# Deciphering the Truth of “Don’t Order Without Free Shipping”

”Smart budgeting” is definitely one of the major “virtues” of young people this year. Spending hundreds or thousands of online shopping in the live broadcast room is commonplace, but if you don’t have free shipping, you will never place an order; more than a hundred “3D” movie tickets can be bought casually, but video members must rub friends; cosmetics are expensive. It’s worth it, but the free sample must be accurate to the milliliter; the 30 yuan cup of coffee doesn’t even bat an eyelid, and the vegetable market fights hoarsely for a few bucks; no matter how expensive it is in an online celebrity restaurant, you have to queue for an hour, and there are no full orders on the takeaway app. Cut down and never place an order… Don’t doubt that I installed a camera in your home. Psychologists tell you that these consumer behaviors can actually be called economic decisions. “.

Risk or safety, why do we make decisions so differently?

Daniel Kahneman is the first psychologist who won the Nobel Prize in Economics for his psychological research in the true sense. He has been receiving psychological training from undergraduate to Ph.D. According to Kahneman, the fascinating thing about economics is that many seemingly rational people are actually doing irrational things, but still insist that they are rational. Do you believe? Let’s do a set of questions first:

Question 1: If you want to make an investment, there are two sets of plans A and B, which one would you choose?

Plan A: It is 80% possible to earn 4,000 yuan

. Plan B: It is certain to earn 3,000 yuan.

If there are two sets of plans C and D, which one would you choose?

Plan C: 20% may earn 4,000 yuan

Plan D: 25% may earn 3,000 yuan

What about plans E and F?

Plan E: 90% of the possibility of earning 3,000 yuan

Plan F: 45% of the possibility of earning 6,000 yuan

If the guess is correct, in plan A and plan B, you will choose B; C; in plan E and plan F, you will choose E. Yes, that’s what most people do. Statistics show that 20% of the candidates choose A, 80% choose B; 65% choose C, 35% choose D; 86% choose E, and 14% choose F. In the context of income, people prefer certainty, and the higher the probability, the greater the possibility of choosing (such as A and B, E and F). Even if you earn a little less, you must first ensure that you can earn it. When the probability of gaining benefits decreases, people’s decisions begin to change (such as C and D). But what would we do if we lost money?

Question 2: If you encounter a business that is not going well, you have the following options, which one would you choose?

Option A1: 80% possible loss of 4,000 yuan

Option B1: Sure loss of 3,000 yuan

In another case, how would you choose?

Option C1: 20% possibility of losing 4,000 yuan

Plan D1: 25% may lose 3,000 yuan

What if it is Plan E1 and Plan F1?

Scheme E1: 90% may lose 3,000 yuan

. Scheme F1: 45% may lose 6,000 yuan.

The survey shows that 92% of people will choose A1, 58% of people will choose D1, and 92% of people will choose F1. Is it the same as your choice? In a loss situation, people will take more risks. If the probability of losing two schemes is high, then they have to take a gamble and choose the one with a lower probability, even if it is possible to lose more (such as A1 and B1, E1 and F1). If the probability of loss is similar, then people pay more attention to the issue of “how much to lose” and choose the plan with less loss, even if the probability of loss is slightly higher (such as C1 and D1).

Kahneman concluded that people’s decision-making behavior is different in the context of gains and losses. In the case of gains, people are more willing to “take a chance” and win with stability, and would rather give up the possibility of making more money; in the case of losses, people are more willing to “let go” and take the risk of greater losses. Win in danger. When the probability of gain or loss is similar, people’s decision-making will deviate from this basic law. In fact, this is a paradox: a person who seeks stability will choose to take risks in the case of losses; a person who takes risks will seek stability in the case of gains.

With more information and more choices, will we really be more rational?

Real economic decision-making scenarios are far more complicated than the above situations. In real life, before getting the above solution, we have already made many other choices to eliminate redundant information. The question is, will these extra choices and information affect our economic decision-making behavior?

Question 3: Suppose an investment project is divided into two phases. In the first stage, your investment has a 75% probability of being fruitless, and a 25% probability of entering the second stage. If you enter the second stage, you will face two options, which one will you choose?

Option G: 80% of the possibility of earning 4,000 yuan

. Option H: Definitely earning 3,000 yuan.

You will definitely choose H without hesitation. Isn’t this problem the same as the A plan and B plan in question 1? Most people think the same way, so 78% of them chose option H. However, is this problem really the same as Plan A and Plan B? Let’s take a closer look. The real probability of earning 4,000 yuan in plan G is 25%×80%=20%, and the real probability of making 3,000 yuan in plan H is 25%×100%=25%. Therefore, plan G expresses the meaning of “20% can earn 4,000 yuan”, and plan H expresses the meaning of “25% can earn 3,000 yuan”. This is far different from Plan A and Plan B, but it is exactly the same as Plan C and Plan D! However, in comparison, everyone is hesitant when choosing option C, but in the same option G and H, there is almost no hesitation when choosing H.

Just adding a seemingly unimportant precondition, and keeping other information unchanged, the decisions we make are so different! Kahneman and his colleagues were also amazed that people’s economic decisions could be so heavily influenced by some seemingly unimportant information. Therefore, they designed another set of questions:

Question 4: If you got 1,000 yuan now, which of the following two options would you choose?

Scenario I: There is a 50% chance of getting another 1,000 yuan

. Scenario J: You will definitely get 500 yuan.

Then the topic changed:

If you got 2,000 yuan now, which of the following two options would you choose?

Plan K: There is a 50% possibility of losing 1,000 yuan

Plan

L : There will be a loss of 500 yuan Pocket safe” strategy and loss scenario “let it go” strategy. However, is this really the case? If we compare these four plans together, we will find that in plan I, the probability of getting 2,000 yuan is 50%, which is exactly the same as plan K, and the probability of getting 2,000 yuan in plan K is also 50%. Similarly, plan J and plan L are essentially the same, and the probability of obtaining 1,500 yuan is 100%. The same topic, the same options, but the initial value has changed, and the way of expressing the problem has changed. So many people who claim to be rational will make completely different choices. The key is that they still don’t know it!

Overturning the “prospect theory” of traditional economics

Whether we make money or lose money, our decision-making will be different; if there is one more condition and more information, we are really prone to confusion. Do not place an order without free shipping, get a video member, ask for a sample, save money at the vegetable market, and place an order with a full discount, all because we regard these as benefits and do not want to lose; online shopping in live broadcast rooms, “3D” movies, expensive cosmetics , high-end coffee, and Internet celebrity restaurants, any of them are enough to satisfy us. However, full discounts, limited time, discounts, gifts, these complex information are fascinating and temporarily affect our judgment.

Kahneman believes that the purely rational economic man is just a hypothesis, and there is no such person in real life, and it is impossible to have such a person. He also did a series of other studies with different subjects, and Kahneman concluded three important things from these studies.

First, people have diminishing psychological sensitivity to both losses and gains. The greater the gain, the greater the loss, and often the duller our senses. Changing from 10 yuan to 110 yuan has a much greater psychological impact on us than changing from 1,000 yuan to 1,100 yuan. In the same way, we care more about the loss from 110 yuan to 10 yuan than the loss from 1100 yuan to 1000 yuan. Therefore, some people will haggle over every detail in the vegetable market, bargain with the store for a little delivery fee, and post good reviews for a few yuan coupons, but the same person is not so careful when buying bulky commodities and expensive items. Such behavior is indeed not a manifestation of strong economic decision-making ability.

Second, people feel asymmetrically about losses and gains. Gains and losses of the same amount, everyone feels differently, and is often more sensitive to losses. If I invite you to play a coin guessing game, if I flip heads, you will give me 500 yuan, but if I flip tails, I will give you 500 yuan, would you like to play with me? Most people don’t want to, even though the game is perfectly fair for both of us, with a 50/50 chance of winning or losing. This is because the pain of losing $500 is more impressive than the joy of gaining $500. Generally speaking, when the odds exceed 2 times, more and more people are willing to play. For example, if you win, you can get 1,000 yuan, and if you lose, you only need to pay 500 yuan.

Third, both losses and gains are relative to a reference point. It is not the actual amount or result that really evokes the sense of gain and loss, but the gain or result compared to some reference point. In many cases, what people value is not the absolute value after the change, but the relative value in the change. That is to say, what people look at is not the final result, but the difference between the result and the reference point. Shopping mall promotion, should the banner be posted with “XX discount” or “Price reduction XX yuan”? If you are going to buy a piece of clothing with a price of 1,000 yuan, a clerk says that this piece of clothing is 30% off, and another clerk says that this piece of clothing can be bought now at a discount of 300 yuan, which one will make you more excited? It should be the latter. Economic psychologists believe that when the price of an item is less than 100 yuan, it will be more effective to use discounts to promote it. When the price is higher than 100 yuan, it will be more effective to use numbers directly. After all, a 100% discount on a $100 item seems more exciting than a $10 discount.

Left: Schematic representation of losses and gains. Right: Daniel Kahneman is the first psychologist to win the Nobel Prize in Economics for his research in psychology.

These studies are quite different from traditional economic theories, and some conclusions are even completely opposite. For example, Kahneman proposed that people’s decision-making under uncertain conditions does not comply with the expected utility theory, which violates the dominant axiom, transitive axiom, constancy axiom, etc. in economics, and modified the Friedman-Savi Odd economic model, Markowitz wealth model, etc. These studies have greatly broadened the horizons of traditional economics and filled many theoretical gaps.

The four groups of questions selected in this article are not actually test questions for testing the strength of individual economic decision-making ability. It is not so important whether the answers of most people are consistent with the answers. What is really important is that in this way, we can see that we make decisions process to better reflect on the characteristics of our economic decision-making.

In life, we are sometimes rational, sometimes emotional, sometimes consistent, and sometimes arbitrary. Life is uncertain, and our decisions are sometimes uncertain. When the Prospect Theory was put forward, the United States was facing the “9.11” incident, and the whole society was facing unprecedented anxiety, doubt, and worry. People were afraid of uncertainty, just like some people are afraid of the new crown virus today. Someone once asked Kahneman why he named this theory Prospect Theory. Kahneman replied: The word “prospect” contains outlook and hope, and it has a subtle tacit understanding with people’s inner expectations for a better future. Although the world is impermanent and accompanied by good times and adversities, hope can make people look forward to the future and always yearn for it bright future. Perhaps this understanding of hope is also a positive way for us to review our self-decision-making process, find the rules of decision-making and action, and better face the uncertainty under the epidemic.