The Truth about Relativity Why Everything Is Relative - Even When It
Shouldn't Be
So imagine you're walking around the store looking at things,
and you see a bread maker.
There's only one bread maker, and it costs $99.
And You look at it and then move on to other things.
This was a huge problem for a bread maker company.
People weren't buying, so they decided to do something clever.
They came out with another more expensive bread maker
so that they could start selling the less expensive one.
So how did that work?
Well, now you walked around the store, came across bread makers,
and you saw one for $99 and another one for $199.
And all of a sudden, there was something to compare it to,
the $99 bread maker became much more attractive, and people started to buy.
This is the power of relativity.
We have no idea about how much things should cost.
Should a bread maker cost $49, $99, $199?
I mean who knows?!
Wine companies, along with restaurants, and many other establishments
know this really well.
Most people have no idea about wine.
If you're like most people, you wouldn't be able to tell any difference
between a $10 wine and a $35 wine in a blind test.
So because of this, relativity is one of the most powerful tools.
If you're the buyer, do you want to buy the wine that costs $10
or $35?
You know you won't be able to tell the difference if you're like most people,
but hey, look, there's also one for $70,
so I'm gonna go ahead and grab the $35 wine.
That is literally how most people make the decision
on what to buy.
And this has huge implications if you're selling as well.
Let's say I wanted to sell you an educational product I made for $49.
Now who knows what a product like that should cost?
I mean seriously...
But what if I put it in perspective for you?
What if I tell you...
If you live in North America, that translates to going out
and eating twice at a mediocre restaurant.
Do you think it's worth it to give up eating out those two times,
so you can buy a product that really has the potential
to make your life a lot better?
And I could actually do this really well, and I don't even have to lie to you about
anything either, I can be super honest about it.
But the difference is that I've put it in perspective for you now,
and you're much more likely to buy.
The Cost of Zero Cost Why We Often Pay Too Much When We Pay Nothing
Alright, let's be honest...
How much pleasure do you derive from Amazon's Free! shipping?
Me personally, I absolutely love it.
I love when something is shipped to me for free.
If you're final came out to $62 and you had to pay $6 for shipping,
and if your final came out to $68 and shipping was Free!,
most people are going to be much happier, or what economists call deriving more utility,
with the second purchase.
Now that's crazy but there's something about Free!,
that we're just wired to absolutely love . Perhaps, it's loss aversion that I talked
about in my last video.
When you pay $5 for something, there's a chance that you made a bad decision,
so there is a downside to it.
You might get home and be sad that you didn't make the right choice.
But what happens in the case of free stuff is that it seems like there's no downside,
especially by the standards of System 1, which again I discussed in my last video.
If you get home, and the product sucks, your brain will say,
"Well, whatever...
I got it for free anyway."
But what if what you got is Ben and Jerry's ice cream,
that you waited 2 hours for just like a lot of people do?
Your System 1 will still say, "Well, whatever...
I don't like this flavor but it's not like I paid for it."
But you did, and you paid a lot!
2 hours of your time for a $3 item?
Come on!
You're valuing your time at $1.50/per hour.
At least go for the minimum wage.
So there are huge implications to understanding our love for
quote unquote FREE!
stuff whether you're the buyer or the seller.
You can dramatically diminish your irrational behavior as a buyer,
and you can sell a lot more as a seller.
The Cost of Social Norms Why We Are Happy to Do Things,
but Not When We Are Paid to Do Them
Imagine I'm your neighbor and I need help with my car,
and you're walking by and you offer to help.
Now imagine I tell you thank you and I offer you $5 when you're done helping
me.
That will make you angry and pissed off.
"What the hell?"
Now here's the thing...
From a traditional economic perspective, $5 is much better than $0,
but we're confusing market norms with social norms.
I could offer you a $1000 to help me, and you will gladly help.
I could ask you as a human being in need, and you will also help.
But as soon as I pay you $5, I've messed everything up.
Now this has huge implications.
Dan Ariely has a great example of lawyers.
They were asked to offer services at a discounted price of $30
to a group of people in need, and they all rejected.
Then they were asked to offer services for completely free
as a decent and a charitable thing to do and most of them agreed.
This is the problem that we face today.
You don't want to offer the $30 to the people that you're leading.
You either want to offer the real wage and meet the market norms,
or you want offer something congruent with social norms.
And I think utilizing these social norms can have really efficient, amazing effects,
but at the same time, even large corporations don't quite clearly
understand this distinction.
Instead of appreciating the person's dedication to helping fix the
car, they offer the $5 incentive.
The Problem of Procrastination and Self-Control Why We Can't Make Ourselves Do
What We Want to Do
So Dan Ariely had a class where three papers were due
by the end of the semester, and also a class where the three papers were
spread out with three deadlines at 4 weeks, 8 weeks,
and 12 weeks.
Now there was more to this study, but to keep it simple,
let's look at the results.
The class with no deadlines did much worse than
the class with the deadlines spread out throughout the semester.
Now, two huge takeaways here...
One...
I know a lot of people who are working on a project
or a new business or whatever you want to accomplish,
and they don't have any set deadlines.
And if you do this, you're pretty much guaranteed to fail.
You don't want to be one of those people.
A lot of times in life, you won't have a teacher who will set the
deadlines for you, but you have to set artificial deadlines for
yourself.
This is absolutely crucial!
One of the things that I've done with these videos
is taking it from having no deadlines whatsoever, to having a video that has to be ready for
rendering every Tuesday, Thursday, and Saturday before I go
to bed.
I've stayed up till 6 in the morning sometimes because I can't go to sleep unless the videos
are ready.
And for over a month now, I've always had a video ready
for final rendering before I go to sleep.
So this has obviously worked really well, but if I was still struggling with it,
I would put some really unpleasant punishments in place,
just like having points taken off if the paper is late,
and just like how doctors offer paying an extra $200 up front to patients
that will be deposited back into their bank account
if they show up for their colonoscopy or whatever, and a lot patients actually agree to it
because they know they will be forced to show up
and do the right thing for their health.
So if I were struggling with meeting my artificial deadlines,
imagine how effective it would be setting up a $500 punishment,
where if I don't have a video rendering in my computer
before I go to sleep, I have to pay $500 to a charity
that I absolutely hate.
Well I can guarantee you, I would do anything and always have it ready
just so that wouldn't happen.
And there are so many aspects to procrastination, which I will probably address at some point
in maybe a quote unquote ultimate guide to it or whatever,
but this particular part is a huge part.
So again, One...
Set up artificial deadlines.
Two...
If you're not meeting them, set up some really unpleasant punishments,
and I will guarantee you that you will meet them.
I had a friend a few years ago who had major trouble
approaching girls that he liked.
So I took him out one time and got him to agree
to give me a $100 that I would keep for myself unless he approached every girl that I told
him to approach.
The result...
He approached every single girl, even if the interactions were possibly the
most awkward thing I have ever seen.
But, fast forward a few years later now, and he's better at it than almost any other
guy I know.