The Power of Relativity - a Doritos Dilemma

One of my students Arno Albici contributed this interesting post to our internal student forum this week - I feel it deserves a broader audience

Anyone who’s read the first chapter of Dan Ariely’s Predictably Irrational will immediately be familiar with what I’m about to discuss. The first chapter is entitled “The truth about relativity”, and in it Ariely sets out to show how the our perceptions of objects and concepts are defined by how we can compare them to similar things. The example given are these three subscription choices for The Economist:

Economist.com yearly subscription - $59.00 Print subscription - $125.00 Print and web subscription - $125.00

In this example we are incited to think that either there is a stupid misprint, or that the “print and web subscription” is a steal. It’s just like getting the web subscription for free! Isn’t it?

Something similar happened to me this week. I went to our local school store to buy myself one of those 45p packs of Doritos (Chilli Heatwave flavour, they’re my favourite), and to my dismay they were now priced 50p! To be fair a 5p difference isn’t going to change my life in any way, but with UK inflation supposedly under 3% (according to recent CPI index figures) I just wasn’t going to have it. Then I had this idea, why not buy the bigger pack instead?

This was my reasoning:

Small pack costs 50p for 33g = 1.5p per gram.
Large pack costs 199p for 225g = 0.9p per gram.

No-brainer, I bought the large pack and decided to split it into 7 small servings which would be the equivalent of 7 small packs which I would eat throughout the week. Of course that never happened, and when I got to my room I finished the large pack in about 10 mins. It was only then that I realised something: I had never really considered buying the larger packs before, because I only really wanted a small 33g pack. So why had I bought one now, was it any better value than before? No, but in comparison to the small pack it seemed of much better value.

So if you go back to the original example of The Economist subscription, instead of thinking of the print and web combo as being undervalued, imagine that the real value of the print-only subscription is actually around $100. Then you might realise that you actually don’t really need to have the online subscription if you’ve already got the print (why would you read an article twice?), and that maybe overall the web-only subscription has the best value. Do you agree?