Human Errors: A Panorama of Our Glitches, from Pointless Bones to Broken Genes

by Nathan H. Lents

The Price Is Wrong The gambler’s fallacy and the sunk-costs fallacy are two specific ways that we screw up our lives when it comes to money or other resources, but it turns out that we make even more fundamental errors when it comes to things of value: we routinely goof up the process of assigning value in the first place. Consider the games that retailers can play with price tags—and how effective their ploys are. For example, many studies have shown that consumers gravitate toward items that are marked as discounted, regardless of the actual final price. A twenty-dollar shirt will move much faster if it is priced at forty dollars and then discounted to 50 percent off. We humans measure value in relative terms, not absolute ones. We also have an anchoring bias. People give a great deal of value to the first piece of information they receive, regardless of its trustworthiness. This leads all further information to be valued not in strict terms but relative to the original. Using the example above, the first piece of information is the original (inflated) price of the shirt. This makes the sale price of twenty dollars seem much lower by comparison. The same is true in a salary negotiation or a home purchase. The first person to name a figure always sets the bar, and all of the parties in the negotiation perceive—and value—every counteroffer that follows relative to that opening bid. Savvy salary negotiators always make their first request way above what they think they will...