Thanks for your comment, Kavita. Let’s just look at the third example. There are two conditions: (a) I make a 2 mile detour to the petrol station to fill up as part of a 10 mile trip; (b) I make a 2 mile detour to the petrol station to fill up as part of a 150-mile trip. The utility is the same in either case (the saving of 8p/litre fuel on a full tank), and so is the disutility (the time it takes to make the detour and fill up, and the mileage cost of the detour).

Yet I favour condition (b) over condition (a). Isn’t that irrational?

Relating to the airline ticket example you gave — some passengers are okay with paying more for tickets because it helps them eliminate options and the mental fatigue that comes from making those choices. Would you consider that rational behavior?

No, not necessarily, certainly not if they make a rational choice to go for the full Economy ticket rather than for the basic one because of this reason.

The irrationality can come in when people prefer an all-in price over a lower total price which combines two separate items bundled in the all-in price. There is research (I can’t quickly find the reference) that has looked at how this plays out for ‘free shipping’: people prefer a price of, say, $20.00 including shipping over a price of $17.50 + $2.49 shipping. There is no additional hassle or mental fatigue involved.

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Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius

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