Tuesday, February 1, 2011

Relativity and Business

One of my favourite all time books is Predictability by Dan Ariely. Ariely talks about relatives, the importance of relativity in business and everyday life. I've taken an example from his book.

In 1999 the economist had this on their website:



Before reading on, I want you to ask yourself what subscription would you choose?

So, the print subscription looks useless, why choose that when we can have both. Now Ariely took this study to 100 MIT students and asked them what subscription would they choose?

16% chose online subscription

0% chose print subscription

84% chose print & web subscription

Now when Ariely removed the Print subscription from the equation and re-ran the study he found something very different.

68% of students chose the online subscription

32% chose print & web subscription.

A seemingly useless option affects our overall decisions immensely. People generally don't believe our decisions are affected in this manner, the reality is that relativity helps us make decisions. We make decisions based off of the value of something else. In this case it's the value of the printed version of the economist.