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Keith Ray

Posts: 658
Nickname: keithray
Registered: May, 2003

Keith Ray is multi-platform software developer and Team Leader
Various Bits Posted: Oct 17, 2006 8:54 PM
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Review of a cool-looking Subversion App for MacOS X. I'm looking forward to using it. Maybe using it with code.google.com.

Lots of interesting stuff in Richard Thaler's Mental Accounting (pdf) paper:

[...] (1) The value function is defined over gains and losses relative to some reference point. The focus on changes, rather than wealth levels as in expected utility theory, reflects the piecemeal nature of mental accounting. Transactions are often evaluated one at a time, rather than in conjunction with everything else.

(2) Both the gain and loss functions display diminishing sensitivity. That is, the gain function is concave and the loss function is convex. This feature reflects the basic psychophysical principle (the Weber-Fechner law) that the difference between $10 and $20 seems bigger than the difference between $1000 and $1010, irrespective of the sign.

(3) Loss aversion. Losing $100 hurts more than gaining $100 yields pleasure: v(x)< -v(-x). The influence of loss aversion on mental accounting is enormous, as will become evident very quickly. [...]

[...] For example, a prix fixe dinner, especially an expensive multi-course meal, avoids the unsavory prospect of matching a very high price with the very small quantity of food offered in each course.* Along the same lines, many urban car owners would be financially better off selling their car and using a combination of taxis and car rentals. However, paying $10 to take a taxi to the supermarket or a movie is both salient and linked to the consumption act; it seems to raise the price of groceries and movies in a way that monthly car payments ( or even better, a paid-off car) do not.

More generally, consumers don't like the experience of 'having the meter running'. This contributes to what has been called the 'flat rate bias' in telecommunications. Most telephone customers elect a flat rate service even though paying by the call would cost them less. [...]

Lots of stuff to think about there. This "meter running" aversion is the real reason online micro-payment systems, or other web-apps that try to charge by each use, haven't really taken off yet. Shopping sites that aggregate your purchases, and then offer "free shipping" if you buy enough stuff, are taking advantage of these "mental accounting" biases. How many times have you bought a book on Amazon that you really didn't need, but which put you over the free shipping price.

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