Lesson 4 Everyday Decisions
Why You Buy What You Buy
Good afternoon, students. Today, ____ like to talk about a topic that concerns us all: Money!
Do you ____ that you spend money wisely?
The truth is that most people are not as rational ____ they think.
This is because human beings are easily influenced ____ psychological factors.
Let me illustrate my point through ____ following examples.
____ Anchoring Effect
In 2010, Steve ____ introduced the tablet computer to the world.
During the presentation, he said, “We’re going to price it under a thousand dollars,” which most people assumed meant ____
He went on ____ talk about the features of the tablet and continued to justify why the tablet was worth buying.
At the end, he said, “I am thrilled to announce to you that the pricing ____ not at $999 but at just $499.”
The crowd went wild. The tablet suddenly seemed ____ to everyone.
He put the $999 price tag in people’s ____ at the beginning so that the $499 price would seem a lot cheaper in comparison.
Steve Jobs used ____ called the anchoring effect to his advantage here.
It works because people tend to rely on the first piece ____ information they receive when making decisions.
Let’s say you are shopping for ____ new jacket and the first one you see is priced at $100.
That’s too expensive, as you don’t want to ____ more than $50.
Soon after, you see a similar jacket from a ____ brand with a $70 price tag.
You think ____ affordable, even though the price is still beyond your budget.
This is because the first piece ____ information acts as an anchor that influences your decisions later.
Here’s another common example. ____ at the two pairs of sneakers.
____ both are $50, but the way their price is presented is different.
Naturally, people are more drawn ____ the second pair.
This is because the original price serves ____ an anchor, making the discounted price appear more reasonable in comparison.
It is common for stores to use this kind of price anchoring ____ a way to encourage purchases.
The Endowment Effect
Now let’s move on ____ another interesting effect.
In an experiment, one group of students was given a coffee mug and a second group a ____ bar.
Both groups were told ____ could exchange their items.
A third group wasn’t given ____ and was told to choose either a chocolate bar or a coffee mug.
This group showed an equal preference for the ____ items.
About half of the group chose the chocolate bar, and the ____ half chose the coffee mug.
____ suggested that roughly half of the first and second groups would trade their items.
But that’s not what happened. Only about 10 percent of ____ students in the first and second groups were willing to make the exchange.
Why is this? This is ____ people value something more when they own it.
This is the ____ idea of the endowment effect.
People are less likely to give up what ____ already have or trade it for something else.
____ often use the endowment effect as a marketing strategy.
For ____ many media streaming companies offer free trials to customers.
Once customers use the free trial, they feel ownership of that service, even ____ it’s temporary.
Consequently, they are ____ to value it more and are willing to pay to continue to own it.
A free-return ____ is another example.
Say that a company is offering free returns on a ____ within 30 days of purchase.
It seems like a good deal, since you can get a refund even after ____ the item.
But once you take this deal and establish ____ of the watch, it is unlikely that you will return it.
As we’ve seen, our spending can be influenced by factors that appeal to our emotions and ____
I hope this short lecture gave you a chance to reflect on your own spending and helped you understand ____ reasons behind irrational purchasing decisions.