It’s an old real estate trick – host an ‘open house’ so that dozens of potential buyers come at once. Why? It all comes down to Social Proof. We look around, see lots of admiring eyes, and think that this house must be worth buying if so many people are interested – which encourages us to pay more than we otherwise would.
The next time a salesperson is telling you about all the other people who have bought and loved a product, they’re probably trying to play on the concept of social proof. This is just one mind trick used to fleece you of a few extra dollars, but there are dozens more.
A common one, easily spotted on TV shopping channels, is the Scarcity Principle. ‘Time is running out!’, ‘While stocks last!’ and other catch-cries like these are not helpful reminders; they’re manipulations that tap into a primitive part of our brain that encourages us to take advantage of scarce resources before it’s too late. The problem is that feeling that you have a limited time to act or that something is rare will spur you into action whether or not that feeling is grounded in fact. The truth is there are probably a billion Sham-Wows in the warehouse.
Commitment and consistency
The next time you buy a car or are comparing loans, watch out for the Low-Ball. The strategy works like this: the trickster will offer a low ‘core price’ (or teaser interest rate in the case of loans) to get a customer’s commitment. Once committed, however, and it’s time to pay, extra costs are then added at the last minute. We don’t want to go back on our word to save a few pennies, so we agree to the higher price. The financial services industry, in particular, is loaded with hidden fees so read contracts and product disclosure statements carefully.
The low-ball strategy plays on the Commitment and Consistency Principle: we feel the need to keep promises and remain consistent with prior decisions. After we commit to something we tend to think up justifications for that commitment so that we feel we made the right choice.
A broader scheme using the commitment and consistency principle is the Foot-in-the-door technique: start with a small request and build to a much larger one. In the book Influence, psychologist Robert Cialdni discusses an experiment where people were asked if they would put a large and ugly ‘Drive carefully’ sign in their front yards. One group were asked cold, the other group were first asked if they would place a discrete ‘Be a safe driver’ sticker in their window prior the larger request. Just 17% of people agreed in the first group, but the second group had a compliance rate of 76%.
Watch out for requests to sign political petitions; they’re often more about boosting your commitment to a cause – so that you can be tapped for money later – than about influencing those in power.
There's no free lunch
Curiously, the opposite of the foot-in-the-door strategy also works: it’s called the Door-in-the-face technique – and charities caught on to this one long ago. They know that one way to boost collections is to ask for a large sum, say $100, then – after you refuse – back down to something smaller: ‘No worries, but can you at least spare $20’.
Starting with a very large request – that will probably be turned down – and then making a concession back to what they were really after plays on the Reciprocity Principle: we feel compelled to give back to someone who has given us something (and often give more back than we received).
Free gifts play on the reciprocity principle too. That pen or Christmas card you received from your insurer isn’t them being nice – it’s about reinforcing your patronage of the company by making you feel like you owe them something in return. The next time you pull out your wallet after receiving a free sample at the grocery store, ask yourself whether it's because the product really tastes good or if you just want to return a favour.
With such simple principles proven to boost compliance, it’s crazy for salesmen and marketers not to use them. They’re everywhere you look so avoidance isn't a solution. It’s also worth pointing out that just because a marketing department uses these nudges doesn’t mean that the product is unworthy of your attention. You can probably spot a few principles at work on our sign-up page, but our portfolios and recommendations have outperformed all the same. Maybe that open house really is your dream home.
How a message is delivered can influence your decision but what matters is the product behind it. An awareness of these principles will hopefully arm you to make better financial decisions. The best defence, however, is to take your time and do your homework.