It’s strange how what psychologists and marketing specialists seem to have known for years seems to elude economists. I always feel enlightened and almost embarrassed when I learn some psychological fact that makes a lot of sense to everyone, but that makes economists, conditioned by assumptions of rationality and utility maximisation, seem to look the other way and whistle.
The attraction effect is one such phenomenon. Suppose you had to choose between some high quality dark chocolate and some moist cheesecake. You’re pretty indifferent between the two (it’s pretty tricky to decide between ‘mmm’ and ‘yum’). So you could pick either really. But now I add some cheap chocolate to the choice (the kind you find in advent calendars and laxative). Now your mind is made up. You pick the dark chocolate.
The idea is if two things are difficult to compare then you might be undecided between them, but if you add an option which is clearly inferior to one of the options then you have some point of comparison and are more likely to pick the superior one.
Maybe the food example wasn’t the best, but here’s a better one. Last summer, Apple introduced the Retina MacBook Pro. It was touted as their ‘top of the line’ laptop and had features which were cutting edge and dominated their earlier products. It was designed to replace the existing MacBook Pro and represented the future direction of Apple’s laptops. However, interestingly, they didn’t stop selling the ‘classic’ MacBook Pro.
The older MacBook Pro has an optical drive and a couple of other features that may be attractive to some people that the Retina doesn’t. So you might think that Apple kept selling it to keep everyone happy. Unfortunately, I’m fairly sure Apple’s agenda was more geared towards profit-maximisation.
When the Retina was released, a lot of people on the internet realised that the way Apple had priced their products, if you decided to buy the classic MacBook Pro and upgraded it to a similar spec to the Retina, it actually worked out the same price. Huh? Why would they do that? Well, all of a sudden you have 2 laptops at identical prices, with almost identical specifications. However, the Retina was structurally a ‘better’ product in that it was thinner, lighter and had a better screen. So, Apple was basically using the attraction effect to its advantage. I’d bet that by keeping the original MBP on sale, it created a context where people found the Retina more attractive because they had an ‘inferior’ product to compare it to, and therefore increased sales of the Retina MBP, more so than it otherwise would have.
Of course, only Apple really ‘know’ and it’s difficult to judge what difference it made because you’d have to compare it with a state of the world where Apple removed the old MacBook Pro straight away. But I’m fairly sure their decision was nowhere near coincidental…