Burger King's plan to release a £85 burger made with Kobe beef and topped with fois gras is fascinating from a behavioral economics standpoint. As one analyst says, "The idea of a burger that no one buys is not as ludicrous as it seems. Burger King will use it to promote a gap in perception between it and McDonald’s. It could lead consumers to reassess the quality of the brand." In other words, no one will buy the burger, but the very fact that Burger King sells it will imply that they're a higher quality fast food company, and so their 99 cent burger is better than McDonald's 99 cent burger. Indeed, it's well known in behavioral economics that retailers will sometimes sometimes offer a useless, pricey product not because they think anyone will buy it, but because they think it will make their other offerings look better. Which reminds me, I cover these and other topics in my review of Dan Ariely's Predictably Irrational, which went up the other day. The nut
Ariely's point goes far beyond our irrationality -- it is the predictability of our processing flaws that interests him. It isn't that we sometimes make the wrong decision, but that we make it repeatedly, and in the same way, as a response to certain conditions and mental processes. Early on in the book, Ariely tells us about Gregg Rapp, a restaurant consultant who helps establishments figure out their menu pricing. "One thing Rapp has learned," writes Ariely, "is that high-priced entrees on the menu boost revenues for the restaurant -- even if no one buys them. Why? Because even though people generally won't buy the most expensive dish on the menu, they will order the second most expensive dish. Thus, by creating an expensive dish, a restaurateur can lure customers into ordering the second most expensive dish (which can be cleverly engineered to deliver a high profit margin)."The implication here is that our irrationality is not only predictable, it's actually being predicted. Restaurants know that we anchor our frugality by deciding the priciest item on the menu is too expensive. Electronic stores know that we're likely to go for the marked-down television whose price places it in the middle of the pack. Magazines know we'll go for whichever subscription rate looks like the best deal as compared to the other subscription rates on the page. The problem, then, is not our predictable irrationality, but the world's asymmetric rationality. They know how we're going to screw up, and how to take advantage of it. The only defense is being similarly aware of our flaws and failings, and trying to take into account not only how they affect our judgment, but how they're being used against us.
