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#609 - Uri Gneezy - How To Understand Psychological Incentives
Modern Wisdom
The Impact of Discounts on Consumer Decision Making and Mental Accounting
When buying a $20,000 card, they offered a $500 discount. While $500 may seem like a lot, it pales in comparison to the total cost. Research shows that people are more likely to go the extra mile for a $25 discount on a $50 item. So, when buying a $2,000 computer with a mouse, being offered $2,025 over there instead of $2,050 seems unfair. This is because not all money holds the same value. To illustrate, imagine receiving a credit card with $500 to spend on gas. Suddenly, $500 becomes a significant amount.
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