How merchants use psychology to trick you when exchanging old items for new ones

Author: Sun Yan (Institute of Psychology, Chinese Academy of Sciences)

The article comes from the Science Academy official account (ID: kexuedayuan)

——

My good friend once introduced me to a second-hand goods trading software, which allows me to sell my unused items. At first glance, I thought it was great, but when I really started to sort out my items and wanted to see which ones could be sold, it suddenly became very difficult.

This dress is a bit skinny and I seldom wear it, but maybe I will succeed in losing weight. Wouldn’t it be more troublesome to buy it then?

I don’t really like the shape of this cup, but it was given to me by my boyfriend, so how can I bear to give it away?

......

After looking around, there was not a single item for sale.

Looking back at my history of dealing with second-hand items, there is only one thing I have successfully disposed of, that is, when Apple launched the trade-in program, I exchanged my old iPhone 6 for a new iPhone 7.

Oh, how great it would be if we could give every item a chance to upgrade by exchanging it for a new one!

Wait, trade in the old for the new? That’s the framing effect! Psychology researchers say.

What is the Framing Effect?

Different statements lead to different decisions for the same problem, which is the framing effect.

The framing effect is prevalent in life. The basis of economic assumptions is the assumption of rational people, who pursue economy. However, in real life, people often make irrational choices.

The framing effect is one of the manifestations of irrationality.

Still not sure? Here’s a classic example called the “gas station problem.”

Gas station A's gas price is 5.6 yuan/liter, and if you pay by cash, you can enjoy a discount of 0.6 yuan/liter. Gas station B's gas price is 5 yuan/liter, and if you pay by credit card, the gas price will increase by 0.6 yuan/liter.

As an experienced driver, which gas station would you choose to consume?

Most people would think that gas station A is better and would be more willing to refuel at gas station A.

But if you look closely, you will find that the purpose of both gas stations is to encourage cash consumption, and the prices for using cash are exactly the same. It is only because gas station A gives a preferential framework, while gas station B gives a penalty framework, that leads to different results.

The transaction behind the old-for-new exchange: the upgraded framework effect

Back to the second-hand exchange question we originally raised, under what circumstances would you be willing to trade the items you own?

From a research perspective, two concepts can be sorted out, one is "transaction" and the other is "upgrade".

The word "trade" means getting a new item, and the word "upgrade" means paying a cost to get a better item.

In the study of the transaction-upgrade framing effect, a scenario can be designed: suppose you already have a Class A membership card for a gym, which is valid for three months. There is also a Class B membership card, which is valid for six months. If you are willing to do a certain amount of voluntary labor at the gym, you can exchange/upgrade the A card to a B card. How much labor are you willing to put in?

If described in terms of "transaction", it means "Card A is exchanged for Card B" (i.e. setting up a "transaction framework"); and if described in terms of "upgrade", it means "Card A is upgraded to Card B" (i.e. setting up an "upgrade framework").

The results show that when it is described as an "upgrade", people are indeed willing to work longer. This is because people think that the labor paid for the "upgrade" is a reasonable cost; while when it is described as a "transaction", the labor paid is more likely to be considered a loss. Whether the payment is a "reasonable cost" or a "loss" determines people's choice preferences.

Therefore, Apple’s trade-in program, by providing an “upgrade” description (setting an “upgrade framework”), made me upgrade my iPhone 6, which was still in good condition, to an iPhone 7. Because of this description, I considered the difference between the old iPhone 6 and the replacement price to be a reasonable cost for my upgrade, rather than a loss.

Why does the transaction-upgrade framing effect exist?

What kind of psychological mechanism influences the transaction-escalation framing effect?

In fact, this is closely related to the endowment effect in behavioral economics.

The endowment effect is a concept proposed by Professor Richard Thaler, winner of the 2017 Nobel Prize in Economics, which states that owning something will make you overestimate its value.

Professor Richard Thaler

After people own something, they tend to think that what they own is more valuable than the same thing owned by others, and at the same time have a stronger sense of loss when giving up that thing.

When the description is "exchanging card A for card B", a "transaction framework" is set up, which leads to a strong sense of loss due to the endowment effect; while changing the description to "upgrading card A to card B", an "upgrade framework" is set up, which cleverly avoids the sense of loss in the transaction.

In the study of the transaction-escalation framing effect, researchers demonstrated that the degree of perception of loss affects the framing effect.

For example, the situation changed when the researchers explicitly added the words “sacrifice leisure time” to the descriptions of gym membership cards A and B.

After the researchers changed the statement of "How much time are you willing to work" to "How much leisure time are you willing to sacrifice to do voluntary work in the gymnasium", the results showed that people's perception of "loss" was significantly enhanced. Regardless of whether it was the "exchange" group or the "upgrade" group, the number of hours willing to give decreased, and there was no significant difference between the two groups of data.

That is, after the perception of loss is enhanced, there is no obvious difference between the exchange frame and the upgrade frame, and the framing effect is eliminated.

In recent years, the concept of "letting go" has emerged, and it has also helped me find a way to eliminate the framing effect when exchanging second-hand items.

The reason why I couldn't choose items to sell was actually because of the "loss" mentality. Whenever I wanted to sell unused items on the platform, I would always think that although it was not useful now, it still had potential value. No matter how much it was sold for, I would think it was my loss because I lost its potential value in the future.

With this negative framework, it was difficult for me to make trading decisions.

The concept of "letting go" tells me that this is not a loss for me, but gives me more freedom and more income to exchange for the things I really need. Under this guidance, my perception of the concept of "loss" has weakened, and it is easier for me to choose the items to be let go from the perspective of practicality.

Correctly turn on the framing effect

It is a game of routine and anti-routine

But how could I, a highly educated person in the 21st century, be so easily influenced? I must have been blinded by incomplete information!

Studies have shown that people tend to passively accept information rather than actively seek comprehensive information. As the saying goes, seeing is believing, but for consumers, what they hear and see is mostly screened by merchants and actively repeated to consumers. When consumers choose goods, they mainly rely on the most prominent product information of the merchant. Therefore, when designing and marketing products, experienced drivers will pay attention to the framing effect, reflecting the "upgrade" of the product, reducing consumers' perception of "loss", and achieving a small sales target of several hundred million is no longer a dream!

Of course, for consumers, it is important to keep their eyes open and correctly identify the framing effect in order to escape the traps of the old drivers.

Who can correctly activate the framing effect? ​​This is a game of routine and anti-routine.

Research Source:

The original title of the study was "Trade-upgrade framing effects: Trades are losses, but upgrades are improvements", which was published in the journal of the American Association for Decision Psychology, Judgement and Decision Making, in November 2016. The authors are Associate Researcher Sun Yan from the Key Laboratory of Behavioral Science, Institute of Psychology, Chinese Academy of Sciences, and Professor Barbara Mellers from the Wharton School of the University of Pennsylvania.

Original link: http://journal.sjdm.org/15/15317/jdm15317.pdf

Other related references:

[1] Liu Yang, Sun Yan. (2014). New ideas for studying the framing effect in behavioral decision-making: from risk decision-making to intertemporal decision-making, from verbal framing to graphic framing. Advances in Psychological Science. 2014, Vol. 22, No. 8, 1205–1217.

[2] Sun Yan, Huang Li, Liu Yang. (2012). Graphical framing effect in decision making. Advances in Psychological Science. 2012, Vol. 20, No. 11, 1718–1726