Your weekly pill of knowledge
Join Peri Mint for your weekly fill of truth extracted from research and studies the world over. We cover topics mainly related to Behavioural economics, health and cognition but from time to time we may surprise you.
Less is More
3 minute read
I’m sure we have all heard the adage “Less is more” several times while growing up. Be it fashion, communication or decoration, people are often advised to keep things simple. Editors the world over have basically built a profession out of cutting content to make the final product shine. But beyond subjective opinions and anecdotes, is there a way to empirically establish this fact? Christopher K. Hsee from the University of Chicago – Booth School of Business attempted to do just that by conducting a series of experiments.
In the first experiment, he divided the study participants into two sets. They were asked to imagine a situation in which they were about to move abroad for studies and had received a farewell gift from their friend. The first group was informed that their friend had gifted them a winter coat worth $55 from a store that sold coats in the price range $50-$500. The second group was informed that their friend had gifted them a scarf worth $45 from a store that sold scarfs in the price range $5-$50. They were subsequently asked to rate the generosity of their friend on a scale of 0-6 (0 being not generous at all and 6 being extremely generous). Unsurprisingly, the participants in the “Scarf” scenario constantly rated their friend more generous than the participants in the “Coat” scenario (5.63 vs. 5.00).
In the second experiment, he added an element of comparative evaluation. He asked a group of people to evaluate two distinct product bundles. Bundle 1 comprised a dinner set containing eight sets each of dinner plates, salad bowls, dessert plates, cups and saucers, however two of eight cups and seven of eight saucers were broken. The second bundle also comprised a dinner set containing eight sets each of just the dinner plates, salad bowls and dessert plates (no cups and saucers) but all in good condition. The participants were divided into three groups, group 1 (the joint evaluation group) was shown both the bundles simultaneously and asked to share how much they would be willing to pay for each bundle. Group 2 was asked to evaluate just bundle 1 (the one with the broken items) and share their willingness to pay and Group 3 was asked to evaluate bundle 2 (the bundle with no cups and saucers) and share their willingness to pay.
In the joint evaluation group, the bundle with the broken items was valued higher than the bundle without the cups and saucers ($32 vs. $30). However, in the single evaluation scenario, the bundle with the broken items was valued significantly less than the bundle without the cups and saucers ($23 vs. $33).
Thus, the researchers concluded that in the absence of any reference point (or joint evaluation), it is better (from a price stickiness perspective) to cut down on the number of items sold rather than present a sub-standard item/feature.
Neither carrot nor the stick
2 minute read
We all accept that success is driven by a combination of talent, ability, and luck. Modern discourse unfortunately places an incongruous emphasis on talent and ability and not enough on luck. Hindsight bias often compels the audience to view risky moves (made successful largely by luck) as masterstrokes by the incumbent. Luck and probability play a much larger role in a most outcomes than people may believe.
Daniel Kahneman (my new favorite author) talks about the time he spent with the Israel Armed forces. He recalls a time where he was monitoring the flight training wing of the Israel Airforce. He brings up an interaction he had with a flight instructor who mentioned that being strict and stern with students yielded better outcomes than praise.
When asked to elaborate, he recalled several instances where he praised students who had performed well on a flight and invariably these students fared worse in the following flight. He juxtaposed this with his stern and strict behaviour with students who had underperformed in a flight, and this often led to better performance in the next flight.
Kahneman explained to him, that while the facts he stated may be as they were, the cause and effect relationship he had formed was probably weak. He explained that given flight performance is a combination of luck and ability, it was likely that performance outcomes would be subject to what is known as “Regression to the mean” phenomenon.
What this means is that most students who performed well in a particular flight probably enjoyed better than average luck as compared to the students who performed badly. All things being equal, luck and random outcomes will regress towards the mean for the most part. This means that most people who enjoyed better than average luck, thus resulting in better performance, will most likely not enjoy the same good luck in the next flight and hence their performance will decline – though there will be the rare outlier. Students who had a particularly bad flight due to worse than ordinary luck are most likely to enjoy better luck in the next flight and hence improve their performance. So, it’s fair to say that rather than the feedback mechanism impacting student performance, it was just balancing of luck over multiple flights which led to the results that the flight instructor observed.
Can you think of other instances where the concept of regression to the mean applies?