Take a look at this:
I gave my friend the following options and asked him to choose.
Option A - Rs. 50,000
Option B - A 50-50 chance on Rs. 1 lakh.
(Please substitute the rupee with whatever currency you think in, and for those who don't use the term, One lakh is 1,00,000).
He said he will go with option A. So I reduced option A to Rs. 25,000 and asked him to choose. Still it was option A. I further reduced A to Rs. 20,000 - still it was option A. So I reduced option A further still to Rs. 15,000/- and THEN he says option B. So the turning point was somewhere between 15,000 and 20,000. We decided to find out exactly where. So we tried 15,500, 16,000 etc. It transpired that the the choice flipped at Rs. 17,500. So, to put it more lucidly:
Option A - Rs. 17,500
Option B - A 50-50 chance on Rs. 1 lakh
He will choose option A. If I reduce A by a mere one rupee to 17,499, he would choose option B.
This made me wonder - In the ordinary course if I asked him to give away one rupee, he would do it without thinking even once, let alone twice. Why is it that the same one rupee is making him gamble 17,499?? Yes, you would reply that it is the perceived reward of a probable one lakh, but if you look at it aside from the one lakh, it is very puzzling.
We go blue in the face bargaining at a roadside shop or with an auto-driver, and its sometimes a question of just 10 rupees to make or break the deal. But the same 10 rupees if charged to us as extra by CCD or Pizza Hut, many of us would not even notice. I sometimes drink tea at restaurants because I don't want to pay the extra 10 rupees for coffee. But I would still buy that pair of Levis jeans even if it costs 500 bucks more.
Money takes on different values in different contexts. The perceived cost of money is different to us at different places. And if you look at how inconsistent it is, its mind-boggling. Somehow, we are not able to think in terms of "real" money, outside of the context of where we spend it. We crib about spending 1 rupee more per SMS or feel cheated if we pay 10 bucks more to the auto guy. But we don't really differentiate between 10,000 and 10,500 while buying a new phone. While buying a laptop, a margin of 2-3 thousand is ok. While buying a car, we dont let an extra 25,000 influence our choice. If it is a flat, then an added 50,000 doesn't really count when we are spending 45-50 lakhs. We see money only in the backdrop of things, never on its own.
I have always tried not to be penny-wise and pound foolish. But I now realise that being pound-wise and penny-foolish is equally dumb, even though it might cost you less.
Option A - Rs. 17,500
Option B - A 50-50 chance on Rs. 1 lakh
He will choose option A. If I reduce A by a mere one rupee to 17,499, he would choose option B.
This made me wonder - In the ordinary course if I asked him to give away one rupee, he would do it without thinking even once, let alone twice. Why is it that the same one rupee is making him gamble 17,499?? Yes, you would reply that it is the perceived reward of a probable one lakh, but if you look at it aside from the one lakh, it is very puzzling.
We go blue in the face bargaining at a roadside shop or with an auto-driver, and its sometimes a question of just 10 rupees to make or break the deal. But the same 10 rupees if charged to us as extra by CCD or Pizza Hut, many of us would not even notice. I sometimes drink tea at restaurants because I don't want to pay the extra 10 rupees for coffee. But I would still buy that pair of Levis jeans even if it costs 500 bucks more.
Money takes on different values in different contexts. The perceived cost of money is different to us at different places. And if you look at how inconsistent it is, its mind-boggling. Somehow, we are not able to think in terms of "real" money, outside of the context of where we spend it. We crib about spending 1 rupee more per SMS or feel cheated if we pay 10 bucks more to the auto guy. But we don't really differentiate between 10,000 and 10,500 while buying a new phone. While buying a laptop, a margin of 2-3 thousand is ok. While buying a car, we dont let an extra 25,000 influence our choice. If it is a flat, then an added 50,000 doesn't really count when we are spending 45-50 lakhs. We see money only in the backdrop of things, never on its own.
I have always tried not to be penny-wise and pound foolish. But I now realise that being pound-wise and penny-foolish is equally dumb, even though it might cost you less.
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3 comments:
sahi tha boss...
Famous ad…ING vysa (ahem ahem had to mention it)…. Money just for the sake of it doesn’t appeal everyone though undoubtedly it’s such a green thing that u can’t overlook a penny here or there (except in few matters that also depends on the individuality). More or less…one would do anything…(beg…borrow…steal…). It’s the main necessary evil to buy any commodity….Well! Some of us pray kuberji n lakshmiji so can’t actually call it EVIL…as we need it to LIVE of/by/for it….errr….can’t escape from the practicality.
Moving onto the notion of playing safe...when we actually get something for FREE….hmmm none of us basically want to take a chance to lose it… till the cash/cheque is in one’s hand….(who doesn’t want to be a millionaire? ). After all it’s the green stuff that’s going to matter in the end (by default we’re aware…courtesy….linkin park….it doesn’t matter in the end). A matter of penny or pound does bother the real needy….and the stingy wud to always add more pile for the next age…security u c….
Nutin wud ever satisfy anyone unless they truly realize what they want !?!…whether its green in their own pocket or other’s pocket green making them go green ??…..its a competitive world and one who strives to compete will always face comparisons that will force them to exploit their own energy till they are done to achieve this something called green n a bit of fame….hahaha funny but this is how we LIVE with our EVIL… :)
Veena Its really nice and we all should take a note of it...
I think u can add more such things as faced by Warren Buffet in this regard.
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