The Financial Crisis And Human Psychology: Cutting Off Your Nose To…

MIT Professor and behavioral economist Dan Ariely (who’s excellent book “Predictably Irrational” I have referenced or quoted a number of times on this blog in recent months) was interviewed via phone on CNBC a few days ago, and he pointed out something very significant:

When social trust is violated, as has been very broadly and shockingly the case over the last month or so, the instinctive psychological reaction of human beings is revenge.

And while that may still sound rather pedestrian, the corrolary is where the proverbial rubber meets the road. Because the emotional state of revenge includes an element that says, “we want to hurt the perpetrator(s) of this breach of social trust, EVEN if it ends up hurting us in the process.”

If you take this to be the definition of revenge in contrast to say “normal” anger or even rage – which do not include this self-destructive element outright, though they may of course often go down a similar path -, then it is clear why our instinctive response to this financial crisis and the various remedies such as bailouts (whether they be perceived or actual) is so dangerous:

We are literally prepared to undergo further pain personally, if only there could be revenge taken on the “greedy Wall Street executives” et al. by letting their companies go under, and so forth. The sentiment is very much like that captured in the old proverb: Cutting off your nose to spite your face.

I am not trying to make an economic or political case either for or against anything that has been going on since at least September 15 (though there is much to be in disbelief or even cynical about), but the reality is that revenge (or anger) is a very poor basis from which to operate or from which to make important decisions for your business, your loved ones, or yourself. Because it clouds our judgment.

If you have any means to do so (Business Mind Hacks coaching is one of the ways), it would best to let go off the anger and/or feelings of revenge, or to at least set them aside while you are trying to make important decisions or take important actions.

Best wishes in “interesting times”
– Alex Schleber

New iPod Touch Pricing: Just A Decoy Offer To Drive iPhone Sales?

Apple unveiled it’s new renditions of both the iPod Touch and the iPod Nano on Tuesday, along with several other software upgrades. And at first I was surprised by some of the price-point decisions:

1) I had thought the Nano might go to $99 from $149 in line with Apple’s new, more populist "recession pricing" ideas they applied to the iPhone. Then again, as the undisputed market leader (73%), you by rule have premium pricing power, although it seems like it could have put a permanent nail in the coffin of all competitors (Microsoft’s Zune apparently currently only has 2.4% marketshare).

2) Thought that the Touch (entry-level now priced at $229) might be put at $199 for the same reason, the psychological impact of going below the ‘2’ should not be underestimated, as recently proven by the strong iPhone 3G sales.

Then it hit me, the Touch in particular may be just the $229 comparison item, that could push people to look at buying the (long-term more lucrative and more important to Apple) iPhone for $199 as a no-brainer.

Dan Ariely’s excellent "Predictably Irrational" talks about such contextual "decoy offers" that can boost sales for the item the seller really wants people to buy. As an example he uses a past offer by british business magazine The Economist:

It had listed $59 for on-line access only, $125 for print-only, and $125 for print & Web combo subscriptions, and had thereby significantly boosted the number of the expensive combo subscriptions sold (vs. test offers that omitted the seemingly non-sensical $125 print-only option)!

Other similar set-ups in formal experiments conducted by the MIT behavioral economics professor had shown similar results. People make less-than-fully-rational decisions based on the context and comparisons provided.

So in essence, it is like saying: "Let a few technophiles buy iPod Touches, but really we want to indirectly boost iPhone sales." And even the $149 Nano pricing makes more sense that way, if you view it as yet another decoy offer to point to the iPhone as a no-brainer.

I wouldn’t put it past Apple, they can read New York Times Bestseller books on business psychology with the best of them…

In other Apple news from the launch event…

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