The Truth about Relativity
Why Everything Is Relative - Even When It Shouldn't Be So imagine you're walking around the store
looking at things, and you see a bread maker. There's only one bread maker, and it costs
$99. And You look at it and then move on to other
things. This was a huge problem for a bread maker
company. People weren't buying,
so they decided to do something clever. They came out with another more expensive
bread maker so that they could start selling the less
expensive one. So how did that work? Well, now you walked around the store,
came across bread makers, and you saw one for $99 and another one for
$199. And all of a sudden,
there was something to compare it to, the $99 bread maker became much more attractive,
and people started to buy. This is the power of relativity. We have no idea about how much things should
cost. Should a bread maker cost $49, $99, $199? I mean who knows?! Wine companies, along with restaurants,
and many other establishments know this really well. Most people have no idea about wine. If you're like most people,
you wouldn't be able to tell any difference between a $10 wine and a $35 wine in a blind
test. So because of this,
relativity is one of the most powerful tools. If you're the buyer,
do you want to buy the wine that costs $10 or $35? You know you won't be able to tell the difference
if you're like most people, but hey, look,
there's also one for $70, so I'm gonna go ahead and grab the $35 wine. That is literally how most people make the
decision on what to buy. And this has huge implications if you're selling
as well. Let's say I wanted to sell you
an educational product I made for $49. Now who knows what a product like that should
cost? I mean seriously... But what if I put it in perspective for you? What if I tell you... If you live in North America,
that translates to going out and eating twice at a mediocre restaurant. Do you think it's worth it to give up eating
out those two times, so you can buy a product that really has the
potential to make your life a lot better? And I could actually do this really well,
and I don't even have to lie to you about anything either,
I can be super honest about it. But the difference is that I've put it in
perspective for you now, and you're much more likely to buy. The Cost of Zero Cost
Why We Often Pay Too Much When We Pay Nothing Alright, let's be honest... How much pleasure do you derive from Amazon's
Free! shipping? Me personally, I absolutely love it. I love when something is shipped to me for
free. If you're final came out to $62 and you had
to pay $6 for shipping, and if your final came out to $68 and shipping
was Free!, most people are going to be much happier,
or what economists call deriving more utility, with the second purchase. Now that's crazy but
there's something about Free!, that we're just wired to absolutely love .
Perhaps, it's loss aversion that I talked about in my last video. When you pay $5 for something,
there's a chance that you made a bad decision, so there is a downside to it. You might get home and be sad that you didn't
make the right choice. But what happens in the case of free stuff
is that it seems like there's no downside, especially by the standards of System 1,
which again I discussed in my last video. If you get home, and the product sucks,
your brain will say, "Well, whatever... I got it for free anyway." But what if what you got is Ben and Jerry's
ice cream, that you waited 2 hours for just like a lot
of people do? Your System 1 will still say,
"Well, whatever... I don't like this flavor
but it's not like I paid for it." But you did,
and you paid a lot! 2 hours of your time for a $3 item? Come on! You're valuing your time at $1.50/per hour. At least go for the minimum wage. So there are huge implications to understanding
our love for quote unquote FREE! stuff whether you're the
buyer or the seller. You can dramatically diminish your irrational
behavior as a buyer, and you can sell a lot more as a seller. The Cost of Social Norms
Why We Are Happy to Do Things, but Not When We Are Paid to Do Them Imagine I'm your neighbor and I need help
with my car, and you're walking by and you offer to help. Now imagine I tell you thank you
and I offer you $5 when you're done helping me. That will make you angry and pissed off. "What the hell?" Now here's the thing... From a traditional economic perspective,
$5 is much better than $0, but we're confusing market norms with social
norms. I could offer you a $1000 to help me,
and you will gladly help. I could ask you as a human being in need,
and you will also help. But as soon as I pay you $5,
I've messed everything up. Now this has huge implications. Dan Ariely has a great example of lawyers. They were asked to offer services at a discounted
price of $30 to a group of people in need,
and they all rejected. Then they were asked to offer services for
completely free as a decent and a charitable thing to do
and most of them agreed. This is the problem that we face today. You don't want to offer the $30 to the people
that you're leading. You either want to offer the real wage
and meet the market norms, or you want offer something congruent with
social norms. And I think utilizing these social norms
can have really efficient, amazing effects, but at the same time,
even large corporations don't quite clearly understand
this distinction. Instead of appreciating
the person's dedication to helping fix the car,
they offer the $5 incentive. The Problem of Procrastination and Self-Control
Why We Can't Make Ourselves Do What We Want to Do So Dan Ariely had a class where three papers
were due by the end of the semester,
and also a class where the three papers were spread out
with three deadlines at 4 weeks, 8 weeks, and 12 weeks. Now there was more to this study,
but to keep it simple, let's look at the results. The class with no deadlines did much worse
than the class with the deadlines spread out throughout
the semester. Now, two huge takeaways here... One... I know a lot of people who are working on
a project or a new business or whatever you want to
accomplish, and they don't have any set deadlines. And if you do this, you're pretty much guaranteed
to fail. You don't want to be one of those people. A lot of times in life,
you won't have a teacher who will set the deadlines for you,
but you have to set artificial deadlines for yourself. This is absolutely crucial! One of the things that I've done with these
videos is taking it from having no deadlines whatsoever,
to having a video that has to be ready for rendering every
Tuesday, Thursday, and Saturday before I go to bed. I've stayed up till 6 in the morning sometimes
because I can't go to sleep unless the videos are ready. And for over a month now,
I've always had a video ready for final rendering before I go to sleep. So this has obviously worked really well,
but if I was still struggling with it, I would put some really unpleasant punishments
in place, just like having points taken off if the paper
is late, and just like how doctors offer paying
an extra $200 up front to patients that will be deposited back into their bank
account if they show up for their colonoscopy or whatever,
and a lot patients actually agree to it because they know they will be forced to show
up and do the right thing for their health. So if I were struggling with meeting my artificial
deadlines, imagine how effective it would be setting
up a $500 punishment, where if I don't have a video rendering in
my computer before I go to sleep, I have to pay $500 to
a charity that I absolutely hate. Well I can guarantee you,
I would do anything and always have it ready just so that wouldn't happen. And there are so many aspects to procrastination,
which I will probably address at some point in maybe a quote unquote ultimate guide to
it or whatever, but this particular part is a huge part. So again,
One... Set up artificial deadlines. Two... If you're not meeting them,
set up some really unpleasant punishments, and I will guarantee you that you will meet
them. I had a friend a few years ago who had major
trouble approaching girls that he liked. So I took him out one time and got him to
agree to give me a $100 that I would keep for myself
unless he approached every girl that I told him to approach. The result... He approached every single girl,
even if the interactions were possibly the most awkward thing
I have ever seen. But, fast forward a few years later now,
and he's better at it than almost any other guy I know.
