Marketers all over the world earn their salaries when we reach for our wallets more often. Everyone knows the pesky salesman when they see one, and some are even smart enough to evade him all together.
But they’re getting smarter every day. It turns out that we’ve got little bugs which evolution has left behind in us, and it is these bugs that they are exploiting to their benefit!
Let me tell you a story. A newly wedded couple named John and Jane, went to Las Vegas for their honeymoon. They had taken $10,000 with them, and it was to last them their week long trip, to the Grand Canyon, and the Hoover Dam, and other local sights.
They reached their hotel late after midnight, with the intention of crashing. But it was their first time in Vegas, and they were shocked and surprised to learn that their hotel had a casino! They found themselves pulled towards the machines, and before the hour ended they had blown almost all the money they had with them! All they had remaining was $10.
Jane was crestfallen. She said to John, “That’s the end of our holiday right there. All we can do now is catch the first flight back home tomorrow! Let’s go back to the hotel room and catch a couple of hours of sleep.”
The husband agreed, and together they walked up to their room. He was still clutching the last $10 bill in his hand.
Soon, Jane was fast asleep, but John couldn’t seem to settle down. He still wanted to have one last go at the tables. What if the odds turned in his favor? He had to have one last go, he just had to!
He tiptoed out of the room, without disturbing his wife, and went back to the tables in his pajamas. And, luckily for him, the odds did favor him now! Deal after deal went in his favor, and he doubled his money on every turn. An hour later, he was still playing. If he walked away from the tables then, he would have had just shy of a million dollars in his pocket!
Just then, the manager of the casino came up to him. He said, “Sir, we’re very sorry but you’ve reached the limit of our bet size. I’m sure you’d be interested in going to our bigger casino? We’ll be happy to take you there!”
And so they went. The manager brought out the hotel limo, and John got in. He’d never sat in a limo, but he did wish that he wasn’t in his pajamas. Still, here he was, riding on a million dollars and such good luck that he hadn’t had in his lifetime! He tipped the driver a $100 in casino money, and went into the next casino.
John really felt invincible. He was at the top of his form, and nothing could go wrong for him. And for a while, it did seem right! He grew the million dollars that he had brought in with him, and made it 3 million! He was taken up to the high security tables, where huge men in black shades were watching to make sure the players were safe. A couple of hours more, and he had nearly 10 million dollars to his name. Starting with just $10, that was a great achievement!
It was coming up to daybreak, and John couldn’t wait to go back to Jane and tell her the good news. With all this money, they could do all the things that they had always dreamed of doing: travelling the world, a big house, lots of pets and never having to work again! With all this going on in his head, he played one last hand. He bet all his money on it, but his luck didn’t hold. He lost all the money he had!
It turns out that when you don’t have any money, no casino sends out its limo for you. John had to walk back to his hotel, a long, solitary walk where the dreams that had been so close to reality were again banished to the distant horizon. It took him an hour to get back to his room, and as he entered Jane was just stirring.
“Where were you, John?”, she asked, rubbing the sleep out of her eyes.
“I went back to tables.”, he answered dully.
“Oh no! Did you lose more money?”
“No. Only ten dollars.”
“Oh. That’s all right then.”
— — — — — — — — — –
How much do you think did John lose at the tables? Do you agree with him saying that he lost only ten dollars? Or did he lose much more? Maybe ten million dollars?
If you think he lost only ten dollars, then you are falling prey to a well-known psychological bias called mental accounting, or the “House Money effect”:
We treat money that we win, discover or inherit much more frivolously than hard-earned cash. The economist Richard Thaler calls this the house-moneyeffect. It leads us to take bigger risks and, for this reason, many lottery winners end up worse off after they’ve cashed in their winnings. That old platitude — win some, lose some — is a feeble attempt to downplay real losses.
from “The Art of Thinking Clearly” by Rolf Dobelli.