My friends Maria and Paul decided to move in together. Soon they both realized that they had made a mistake. They should move out before they got even more entangled.
But move out, they didn't. Why not?
The answer is "loss aversion," the difficulty of walking away from "sunk costs." Nobel Prize winning economist Daniel Kahneman, together with psychologist Amos Tversky, have studied why people make such irrational decisions, digging themselves deeper and deeper into a hole instead of cutting their losses.
Maria and Paul had made an investment into their relationship, much as we make investments in stocks. They had poured in time, energy, and money. To move out would make them admit their failure and do what we hate to do---take a sure loss.
I do the same thing when writing my columns. I invest hours researching a column that I soon know won't work. Do I cut my losses and find another topic? After a long while. I have invested so much time and effort in writing on the first subject that it's hard to stop.
People often use false cues, like cost and packaging, to measure the value of things. This irrationality is called "value attribution." It's a mental short-cut -- "you get what you pay for" -- we tell ourselves. Not necessarily.
The Washington Post did a famous experiment in a Washington Metro station during the morning rush hour. The internationally famous violinist Joshua Bell took his $3.5 million Stradivarius and started playing sublime music at an ordinary subway stop.
Bell dressed like a street musician, wearing jeans, a T-shirt, and a baseball cap. His violin case lay open for tips.
Would you expect a street musician to be a famous violinist playing a Stradivarius? Would you stop and listen or throw him a glance, even if you were on your way to work?
More than a thousand people walked by, reports Post writer Gene Weingarten, but only six people stopped. Bell played for 45 minutes and made just $32.17. Yet, he had just played a sold-out concert at Boston's Symphony Hall where tickets cost $100 or more.
People couldn't recognize a brilliant musician, when he wasn't on a concert stage. They used the cues of musical success, like the high price of tickets, to measure value, not their own ears.
Packaging affects our judgments. Women, for example, will pay more for cosmetics when they carry a famous brand name even though the fancy brand is hardly any different from the grocery store cheapie.
To take another example, when I was in Thailand, I avoided buying from street vendors. The food was cheap so I assumed it was poor quality. I bought expensive meals in tourist hotels instead.
Then a friend who knew Thailand told me that the street vendors sold some of the best and cheapest food.
I could see the food being made on the street. I could see it was clean and fresh. And I realized I actually don't see the kitchens in expensive hotels.
My "value attribution" mentality had clicked in.
We're not necessarily irrational. We may not want to do the research, especially on a low cost item. We may value the packaging and enjoy the brand name. So long as we know what we're paying for, we have not made a mistake.
The irrationality kicks in when we don't know why we are doing what we are doing. Sometimes we should just stop and think.
Judith Kleinfeld, who holds a doctorate from Harvard, is professor of psychology emeritus at the University of Alaska Fairbanks.