Picture this. You visit an electronic store to buy an LED TV. The salesperson helps you compare 2-3 models based on picture quality and sound. You finally choose one with better sound quality and install it in your living room. Are you likely to have the same experience with the TV in your living room as you did at the store? If you are a typical individual, your answer would be no.

When you were at the store, you compared the TV with other models. The comparison made the TV you chose seem better. But when you moved the TV to your living room, you did not have any other TV to compare it with! In other words, the TV had to be good by itself, not in comparison to something else. This is one of the reasons why we may not derive enough satisfaction from a product after we buy it.

Economists would say that your post-purchase utility is often less than your pre-purchase expected utility.

Comparison

Why does comparison cause such behavioural change? The reason is to do with the context. That is, the value that we place on a product is not absolute, but dependent on the context. Consider this. Will you buy a bottle of water for Rs 1,000? Perhaps not. But what if you are stuck in a desert for hours, and are thirsty? Would you then be willing to pay Rs 1,000 for the water? You most likely would! Same product. Different context. Different value.

Similarly, when you were in the store, the TV’s sound quality was important to you. But when you sat in your living room, the change in the context made another feature more important, perhaps, leading to post-purchase disappointment.

Your investment decisions can also suffer from similar issues. You may purchase a mutual fund because it performed better than another fund during the last three years. But six years later, what matters to you is whether the fund you bought delivered enough return for you to make a down payment for a house, not whether it performed better than another fund that you did not buy.

We typically commit systematic errors with comparative choices. Marketers, therefore, create comparative environment to improve their revenue! Suppose you want to buy a bottle of wine for a friend’s party. The store may have wine at Rs 2,500, Rs 3,500 and Rs 5,000. You will typically choose Rs 3,500 wine because Rs 2,500 seems cheap and Rs 5,000 appears expensive. But what if the store offers another choice, say, Rs 9,000 wine? You may then, perhaps, prefer the Rs 5,000-wine!

(The author is the founder of Navera Consulting. Feedback may be send to >knowledge@thehindu.co.in )

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