Some time ago I listed to a radio presentation by an economist regarding “Relativity” in spending and saving habits. It stuck with me and I frequently call it to mind in making certain money decisions.

Imagine that you have entered a store to buy a $20.00 pen as a gift for a friend. You have selected the pen and as you approach checkout you learn that a few blocks away that very same model pen is on sale for $10.00. Research suggests that the great majority of shoppers would leave the first store in favor of saving $10.00 by purchasing the pen at the sale price elsewhere.

Here’s the kicker: Imagine instead that you are at a store preparing to purchase a $1,500.00 flat screen TV. Before checkout you learn that the same model is on sale down the street for $1,490.00. Research suggests that the majority of shoppers would not leave the first store in favor of saving $10.00 by purchasing the TV at the sale price elsewhere.

Same $10.00, but opposite behavior. The economist theorized that for most people, financial decisions are made in a relativistic fashion. However, the most successful managers of money (their own and others) see the $10.00 as a stand-alone quantity without regard to the value of the underlying purchase. They would evaluate whether to buy or not at the first store solely on the basis of whether the $10.00 saving was justified by the cost and inconvenience of proceeding to the second store.

Just some food for thought.

Peace Everyone. Pete

3 thoughts on “Spending and Saving, a Theory of Relativity

  1. Pauline Schloss. says:

    This analysis is too deep for me. I would save the first ten dollars forget the other in the large item amount.

  2. Hmmmmm… I think it feels like you are getting the item for half price with the first purchase. Yet only getting ten dollars off on the TV. However – it is true $10.00 either way.

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