Thursday, September 08, 2011

Last Place Aversion

This was a pretty interesting finding.  It says a lot about how sometimes people behave (voting, working, local civic activism) against their own best interests.

Past research has shown that people often act against their best interests to satisfy visceral emotions and fears.  In these cases, we don’t realize we are acting against our own interests.  For example, working class people are often against taxing the rich.  This seems against their interests.  But there is a subconscious feeling that if we are against rich people we are concluding that we will never be one of them.  It’s like saying they are one group and we are a separate group and you can’t go from one to the other.   It’s an odd form of loss aversion.  There is a visceral feeling like if we support taxes on the rich we are admitting defeat in our own lives.  Not everyone feels this way or votes this way, but it is enough to shift a few key elections now and again.  

The same thing happens with the minimum wage.  There is an odd drop in support for people who make just above the minimum.  Unconsciously (or maybe even consciously) they feel like if the minimum wage gets raised to what they are already making, then all the people they used to be "ahead" of catch up and now they are in last place too.
This study added a nuance.  You can imagine from my title what the basic finding is.  People have basic competitive instincts where we want to win, want to get ahead, would rather be in second place than third place.  But there is a stronger aversion to last place.  We will do almost anything not to be last, even if it means acting against our own self interest as long as it puts someone else in last place.

This is an oversimplification , but basically they gave random people all different amounts of money. The requirement was that they had to give some of it to someone else.  Most of the people gave money to people who had less (we are all somewhat altruistic at heart).  The only exception was the people who had the second least.  They refused to give money to the person at the bottom because then they would be the person at the bottom.  Even though it was random – it wasn’t any kind of statement about their abilities or talent – they still couldn’t bring themselves to do anything that would put themselves into last place.

scarcity and uniqueness

Continuing yesterday’s discussion, a third topic I often discuss is the perceived value of uniqueness and scarcity.  These are powerful marketing tools.  The reason infomercials often say “for a limited time only”  “only three left” or “only one per customer” is that these things makes us feel that the item is more special.  If I get one, there is one fewer other person who can get one.  It gives me power.  It makes services like Groupon and Woot work so well.

Similarly, customizable products are special because you can make your item into a one-of-a-kind version.  Nike came out with a sneaker that you could design online with different colors and styles and order something that no one else will have.  Tattoos have become popular because it allows people literally to brand themselves with something only they have.  Vanity plates became popular for the same reason.  Having something no one else has makes us feel special.

This works for information too. Knowing a secret gives us a sense of excitement and positive self-image It gives us power.  In-and-Out Burger has many items that are on a “secret menu.”  The employees know all about them, but they are not listed on the menu.  You can only order them if you are “in the know.”  This makes you feel special, feel powerful.  More unique.  This tactic sells countless games of Super Mario Brothers.

Of course, these marketing techniques don’t make the product inherently more valuable.  But studies show that we pay more for them than we do for standard products.  This freedom, power, and uniqueness have value of their own.  Being able to integrate them into your product design or marketing gives you pricing power and switching costs.