What Is a Trading Effect?

The so-called transaction utility is the effect of the difference between the reference price of the commodity and the actual price of the commodity. In layman's terms, it is cost-effective trading bias. The existence of this kind of cost-effective transaction bias makes people often make irrational purchasing decisions.

Transaction utility

Right!

The so-called transaction utility is the effect of the difference between the reference price of the commodity and the actual price of the commodity. In layman's terms, it is cost-effective trading bias. The existence of this kind of cost-effective transaction bias makes people often make irrational purchasing decisions.

Chinese name

Transaction utility

Foreign name

transaction utility

Theoretical time

C. 1970s

Theoretical effect

Helps better understand the extension and use of transactions

The so-called transaction utility is the effect of the difference between the reference price of the commodity and the actual price of the commodity. In layman's terms, it is cost-effective trading bias. The existence of this kind of cost-effective transaction bias makes people often make irrational purchasing decisions.

Transaction utility theory

Winter is coming, and normal fools and their loved ones will discuss it and plan to buy a new nine-hole quilt. They know that there are three styles to choose from in the store: ordinary duvets, deluxe duvets and oversized deluxe duvets. Because they live for two, they plan to buy a luxurious double quilt. This style of quilt is the most suitable for both of them, regardless of its size or thickness. Arrived at the mall, they accidentally found that the nine-hole quilt was doing promotions this week. All nine-hole quilts were priced at 400 yuan. This is not a small discount. After asking the staff, I learned that the original prices of the three styles of nine-hole quilts were 450, 550 and 650 yuan. If you are a normal fool and face this choice, what kind of quilt would you buy? Please circle your options:

A. Ordinary double quilt B. Deluxe double quilt C. Oversized luxury double quilt

Normal fools originally intended to buy a luxury double quilt, regardless of size or thickness, this quilt is the most suitable for both of them. But when I saw such a promotion, I couldn't help but change my mind. He feels that buying a luxury double duvet does not seem to be profitable. Since the price is the same, why not buy the oversized luxury double duvet at the original price? In this way, it is equivalent to get a discount of 250 yuan, how cost-effective it is. Is your choice the same as a normal fool's choice? But the couple of normal fools have nt been happy for this cost-effective deal for a few days, only to find that the oversized luxury double is difficult to take care of, and the edge of the quilt is always pulled in the corner of the bed; worse, every morning Waking up, this oversized quilt will be dragged to the ground, so they have to change the quilt frequently. After a few months, they had regretted their choice.

Rationally speaking, when people decide whether to buy something, they measure the utility that the item brings to us and which one is more expensive, which is usually called the performance-price ratio, and then see if it is worth buying. In terms of practicality, among the three types of quilts, the most satisfying is the luxury double quilt, and their prices are not different. Of course, we should buy a luxury double quilt. But when we make purchase decisions, there is another item in our psychological account-the utility brought by the transaction. The existence of this kind of cost-effective trading bias makes us often make irrational purchasing decisions. Taking the example of buying a quilt as described above, a rational person should consider this way: The luxury double quilt has the most effect on me, the price is 400 yuan, and the price of the other three quilts is the same, so I should choose the luxury double quilt. But the normal fool thinks about it this way: The original price of an oversized luxury double was 650 yuan, the current price is 400 yuan, which is 250 yuan cheaper, which saves more money than buying any other two doubles. If I buy The oversized luxury double duvet was the most cost-effective deal, so I chose to buy an oversized luxury double duvet.

In our daily life, many consumption decisions are always affected by some unrelated reference values. Just like buying a quilt, in reality we always inevitably compare the current price with the original price and get satisfaction from their difference, that is, to obtain the transaction utility, and then select the quilt that is cheaper than the original price. Be complacent about getting a good deal for yourself. Another example is deciding whether to buy a "good dream" pill. We always cannot help but compare the current price with its price in Shanghai. If the current price is cheaper than Shanghai, we will be more willing to buy it, otherwise we will not buy it. . There is also a different price for the same beer according to different places of purchase, as if the same beer, bought from the grocery store and bought from the hotel will be different in the mouth. But in fact, the original price of the quilt and the price of "Good Dream" in Shanghai should not affect your purchase decision at all, because for you, the original price of the quilt and the price of "Good Dream" in Shanghai are not only irrelevant reference prices , And is an unavailable reference price. Similarly, the price of beer in the grocery store and the price of it in the hotel have nothing to do with the taste of beer, they are also irrelevant reference prices. All you need to care about is the actual utility the item itself can bring you and its current price. Seeing this, you can also think about when you usually spend, do you often buy yourself because you can't resist the temptation of big price reductions? When you open the closet, are there many clothes in it that you bought because you can't afford the temptation of discount sales in the mall, and now you are hanging upside down when you are idle? After recognizing the utility of the transaction, you should understand that it may not be the item itself that stimulates you to buy, but the discount, that is, the "greedy bargain" that manipulates your behavior behind the scenes. The existence of transaction utility explains the stimulation of consumption by promotion. No wonder now that when you walk into any shopping mall, you can almost see all kinds of promotional advertisements.

Corresponding to cost-effective transaction bias is uneconomical transaction bias. These two types of prejudice, like the two sides of a coin, actually reflect the same problem.

Let's take a look at the following example: In the United States, many products will have periodic price reductions. The promotion may last for a week, and after a week, it will return to the original price. After a while, the price of this product will drop again. This phased price reduction applies to many commodities, and Americans know it well. There is now a winter quilt. The original price was $ 300. One of them is selling for a week and the promotion price is $ 200. After the weather turned cold, two people went to the store to buy the quilt. When the first person arrived at the store, the quilt had just finished the promotion the day before, and the price had just risen from $ 200 to $ 300. When the second person came to the store, the quilt had not been promoted for more than a month. 300 yuan sales. If both people thought that the price of $ 300 was in line with their psychological price, which one do you think is more likely to buy this kind of quilt now? Rationally, the first person should buy a quilt now. Because the promotion was just done last week, this means that this kind of quilt is unlikely to be promoted in the future. It will be two months after the next promotion. By then, the winter may have passed. It s almost there, and it wo nt be covered for a few days. For the second person, he could wait. Since this quilt has not been promoted for more than a month, it is likely that it will not take long for it to cut prices again. However, the facts show that when the first person heard that the quilt was only sold for 200 dollars yesterday, most of them would immediately change their purchase idea. He thought to himself that if I bought it one day earlier, I would get a discount of $ 100, but now I can only buy it at the original price, which is really uneconomical. If I buy this kind of quilt for $ 300 now, wouldn't it be equivalent to losing $ 100 for no reason? Just look at it and talk about it later. However, the second person will feel that the promotion price of the quilt for more than one month has little to do with it now. Anyway, I have missed this promotion for more than a month, and there is nothing to regret. Therefore, the second person will instead tend to buy the quilt on the spot without changing the purchase decision. In fact, think about it rationally. Whether or not a promotion was done last week has no effect on the current price of this kind of quilt and the first person's need for the quilt. If he needs a quilt now and thinks the price of $ 300 is acceptable, then he should buy it, otherwise, don't buy it. The decision to buy or not to buy should not be affected by yesterday's promotional price, which has become history. However, it is difficult for people to change their purchase decision because of the unrelated reference price of yesterday's promotional price. ^[1]

Introduction to transaction utility

The difference between the reference price and the actual paid price is the source of the "transaction utility". The more the actual paid price is lower than the reference price, the more you think it is a cost-effective transaction. This difference is an absolute difference in our previous examples, but we noticed that even when the absolute difference is the same, different relative differences will produce different "transactional utility", affecting your consumption decisions. I believe that if you return the price of 20 yuan to 15 yuan, you must be more fulfilled than returning 125 yuan to 120 yuan. After answering the following two questions, you can understand the impact of relative differences on transaction utility and consumption behavior.

Transaction Utility Case

Suppose you see an alarm clock that costs 100 yuan in A store one day and you are missing an alarm clock at the time. You think this style and function are very good. You want to buy it. While you were planning to pay, a good friend of yours happened to pass by the store. When he learned that you were going to buy this alarm clock, he told you that he had just come from the B store not far away, and there was an identical alarm clock in the promotion. The price is 60 yuan. Do you know that it takes 10 minutes to ride from store A to store B, will you turn around and buy at store B? Please circle your choice.

going or not

Let's look at the following question again:

Suppose that one day you see a long-cherished watch in the C store for 6600 yuan. When you were planning to pay for a purchase, one of your good friends happened to pass by the store. When he learned that you were going to buy this watch, he told you that he had just come from the D store not far away, and there was an identical watch there. The price is 6550 yuan. You know that it's also a 10-minute ride from Store C to Store D. Will you go to Store D to buy at this time? Please circle your choice.

going or not

I guess if you are "normal", your answer will be the same as most of the people we surveyed. In the first case, you are more willing to spend 10 minutes to buy a promotion to save the 40 yuan alarm clock. In the second case, it takes less than 10 minutes to buy a watch that has dropped from 6,600 yuan to 6,550 yuan, which is not so exciting. In fact, think carefully about these two situations. Whether it is from store A to store B, or from store C to store D, everyone rides a 10-minute car to save money. It takes 10 minutes to go from store A to store B. Save 40 yuan, and spend 10 minutes from C store to D store can save 50 yuan. Spending the same amount of time and energy, buying a watch in another store will save 10 yuan more than buying an alarm clock in another place. When a rational decision maker faces these two issues, he should consider whether he is worth the 10 minutes of time and energy to save the money. If it is worth spending 10 minutes to save 40 yuan, then he should go to another store to buy an alarm clock to save 40 yuan, and should also go to another store to buy a watch to save 50 yuan. If it is not worthwhile to ride a 10-minute car in order to save 50 yuan, then he should not buy a watch in another store to save 50 yuan, let alone buy an alarm clock in another store to save 40 yuan. In short, no matter what, a rational decision maker should be more inclined to buy a watch that saves 50 yuan than an alarm that saves 40 yuan. But in fact, people's choices are the opposite. This is because the "transaction utility" these two transactions bring to people is different. People think that it s more worthwhile to buy a 100 yuan to 60 yuan bike for 10 minutes than a 6600 yuan to 6,550 yuan. Although the absolute value of the latter is more, the normal person This would be considered: the price of the alarm clock of 100 yuan was reduced to 60 yuan, which was a 40% savings, while the 6,600 yuan watch was reduced to 6,550 yuan, the price reduction was less than 1%. By the same token, are you indifferent to a car with a discount of 100 yuan, but will pay attention to a microwave oven with a discount of 100 yuan? Here also the trading utility plays a role, but the trading utility here is caused by the relative ratio of the price difference to the selling price, so we call this "proportional bias".

Some people may say that this choice is not irrational. Because of small things like alarm clocks, I buy them many times a year. If I can save 40 yuan each time, I can save 400 yuan by buying ten times. For things like brand-name watches, I buy them at most once a year. Even if I save 50 yuan, what's so great about it? What I want to say is that this idea is wrong. Maybe you will buy things like alarm clocks ten times a year. If you can save 40 yuan each time, you can really save 400 yuan a year. But every time you save 10 yuan, you need to spend 10 minutes of time and energy, so the cost of saving 400 yuan is not 10 minutes but 100 minutes. At the same time that the revenue has doubled, the cost has also increased to 10 times, which does not affect the trade-off between cost and benefit. ^[2]