Post No.: 0506
We judge things by comparing things – particularly by comparing things with other things that are currently being brought to mind. We don’t (and in many cases can’t) make true absolute or objective judgements – only relative and subjective ones. This connects with Post No.: 0497.
This means that when uncertain – and virtually all decisions in life come with varying degrees of uncertainty – if different alternatives are brought to mind then we might judge something differently (e.g. we mightn’t know what the real statistical risks are for each activity but texting whilst driving won’t seem so bad if it’s being compared to drinking and driving, but it might if it’s being compared to speeding).
Faced with a wager, if we’re made to focus on the potential prize then we’ll more likely take the gamble, but if we’re made to focus on what we could stand to lose then we’ll more likely forgo it. Our minds are being coaxed by whatever’s made mentally available to us at the time (and that’s how people can morally rationalise many things away e.g. thinking they weren’t cheating by kissing someone else… because when comparing this to having sex, it was ‘only’ a kiss).
Our brains perceive things in comparative rather than absolute terms. And comparisons are hard to make unless they’re done immediately one-after-the-other or side-by-side. Even so, ‘change blindness’ experiments appear to indicate that our visual memories are far more transient than we assume – even large changes presented just seconds apart from one blink to the next can be missed.
Our sensory perception perceives things relatively. If we try to judge an amount of fluffy feathers so that it’ll be perceived to balance the weight of 1kg of sugar, we’ll tend to gather way more than 1kg of feathers – the ‘size-weight/mass illusion’ is when larger-volume objects are perceived to be lighter than smaller-volume objects of the same mass. We assume that ‘density’ is relative to ‘weight’. (Darker-coloured objects are perceived to be heavier than lighter-coloured objects, and metal containers are perceived to be heavier than wooden containers, of the same size and mass, too.)
This also happens with other perceptual magnitudes – when judging the brightness of an object, we compare it to its immediate surrounding, and if this surrounding is dark then the object being judged will be perceived as light, and vice-versa. (Assumptions like ‘things in shadows appear darker than they really are hence we need to compensate for that’ affect such judgements too.) The Ebbinghaus illusion shows us how the perception of size is affected in a similar manner. The thing we’re being asked to judge hasn’t changed – just the things around it i.e. its context. Lacking an external reference, we’ll judge someone’s height relative to their width i.e. skinnier people will appear taller, and vice-versa. Our judgements are relative and we’re generally poor at judging absolutes. Our brains have evolved to make comparisons – in particular by comparing between things that are very nearby and/or similar.
We can hold the absolute magnitude of, say, the loudness of a sound for a short moment in our working memories, otherwise we wouldn’t be able to compare it to the next sound we hear – but this memory very quickly decays. (All of this ‘what you see is all there is’ and only being able to make sensory comparisons with what’s more-or-less immediately in front of us right now might therefore be at least partially down to working memories being so limited?)
We also often do what we feel is emotionally comfortable at the current moment, at the expense of what’s right/best for us for the long-term, regarding our finances, health, relationships, etc.. People may think they’re trying to maximise their long-term, risk-adjusted returns, but really most people are acting on what they feel is emotionally comfortable right now, repeatedly, which means they’re being driven by the current context of any given juncture (e.g. by what’s in the news, social media, what friends are saying, at any current moment). So one might sell a stock when the price has already crashed – one will receive a huge emotional payoff from doing so but at a likely expensive financial cost (for we should ‘buy low and sell high’ rather than ‘sell low and buy high’). It’s not that emotional rewards shouldn’t matter to us but perhaps we shouldn’t be financially or otherwise paying quite so much for them.
In-the-moment impulses frequently override our long-term desires (as anyone who cannot resist a snack or is reluctant to exercise can testify!) So we need to try to summon a more holistic and long-term, rather than narrow and in-the-moment, view of the world at times. We could perhaps try strategies like removing all immediate temptations or imagining what we’d wished we’d done if we were in the future looking back at ourselves right now? And we need to – during times of calm – put in place plans, structures or systems that’ll protect our long-term interests and override our in-the-moment impulses. Woof.
Because our brains don’t seem to know the absolute values of things – only relatively in comparison to something else – this means that to know what’s good, we need to know what’s bad too, or to know what’s easy, we need to know what’s effortful too, etc.. We need to know yin to know yang. We mightn’t always need to personally experience it ourselves but we need to know it. We need to recognise poverty or acknowledge racism to recognise fortune or acknowledge privilege even if we don’t personally experience these problems ourselves. This implies that our values, preferences and judgements aren’t stable either – they just depend on what we’re comparing to. We make decisions on quite an ad hoc basis rather than have unswervingly stable and un-manipulable perceptions. So people can think they’re not being sexist because they’re comparing themselves to others like them in their surrounding culture who are saying the same bigoted things; but place these same people in a more equal and inclusive culture and those exact same words will begin to seem rather sexist over time. Who’s considered ‘abled’ or ‘disabled’ is relative. If there were only ever black Presidents of the USA then Barack Obama might’ve been considered the first white POTUS for having a white mother!
Monetary valuations are therefore always relative – something appears cheap or expensive for what it is depending on what we’re comparing it to, and what we’re using as our comparisons will be shaped by what’s currently being brought to mind. How much we’ll value something will depend on how it’s being presented, such as via the way it’s being advertised.
We could thus argue, if we were marketers, that marketing adds value to products because it makes people see products in a way that makes them want to pay more for them than their so-called ‘intrinsic value’. Well if all value is subjective then there’s arguably no sensible distinction to be made between the value that the designer, manufacturer, retailer or the marketer puts in, and literally anyone else who contributes to making a good/service the way it is perceived to be by consumers. You could find out what people want then try to find a way to give them that, or alternatively find out what you’re good at producing and try to find a way to make people want that. Marketing should therefore be seen as a source of competitive advantage rather than a cost.
As consumers though, we might therefore view marketing as devious tricks that make us feel like paying far more for things than their ‘intrinsic value’!
Consumers are swayed by irrelevant factors like brands – people who swear that they prefer one brand of something can prefer another in a side-by-side blind test. Marketing can improve awareness of a product’s uses or benefits, but a lot of it is also hype and nonsense to try to extract a greater profit from consumers. (Purchasing expensive items is a way for consumers to signal their (apparent) wealth and status too, and marketers will gleefully exploit this!) But if consumers were perfectly rational – marketing wouldn’t have quite an effect on people and it wouldn’t be the multibillion-dollar global industry it is because people would be too sensible to fall for its influences.
The ‘value’ and ‘price’ of something should align as being the same things but they don’t always – if we perceive that the value of something exceeds its price then we’ve found a bargain, or if the price exceeds its value then it’s a rip-off. But since the values of things are subjective, and we’re influenced by what’s in our current environment – the prices placed on items shape our subjective values of them, especially if we don’t know the market prices of those items (e.g. when it’s a new type of product with no direct competitors). So the perceived values of things are massively affected by what prices have been slapped on them. And if an item has apparently been ‘discounted’, we’ll start to think about the ‘savings’ more than the costs, even though that item still might cost less elsewhere.
£1 for a teabag seems expensive, until compared to getting a cup of tea from a shop, even after accounting for the hot water and labour. Yet a £2 tea from a shop can seem cheap when compared to a £3 tea from another shop. Depending on what we’re comparing to, we’ll think something is a rip-off or bargain – so those who compare a £2 tea with a 10p tea at home will think the former is a rip-off, and those who use coffees from cafés as their frame of reference will think that ‘barista style’ coffeemakers at home make bargain price coffees. Likewise, a mobile phone game priced at £16 mightn’t seem worth it, yet the same game on a dedicated handheld console priced at £35 might seem okay.
We’re not making ‘cost-plus’ pricing calculations – not that most of us know what the breakeven unit cost is for a shop to produce a particular drink?! Without comparing to the competition, we won’t know what profit margin is acceptable either. We don’t have an intrinsic idea of the values or prices of things, so these can change depending on what we’re comparing things to.
What are the implications of this if we believe that market prices always stabilise? Wouldn’t our choice instability mean that market prices are always liable to being volatile? Don’t even human beings or other living organisms have a fixed intrinsic value?
For better or worse, we might just do roughly what we’ve always done before, or follow what others are saying, doing or paying (when we could all be trying to blindly follow each other) and that’ll be our typical rationale for our behaviours. Well it’s true that the market price is the price we must pay most attention to, for even if we personally think something is worth a price that’s vastly different to what other people think, it’s not going to work because we’re going to be trying to sell something at a price that other people aren’t willing to pay, or we’re going to be trying to buy something at a price that other people aren’t willing to sell it for. Competitive forces enable stability in markets because buyers should always want the best value for money and sellers should be constantly comparing to the prices that their competitors are offering for the same things, which should be attractive enough for buyers yet still profitable enough for the sellers.
Having said that, we shouldn’t just blindly follow the herd because such behaviour leads to the booms then busts we experience as crashes in the financial markets. When we look at the dot-com bubble, 2007/2008 Financial Crisis and other bubbles, crises and market instabilities throughout history so far, we’ve got to question the assumption in classical economics of complete human rationality, objectivity and consistency.