Why You Buy a Home

By: Steven Gillman

Part 2
 
More of the findings of the recent studies in behavioral economics:

Webers Law

A change of stimulus is more emotional and motivational, according to the base: Most subjects tested would drive across town to save $10 on a $20 item, for example, but not to save $10 on a $500 item. The lesson for sales people? If you won't lose a sale on a thousand-dollar couch over $10, sell the other benefits of the couch in your sales pitch.

Familiarity Fallacy

Economic choices are often made due to familiarity, even when the choice is clearly worse ("But I always shop there!"). This bit of research shows the need to get a customer used to coming to your business.

If they are comfortable, they won't expect or demand the best deal.

Anchoring

In tests, mentioning the year 220 A.D., versus 1600 A.D., resulted in earlier guesses when people were asked for the birth date of Ghengis Khan. This was true even when the comment was in no way related to Khan. This tendency to "anchor" was found in the economic realm as well. Mention $300 as the value of an item, and subsequent negotiation or discussion will revolve around that.

The implications are obvious, and are being studied. It seems an item should be worth a certain amount to a particular customer, but humans are never so logical in valuing things. Why can you get $99 for an e-book online that has roughly the same content as a $10 book in the bookstore? Is it partly due to the "$500 value" thrown out there for the book and "bonuses." It makes $99 seem cheapScience Articles, doesn't it?

There are reasons people buy that go beyond any of the reasons given. Rationalization seems to rule over rational thought. I'll cover more of the research into behavioral economics in part three.

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