The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

524. Relativity in Action: Why Your Brain Needs Comparisons to Decide

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Aug 19, 2025

Explore how our brains rely on comparisons to determine value and make decisions. Discover why we might drive across town to save a few dollars on gas, yet hesitate to do the same for more expensive items. Learn about strategic pricing tactics like decoys that can influence consumer behavior. Delve into real-life examples, including subscription choices, and find out how to create compelling offers that enhance perceived value. This insightful discussion reveals the powerful effects of relativity on purchasing decisions.

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INSIGHT

Brains Need Comparisons To Assign Value

The human brain cannot value one-off items without comparisons.
We rely on contextual questions to relate novel items to known references.

ANECDOTE

Spatula Vs. Little Black Dress

People will often drive across town to save $15 on a $16 spatula but not for $15 off a $500 dress.
Relative price matters more than absolute savings when deciding whether effort is worth it.

INSIGHT

Frequency Skews Perceived Value

People treat frequent, small decisions differently from rare, large ones due to relativity.
A 1% loan rate change feels trivial compared to habitual savings like cheap gas, despite larger annual gains.

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In this episode of The Brainy Business podcast, Melina Palmer revisits the powerful concept of relativity, a cornerstone of behavioral economics that shapes how we perceive value through comparisons rather than absolutes. Originally aired in 2018, this foundational episode is refreshed to highlight its relevance today, especially in light of an upcoming crossover episode on left digit bias.

Melina explains how our brains struggle to assign value to unique items without comparisons, using engaging examples from everyday life, pricing strategies, and consumer behavior. From the psychology behind why we may drive across town to save a few dollars on gas but hesitate to do the same for a more expensive dress, to the surprising emotional responses of Olympic medalists, this episode uncovers the nuances of how relativity influences our decisions.

Listeners will learn how to leverage relativity in their businesses, including effective pricing strategies that incorporate decoys and anchoring techniques to enhance perceived value. Melina shares practical tips for creating compelling offers, whether in retail, service industries, or even fitness, and emphasizes how guiding comparisons can significantly impact consumer choices.

In this episode:

Understand the concept of relativity and its role in determining value.
Explore how comparisons influence purchasing decisions in various contexts.
Learn practical applications of relativity in pricing strategies for businesses.
Discover the emotional impact of relativity on consumer behavior, such as in Olympic medalists.
Gain insights into using decoys and anchoring to enhance perceived value in your offerings.

Get important links, top recommended books and episodes, and a full transcript at thebrainybusiness.com/524.

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