The Power of Discounts

I wish everyone made decisions rationally. OK, I’d be happy if I could make decisions rationally. Last night while having dinner with my wife I caught myself being irrational … again.

We went to our local sports bar at halftime of the Super Bowl. This is a place we eat all the time. The prices are reasonable enough that I just order what I want, without regard to price. I was thinking about some wings, but decided against them. Instead, I chose a Southwest chicken salad (and a beer, just so you don’t think I’m that healthy).

The waiter took our order and then said, “Oh, all of our appetizers are half price during the Super Bowl. Would you like any?” Instantly I ordered wings. Ouch!!! Luckily, the waiter said, “Our wings aren’t on the appetizer menu. Sorry.” Whew. I ended up not ordering them.

Then I thought about what I had just done, or not done. I was completely irrational. I didn’t even know the price of the wings. I didn’t know how much I would be saving. I just wanted the discount. It wasn’t a rational decision. Instead, the discount made me do it.

We (I?) have been so ingrained to look for and appreciate discounts that we often make “irrational” decisions.

This concept is well known in academia. Buyers have reference prices, the amount they expect to pay. When they find a price below that reference, they not only value the lower price, but they value the fact that it’s below their expectations. They value the act of getting a good deal. Of course this isn’t rational, but it happens. It just happened to me.

The point of this blog then is to remind us that sometimes discounts can prompt people to buy more than they planned or even something they didn’t intend to buy. People like discounts. People are irrational (cough).