Dollars and Sense by Dr. Dan Ariely

Dollars and Sense by Dr. Dan Ariely

Author:Dr. Dan Ariely
Language: eng
Format: epub
Publisher: HarperCollins
Published: 2017-09-27T04:00:00+00:00


James’s company didn’t blink at paying Gina’s consulting firm $725,000, because they appeared to have done such a thorough job, not just of assessing and addressing the company’s needs, but of creating a presentation to demonstrate just how hard they worked to do it.

Maybe if the locksmith hadn’t offered James so much sass, but an explanation of all the delicate and vital things he had to master and set in order to open the door, the two wouldn’t nearly have come to blows. Perhaps if Coca-Cola had explained that it costs much more to keep drinks cool when it’s hot, or that someone must drive extra to restock the machines more often on sunny and warm days, people might not have made such an uproar. Maybe then James and Coke consumers would be willing to pay more and be less upset. Because the effort would have been more evident. Any of these would have created a higher level of transparency.

Imagine we have two traditional windup watches, but one has a clear casing so we see the gears grinding in the intricate watchworks. Would we pay more for that watch just because we see how hard it’s working? Maybe not (we never did try this experiment), but what is clear is that this is how we unwittingly conduct many financial transactions.

We are willing to pay more when we see the costs of production, people running around, the effort involved. We implicitly assume that something labor-intensive is worth more than something that isn’t. It is not objective effort so much as the appearance of effort that drives the psychology of what we are willing to pay.

Is this rational? No. Does this warp our perception of value? Yup. Does it happen all the time? You betcha.

The consulting firm that visited James’s widget factory did everything short of reenacting their entire project to show the company just how much work they had done. On the other hand, think about similarly expensive law firms that charge an hourly rate. Lawyers are reviled, perhaps, in part, because we don’t see the effort that has gone into their work. We just get a bill with hours. Usually more hours than fit in a day, but still, just hours. We see no effort, no tangible sweat, and nothing like the activity the clever consulting firm showed.

Transparency—revealing the work that goes into a product or service—allows a company to show us that they’re working hard, earning our money. We don’t value things much unless we know there’s a lot of effort involved. This is why the Internet is such a challenging medium over which to buy and sell services. Online, we don’t see any of the effort involved, so we don’t feel like we should have to pay much for apps or Internet services.

Companies big and small have come to learn that transparency shows effort and thus shows—and proves—worth. More and more often, they are working to provide cues to make us value their services more. The travel site Kayak.


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