Here’s a hypothetical situation: you need to buy a blender. You don’t own a blender and frankly, you don’t really know what kind of blender you need. You’re not really sure where blender technology currently stands, you just know that you need one.
So you arrive at the store and they have two kinds of blenders. One is $20. The other is $40.
Which one are you buying? The answer says a lot about how price impacts your perceptions of quality and value.
According to a 2012 study published in the Journal of Consumer Research, when attempting to make purchasing decisions consumers very often rely on what researchers term naïve theories. Because consumers don’t have all the information necessary to decide conclusively which item represents the highest value, they have to fill in their knowledge gaps with these naïve theories - “informal, common sense explanations that consumers use to make sense of their environment.”
When trying to decide between the $20 blender and the $40 blender, our personal naïve theories may convince us that the $20 blender is the better value. After all, it’s half the price and there’s no way it’s only half as good as the other blender.
But – what if only the year before you’d faced a similar conundrum regarding two toasters? And in that circumstance you’d chosen the cheaper toaster only to have it break on you a few months later? Chances are good you’d be more inclined to think that the cheaper blender was inferior and not a good value.
This is why two people in similar financial situations faced with the same choice will often make different decisions. You use your prior experiences to fill in the gaps. The trouble is that the assumptions you make in filling those gaps may not be entirely accurate, leading you to overspend on certain items or waste money on shoddy merchandise.
What can you do to avoid being misled by your naïve theories?
There’s more information floating around on the internet than you or I can possibly fathom. And in amongst all that information is the key to making good money choices. Take the time to research. Read reviews online and gauge user opinions. Just because you’re not buying something huge doesn’t mean it isn’t worth your time to investigate your options. The more you know, the smaller those knowledge gaps become and the less you have to fill them with unreliable naïve theories.
Remove yourself from the equation
If you don’t have the ability to easily access product reviews, simply change your perspective on the situation by pretending that you’re buying a gift for someone else rather than yourself. This helps you reduce the immediate connection between price and quality. Theoretically, (unless you leave the price tag on) your friend won’t know what the item cost (nor will they know where it falls on the scale of available options). This allows you focus on the quality (separate from price) and then decide if that item fits your needs and your budget.
A lot of sub-conscious stuff goes on when we start making decisions. Don't let your naïve theories cost you money or saddle you with less-than-amazing purchases.
How about you? What tricks do you use to help ensure that you're getting the most value out of your money?