability to say “no” has turned into a real challenge.

So why do I (and I suspect many others) suffer from what we might call the “Annie” bias? I think it is because of three different reasons:

1) Avoidance of regret: Regret is a very interesting, uncomfortable feeling.  It is about not where are, but where we could be. It is too easy to imagine that things could have been better. Imagine, for example, that you missed your flight either by two minutes, or by two hours: under which of these conditions would you be more upset?  Most likely, you will feel more upset if you missed your flight by two minutes. Why?  After all, your actual state is the same:  in both cases you are stuck at Newark for five hours waiting for the next flight, watching the same news report on CNN, responding to email on your smartphone, and munching on expensive and not very good food. They key is that having missed your flight by just a few minutes, you continuously think about all the things you might have done to get on the plane on time – leaving the house five minutes earlier, checking your route to avoid traffic jams, and so on. This comparison to how things could have been, and the feeling of “almost” makes you miserable.  By contrast, a two-hour delay is not as upsetting because you don’t make these kinds of regretful, “woulda, coulda, shoulda” comparisons. (Comparing your current state to some other idealized one, by the way, is a huge source of general unhappiness, especially when comparing yourself to your likeminded peers.)

Now think of a circumstance in which you don’t feel regret at the moment, but want to avoid feeling regret in the future. Let’s say you are buying an expensive new flat-screen TV. As you are whipping out your credit card to pay for it, the salesperson offers you an extended warranty for an additional 10% off the sticker price. You don’t relish the thought of paying more for this extended warranty, but the salesperson asks you to imagine how would you feel if, six months down the road, the TV stopped working and you had passed on the opportunity for the extended warranty. To make the moment even more salient, the salesperson adds that the offer is only available to you now (and only now!). With this final push, you go ahead and purchase the extended warranty – paying a premium in order to avoid the possibility that in the future you will hit yourself over the head and tell yourself that you should have purchased the extended warranty when you had the chance.

What has all this got to do with my own inability to say “no”? My version of the extended warranty is that I get invited to all kinds of stimulating conferences and meetings in amazing places, with interesting people. And the invitations always feel as if they are my only chance to see that particular place and meet those particular people.

2) The curse of familiarity: I suppose I also suffer from a form of the “identifiable victim effect” that I described in Chapter 9.  As you recall, when a problem is large, general and abstract, it is easy for us to turn our heads away and not care too much about it. But when the problem is close to home our emotions are evoked, and we are more likely to take action. Similarly, when I receive formal invitations from people I don’t know, it is relatively easy to politely turn down their offer. But when I receive invitations from people I do know, even if only superficially, it’s a different story altogether. And the better I know someone, the harder it is to say “no, sorry, you know I would really love to come, but I just can’t.”

One of the clever ways I attempt to deal with this version of the identifiable victim effect is to ask my wonderful assistant Megan to say no for me in the cases where I have to do so. This way, I don’t have to feel the pain of saying “no”, and because she is not saying “no” for herself, she has a much easier time with it than I do.

3) The future is always greener: I also find that it’s easier to say “yes” to things in the future, particularly the distant future. If someone asks me to come to an event in the next month or two, I generally have no choice but to say “no” because I’m either traveling or fully booked — there’s just no space in my schedule. [I have to admit that sometimes when someone asks me to come to an event and my calendar says that I’m already booked, I feel relieved.] But when someone asks me to do something in a year, my calendar naturally looks far emptier. (Of course, the feeling that I will have lots of extra time in the future is just an illusion – my life will likely be just as full of myriad, often unavoidable things. It’s just that the details aren’t filled in yet.

The basic problem is this: when we look far into the future, we assume that the things that are limiting and constraining us in the present won’t be there to the same degree. For me, I somehow imagine that meetings with students and administrators and colleagues, not to mention reviewing papers and so on, won’t be part of my daily life eight months in the future.

My friends Gal Zauberman and John Lynch, who have done research on this topic, recently gave me some interesting advice. They suggested that I imagine every single event I’m asked to attend will occur exactly four weeks from the present. With this exact schedule I mind, I should then ask myself whether I find it important enough to squeeze it in or cancel something else. If the answer is “yes,” then I should accept the invitation; but if my answer is “no,” I should pass. This is easier said than done, and I have not yet been able to consistently cultivate this frame of mind, but I am starting to adapt this mindset.

Perhaps what I need is to add some technological aid to Gal and John’s advice. What if I had an advanced calendar application made just for people who have a hard time admitting out how busy they will be in the future? Ideally, such an application would take all my meetings and travel from a given period and, based on that schedule, simulate what my time would look like in a year. This would allow people like me to respond to requests in a more realistic, less hopeful way. Perhaps this advanced calendar application is something I should start working on in a few months…

***

Thankfully, my own irrationalities tell me that there is still a lot of room for research and improvement.

Irrationally yours

Dan

I just posted a rather longish new study (should take about 15 min).

So — if you have the extra time and you are willing to tell us about the way you view different moral decisions Please look on on the right under “Participate” and press on the “Right Now. Take a quick anonymous survey” link

I will post the results in a few weeks

Thanks in advance

Dan

Our recent studies of medications labeled “natural” have yielded some interesting findings. First, most people prefer medications that are natural to medications that aren’t natural. Secondly, and perhaps most surprisingly, people do not see natural medications as being more effective than non-natural medications at attacking the disease at hand. So why do they prefer natural? It turns out that many people believe that natural medications have fewer unintended consequences in both short time and long term side effects. This stems from popular belief, sometimes called “caveman theory,” that our bodies are attuned for diets that were common thousands of years ago and thus might not react well to newer, synthetic products. Hopefully new, exciting research will shed light on the consequences, both positive and negative, of these beliefs.