Contrast Effect (Contrast Comparison)

Contrast comparison

Fill one bucket with cold water, another with hot water, and a third with water at room temperature. Put one hand in the bucket of cold water and the other hand in the bucket of hot water. Then put both your hands in the bucket of room temperature water. What happens? You will feel that your cold hand feels warmer and that your warm hand feels colder.

We judge stimuli by differences and changes and not absolute magnitudes. For example, we evaluate stimuli like temperature, loudness, brightness, health, status, or prices based on their contrast or difference from a reference point (the prior or concurrent stimuli or what we have become used to). This reference point changes with new experiences and context.

This means that how we value things depends on what we compare them with.

• The grossly overpriced $100 tie seemed reasonable after John bought the fairly priced $1,500 suit.
• The order in which something is presented matters. Sales people often try to sell the more costly item first. We are out buying a computer and some diskettes. In comparison to a $1,500 computer, diskettes at $10 seem like a bargain. After we buy the big ticket items, the add-ons seem cheap in comparison.
• Experiments have shown that we go across town to save $10 on a clock radio but not to save $10 on a large-screen TV. The difference between $100 and $110 seems like a larger saving than the difference between $2850 and $2860. But it's the same $10 saving.
• "What I am used to getting in social benefits is the norm against how I measure fairness," says John's friend Mark.
• A hotel has been renting rooms for $100 a night. The day after a hurricane, the hotel raises its prices to $150. Studies show that we consider this unfair. We determine what is fair or not in reference to what we have been used to. This means that policies that have habit-forming consequences may be hard to reverse if they are seen as a loss.
• One of TransCorp's subsidiaries developed a high-priced version of the machine. Even if it doesn't sell well, it will help induce customers to buy their cheaper (but still expensive) version.
• The same thing may appear attractive when compared to less attractive things and unattractive when compared to more attractive things. For example, studies show that a person of average attractiveness is seen as less attractive when compared to highly attractive others. Charles Munger gives another example: "In my generation, when women lived at home until they got married, I saw some perfectly terrible marriages made by highly desirable women because they lived in terrible homes. And I've seen some terrible second marriages which were made because they were slight improvements over an even worse first marriage."
• In one experiment, a group of people was asked to choose between $6 and an elegant pen. Most chose the cash. Another group of people was asked to choose between $6, the elegant pen, or an inferior pen. Most chose the elegant pen. By adding an inferior option, another option seemed more attractive.
• Mary is looking at houses. The real estate broker knows that the house he is trying to sell Mary is in poor shape and a bad area. He starts by showing Mary bad properties in an ugly neighborhood. Afterwards, he takes her to the house he wanted to sell all along. Suddenly this house and the area seem great in comparison to the other houses she saw.
• Another example of contrast comparison is when we interview one job candidate after another.
• "If we slowly and gradually over time manipulate the numbers, the auditors won't notice it."
• Contrasts may blind us to change until it's too late. For example, we often don't notice the bad behavior of others if it goes sour gradually over time.
• Often we see reality as constant, although it gradually changes. A stimulus must reach an absolute threshold before we can detect it. Before we notice a change in a stimulus, a certain relative change must occur. If the change is slow enough, we don't notice the change. Our ability to detect and react to changes in a stimulus decreases as its magnitude increases. To a small stimulus, only a small amount must be added. To a larger stimulus, a large amount must be added.
• Sometimes it is the small, gradual, invisible changes that harm us the most. Warren Buffett says: "One of the problems in society is that the most important issues are often these incremental type things." He continues: "The world is not going to come to an end because tomorrow there are 200 or 250 thousand more people on the planet than there were today. That's about the number it grows every day... it is like eating about 300 calories more each day than you burn up; it has no effect on you today. You don't get up from the table and all of a sudden everybody says, 'My God, you look fat compared to when you sat down!' But, if you keep doing it over time, the incremental problems are hard to attack because that one extra piece of pie doesn't really seem to make a difference. The 250,000 people tomorrow don't seem to make any difference, but the cumulative effects of them will make a huge difference over time, just like overeating will make a huge difference over time. The time to attack those problems is early."

Keep in mind

• Check people and objects against relevant criteria as well as the alternatives presented alongside them.