Simplifying the offer to increase sales (reason-based choice)

Understanding how people make a decision is very important in private life and in business. What is the effect of offering a customer or colleague several different solutions to choose from?

Imagine you are a student who has just taken the last important exam of the year and has a chance to book a vacation at a very low price.

• Would you go on vacation to celebrate if you had passed?
• If instead you had failed, would you take the opportunity to recover with a nice vacation?

These questions were put by Amos Tversky (Stanford) and Eldar Shafir (Princeton) to a group of students, and the answers were as follows:

• Passed: 54% would go on vacation
• Failed: 57% would go on vacation

At this point we have no hesitation in concluding that most people would go on vacation anyway, regardless of the grade. But how would students behave while still waiting for the result?

• Waiting for the grade: only 32% would book right away, while 61% would be willing to pay $5 to postpone the decision until the results were in.

The study shows how people who would have decided to go on vacation in either case prefer to wait (even paying to do so) when the outcome is uncertain. The experiment is described in Tversky and Shafir (1992), who call the phenomenon the “disjunction effect”: under uncertainty, people are often reluctant to think through the consequences of each outcome. This is one of the cases in which our capacity for reasoning leads to illogical results. A recent replication with 890 participants found the effect again in the problem in which one pays to learn the outcome before deciding, but not in the two-stage gamble problem (Ziano and colleagues, 2021). People’s choices may occasionally stem from judgments that preclude a thorough evaluation of the options (cf. Zajonc, 1980). In such cases, an analysis of the reasons for choice may prove unwarranted, since the decision is made regardless of rationality.

When we define the commercial offer for a product, we have to bear in mind that any option left to the customer can lead to a stalemate. The same authors showed this in another paper: the option of deferring the choice or of looking for other alternatives is preferred more often when the conflict between the options is high, and it can grow when the offer is enlarged (Tversky and Shafir, 1992). For services or products that have an emotional impact, any reason that slows down the decision process translates into a sharp drop in sales rates. Many companies, such as Basecamp, have made the simplicity of their offer their strength, taking away from the customer any excuse to delay the decision.

Many decisions are the result of a careful evaluation of the options, in which people try to arrive at what they believe is the best choice. After discarding the less attractive options, and faced with a choice that is hard to resolve, they often look for a compelling reason to choose one alternative over another.

For those who want to go deeper into the subject, I recommend reading “Reason-based choice” by Eldar Shafir, Itamar Simonson, and Amos Tversky (Cognition, 49, 1993, pp. 11–36).

Alberto Viotto