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  • 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.

The Truth about Relativity Why Everything Is Relative - Even When It

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PREDICTABLY IRRATIONAL BY DAN ARIELY | ANIMATED BOOK REVIEW

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    VoiceTube posted on 2016/07/03
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