Tag Archives: psychology

Partial cleaning may make surfaces look dirtier

The reason why incomplete cleaning may increase the visual perception of dirt is by increasing the contrast between the patches of thicker grime and the normal colour by removing a uniform covering of thinner dirt. If something is uniformly grimy, then the colour of the covering dirt may be perceived as the thing’s normal hue. Cleaning may remove approximately the same thickness of dirt from all points on the surface. If some patches initially have a thicker layer, then these remain the colour of the dirt after the cleaning, but other areas may be fully cleaned and revert to the original look of the surface. The human visual system mostly perceives contrast, not the absolute wavelength of the reflected light, as various optical illusions demonstrate. Higher contrast between the thicker patches of grime and the rest of the surface then enhances the perception of dirtiness.

Tradeoff between flashiness and competitive advantage in sports

Sports equipment is often brightly coloured, with eye-catching shape, such as for bicycle frames. Sometimes flashiness is beneficial, for example improving the visibility of a bike or a runner on the road, or a boat on the water. However, in sports where competitors act directly against each other (ballgames, racquet sports, fencing), eye-catching equipment makes it easier for opponents to track one’s movements, which is a disadvantage. For a similar reason, practical military equipment is camouflaged and dull-coloured, unlike dress uniforms.

Athletes would probably gain a small advantage by using either dull grey clothing, perhaps with camouflage spots, or equipment that matches the colour of the sports arena, e.g. green grass-patterned shoes and socks for a football field, blue or red for a tennis court. Eye-deceiving colouring would be especially useful in competitions based on rapid accurate movement and feints, such as fencing or badminton.

Another option for interfering with an opponent’s tracking of one’s movements is to use reflective clothing (mirror surfaces, safety orange or neon yellow) to blind the rival. This would work especially well for outdoor sports in the sunshine or in stadiums lit by floodlights.

One downside of dull clothing may be that it does not inspire fans or sponsors, so wearing it may reduce the athlete’s income from merchandise and advertising. A similar tradeoff occurs in real vs movie fighting. Blindingly bright equipment does not have this disadvantage.

Another downside of camouflage may occur if it replaces red clothing, which has been found to give football teams a small advantage. The reason is psychological: red makes the wearers more aggressive and the opponents less.

Adapting to a low-salt diet is quick

Overconsumption of salt is a significant public health problem. People are reluctant to reduce the saltiness of their food, because it would taste bland. Eventually, preferences adjust so that a diet without added salt tastes normal and salted foods are perceived as too salty. The only question is how quickly tastes adapt.

My experience of stopping adding any salt to my food was that the bland taste lasted less than 3 days, after which I had fully adjusted to the new reduced level of saltiness. An easier way to adapt may be to gradually reduce the amount of added salt, as opposed to suddenly cutting off all of it, as I did. In that case, there may be no perceived taste difference, especially if the reduced salt is accompanied with increased amounts of other seasoning, like pepper. Given the smallness of the adjustment cost and the health benefit of cutting salt consumption, doing it is a clear and easy win.

Claims that tickets are running out

Both for paid and free events, the organisers often advertise that only a few tickets or places remain. The ad sometimes explicitly tells the viewer to register or buy now. Such advertising is costly, so there should be a benefit to the organiser. If the tickets have already sold out, then the benefit is zero, or at least smaller than if the event is not fully booked. The positive benefit from advertising a sold-out event is to build reputation for the future as an organiser of popular events, similarly to real estate agents putting a „Sold” sign in front of a house on which they closed the deal.

Given that the benefit of costly advertising is smaller when no tickets remain, some sellers should decide to advertise if and only if the event has not sold out. More generally, the probability of advertising should increase in the number of tickets remaining. In this case, rational buyers should treat advertisements saying that limited spaces remain as signals of the opposite – frequent ads show a desperate seller facing low demand. If most buyers think this way, then such advertising is counterproductive, because buyers want to delay their purchases when the probability of being able to buy in the future is large enough. The option value of waiting comes from the possibility that the buyer’s preferences change – a better event may become available, or some emergency may prevent the buyer from attending. Getting a refund for a ticket already bought is at least a hassle and may even be impossible.

The widespread claims of limited space remaining suggest that these ads boost purchases. One reason may be buyer attention – ads make them notice the opportunity to buy, which some of them wish to take advantage of. However, any ads draw attention to the event, so raising awareness cannot be the reason for the specific claim that tickets are running out.

For most events, buyers do not want to coordinate with the largest possible crowd, only with their friends, so do not prefer a fully booked event to a half-full one. Thus claims that the event is almost sold out are difficult to explain by the seller trying to coordinate buyer actions.

Some irrationality of buyers or the seller seems necessary to explain messages that demand is low. Either the buyers take the claim literally instead of using Bayes’ rule to infer the opposite, or the seller advertises despite ads decreasing demand.

It is an empirical question whether the target audience of ads saying that space is running out interprets these as signalling high or low demand, and whether these messages make people delay their purchase or speed it up.

Fund management fee paid explicitly to nudge consumers to choose better funds

Mutual funds with lower management fees have higher future before-fee returns (Gil-Bazo and Ruiz-Verdu 2009). Nonetheless, the high-fee funds have not gone out of business, so there must exist a sizable number of silly customers who accept low returns without switching to competitors. When asked explicitly, all fund investors prefer more money to less. Their hourly wage is not large enough to explain their non-switching with the time and hassle costs of comparing fund returns and choosing a new one. Similarly, many Estonians keep their retirement savings in badly performing high-fee pension funds despite the availability of dominating options (Tuleva and LHV index tracking funds). This is costing the customers over one percent of their retirement wealth per year.

By contrast, people with chronic or expensive diseases in the US often pick the health insurance plan that maximises their wealth (coverage minus premiums). This dynamic optimisation involves switching to a different plan when their illness changes. People without costly medical conditions tend not to switch their insurance even when cheaper plans with higher coverage are available.

Both the pension and the insurance plan decisions are complex, but matter greatly for wealth. Why do people pay attention to the financial consequences of their insurance choice when sick, but ignore better options among pension funds (and when healthy, also among insurance plans)? One possibility is that insurance is more salient to the sick, and the greater attention leads to better decisions. Specifically, the premiums and out of pocket payments for medical procedures frequently remind patients of the financial consequences of their insurance, but the missing returns on one’s retirement assets are not observed without explicit comparison to the stock market or competing funds. Most people do not compare their pension plan to the market, so even in retirement may not know what their (counterfactual) wealth would have been had they chosen a better fund .

If it is lack of attention that causes the bad choice of mutual and pension funds, then one solution (proposed by my friend Hongyu Zhang) is to make the management fees more salient by requiring their explicit payment. For example, every month the customer has to transfer the amount of the management fee from their bank account to the fund. Financially, this is equivalent to the fee being deducted from the retirement assets like now (assuming these assets are eventually taxed the same as income, otherwise the transferred fee can be adjusted to make it financially equivalent to the deduction). The attention required is however greater for an explicit payment than for doing nothing following a lack of capital gains. Similarly, requiring customers to pay the difference between the return of their fund and the market return into the fund every two weeks would nudge them towards greater attention to their retirement account.

In practice, such a nudge is unfortunately politically infeasible. Not only would the fund industry lobby against it, but voters would irrationally perceive the required explicit payments as increased taxes. This would make the transition to transferring fees to funds from customers’ bank accounts very unpopular. If people understood the equivalence between low returns on their assets and explicit payments required of them, then they would be financially literate enough to choose low-fee, high-return index funds in the first place. Thus the problem of low-performing pension funds would be absent. To sum up, the fool and his money are soon separated, and it is difficult to protect people from their own bad decisions.