Rs. 999 or 1000? Behavioral economics.

Have you ever encountered advertisements with a discounted price, where your goods just cost 999,499 or 99? Have you ever wondered how 1000 and 999 differ? The difference is not just of Re.1. The difference is in the digits of the price that manipulates the rational thinking of a buyer. The 3 numbers in 999 show the consumer that the good is cheaper than the price labeling of 4 digits (1000). 999 creates an illusion of the price to be 900 but in fact, it is just 1 less than 1000. This pricing strategy compels the buyer to create a visual perception of believing oneself as an “economic shopper”. But rationally thinking it’s just one rupee which in many cases you don’t even get back. You have to settle for a chocolate or sometimes with just a smile from the cashier. This leads to irrational decision-making. 

In the 18th century, Adam Smith said "The chance of gain is by every man more or less over-valued, and the chance of loss is by most men under-valued, and by scarce any man, who is in tolerable health and spirits, valued more than it is worth.” Through this Adam Smith clearly questions rationality within one’s own limitation. This can be further explained through the concept of behavioral economics. "Adam Smith, Behavioral Economist."

Behavioral economics is a game theory that connects and experiments with a consumer's psychology and decision-making ability. Cognitive biases, copying tendencies, and habits influence your thinking. Even if you decide what kind of dress to buy, whether to do your assignment or to eat the last bar of chocolate is dependent on behavioral economics. Human beings are social and emotional creatures which sometimes compels them to make decisions without the best interest. You may want to buy a dress but if you have a favorite color or if someone’s comment influences you then you’ll probably change the product. Similarly, when you pay through an online medium you’ll not feel like you’re spending much. But if you pay through cash the same amount then you’ll realize that you’re spending more.  A rational thinker in all the given scenarios will outweigh the opportunity cost and will make the decision at the margin. But it’s mostly restricted to theories, as in practice all the aforementioned factors will impact your decisions. 

The business and marketing team makes policies and strategies considering the market as well as the psychological insights. This will assist in price determination and product innovation including the packaging. Opening a mouth-watering waffle store in front of a gym might subconsciously force one to take a cheat day. Though the cheat day might be for weeks. But for the waffle store, it’s a prospective business that increases their sales. If a business is able to understand their targetted groups’ psychology and behaviour then it’ll definitely give them an upper hand. 

 It’s inevitable to completely prevent one from getting influenced in everyday decision-making. But questioning our decisions, saving and investing might help us make wiser decisions.