Recently I've been reading the book Predictably Irrational by Dan Ariely. It’s right in the vein of many of the books I love to devour because it’s about the human brain – in all its confusing glory – and how we aren’t, at our core, actually rational creatures (as standard economic theory assumes). Even more interestingly, though, is that the book suggests that we’re actually irrational in ways that are consistent and predictable... yeah... wrap your brain around that one!
I’ve only read through a wee bit of the book, so I’ve got plenty more to read before I pass judgement on the whole manuscript (yay or nay), but one of the things Ariely talks about in chapter one caught my attention. He basically says that when asked to decide between a couple of choices, we look for relative value in comparable items. We’re not actually good at looking at something in front of us – with all its pros and cons – and deciding it’s value to us, without having something else to compare it to. We need options, and then we choose whichever option is the best.
The super-simple example he uses is the following: You’re at an electronics store in need of a TV. There are three options available to you:
- Option 1: 36-inch Panasonic for $690
- Option 2: 42-inch Toshiba for $850
- Option 3: 50-inch Philips for $1,480
In this situation, human beings almost always choose Option 2 because the RELATIVE value exchange seems like the best deal. For only $160 more, I can get another 8 inches above the cheapest option, but it'll cost me another $630 to up it another 8 inches, so Option 2 is definitely the best, relatively speaking.
The other interesting nugget Ariely includes in chapter one is that we need our options to be similar enough to be comparable. To take the classic apples and oranges approach, here’s an example:
- Fuji apple for $1/pound
- Navel oranges for $1.10/pound.
- Honey Crisp apples for $1.50/pound
Although the pricing structure in this example is similar to the first one, in this case human beings will almost always pick the Fuji apples. The reason is because the two apples are easy to compare to each other and the Fuji apples are a relatively better deal than the Honey Crisps. The oranges, on the other hand, are just too different, and so therefore get ignored altogether.
Kara and I took these insights and thought about how we might use them as tools for influence. An obvious answer was to apply the insights to the contract proposals we give potential clients of ours. We spend lots of time selling in to companies and organizations our turn-key and custom experiences related to influence, confidence, and leadership. The sales process usually involves several conversations, but a critical step in the process for us is when we put together a formal Thought Document. Typically, by this point, we have a pretty good understanding of what the organizational need is and the budget they’ve got to play with. Kara and I will brainstorm together a couple of options around what we could do that will fit within the client’s budget. Typically, we offer a low, medium, and high option, then wait to hear which option the client picks (if any!).
Before reading Predictably Irrational, we would put down three options that we thought were reasonable, and price them according to a logic that evenly valued our expertise and time irrespective of the choice they made. We typically had a personal favorite, though, that we hoped the client would pick (and no, it wasn’t always the “high” option). But mostly we would just hope and pray that the client would pick the option we liked. That didn’t always happen.
Now, with the insights from Ariely, we have a totally new approach. We don’t worry as much about each individual option appearing to have equal value for money. Instead we make sure that the relative values of each option are different, and use that to influence the client into choosing the option we prefer. We know that any of the ideas we offer up will be valuable for the client and help them close the gap they’re hoping to address, but now we have a subtle say in the work that we do, and that makes us so much more excited to do our jobs every day.
How might you apply Ariely’s findings to the work that you do?
-- Stephanie Judd, cofounder, wolf & heron