Why do people camp in front of stores or get up in the middle of the night to get the "best deals" on Black Friday? Why do they push and shove and trample each other to purchase products they could have bought two days before without risking their lives or endangering others? What, exactly is the psychology of Black Friday? Behavioral economics provides some answers.
What's the Deal?
To understand it let's begin with a test. Which of the offers below represents the best deal: Offer A or Offer B?
Most people will say that offer A is the better deal because they will "anchor" (that is, they will place their initial focus) on the original price and compare it to the new, discounted price. When their focus is the price differential, they perceive offer A as superior because it appears they save $50 when compared to offer B that only saves them $25.
But this was a trick question and those "savings" are an illusion. The true answer is that neither one is a better deal. They are, in fact, the same deal. In both offers A and B, you exchange $50 for the same item.
"Deals" should be defined by the value of what you gave ($50) compared to the value of what you received in exchange (the item) and not by the difference between the original price--an irrelevant reference point that retailers often manipulate--and the final price.
And yet, people commonly make this mistake because it is a cognitive bias that affects each one of us. Daniel Kahneman was awarded the Nobel Prize in economics, as a psychologist, for discovering people's use of anchoring when making choices under risk and, more significantly, how those anchors can be manipulated by the way they are presented to influence people's perceptions.
Retailers try to create the perception of better deals by directing people's focus to the price differential instead of the value exchange and often succeed in amping up people's response to Black Friday. In Part 2 I'll take a look at the role of scarcity and social norms; what you might call the Tickle Me Elmo effect.
Spread the fire. GS