If you found $10 on the floor would you give any of the money to your neighbor?
If your neighbor had found $10 and you had the chance to take some away from him, would you?
It is effectively the same situation – there is $10 and you are deciding how to split it between you and your neighbor. The way the problem is stated, as either giving or taking, makes a difference to how people behave.
This particular game is an example of the dictator game.
A pure game theory approach to this situation would say that a rational player would act the same in both the giving and the taking situation. In fact they don’t, whether the game is one of giving or taking makes a big difference.
The most interesting situation is one that is between the two extremes. When the dictator has the full $10 he is very likely to give some to the other player. But when the dictator starts with $8 and the other person has $2 then he is much less likely to give anything to the other player even though he would probably have given more than $2 if he had started with $10.
These kind of framing ideas can make a big difference in pricing problems.
Which is better?
1 – Buy one book for $10 and get a second half price; or
2 – Two books for $15 (or $10 each)
The two situations are the same but one is showing a discount for buying a second book while the other is showing an increase for only buying one.
Today’s takeaway: Think about the framing of your offers, it can make a big difference.