Consider the following scenario: You’ve scored a free ticket to a major football game. At the last minute, though, a sudden snowstorm makes getting to the stadium somewhat dangerous. Would you still go? Now, assume the same game and snowstorm, except this time you paid handsomely for the ticket. Would you head out in the storm in this case?

Analyses of people’s responses to this situation and to other similar puzzles illustrate principles of mental accounting. This process demonstrates that the way we pose a problem (we call this framing) and whether it’s phrased in terms of gains or losses influences our decisions.^[47] In this case, researchers find that people are more likely to risk their personal safety in the storm if they paid for the football ticket than if it’s a freebie. Only the most die-hard fan would fail to recognize that this is an irrational choice, as the risk is the same regardless of whether you got a great deal on the ticket. Researchers call this decision-making bias the sunk-cost fallacy—having paid for something makes us reluctant to waste it.

At the risk of understatement, many of the decisions customers make aren’t rational—or even in their best interest. For example, the degree of external search we do for most products is surprisingly small, even when we would benefit by having more information. And lower-income shoppers, who have more to lose by making a bad purchase, actually search less prior to buying than do more affluent people.

Indeed, many consumers typically visit only one or two stores and rarely seek out unbiased information sources prior to making a purchase decision, especially when they have little time available to do so. This pattern is especially prevalent for decisions about durable goods such as appliances or autos, even when these products represent significant investments. One study of Australian car buyers found that more than a third had made two or fewer trips to inspect cars prior to buying one.^[48]

In addition, consumers can be amazingly fickle. They often engage in brand switching, even if their current brand satisfies their needs. For example, researchers for British brewer Bass Export who were studying the American beer market discovered a consumer trend toward having a repertoire of two to six favorite brands, rather than sticking to only one. This preference for brand switching led the firm to begin exporting its Tennent’s 1885 lager to the United States, positioning the brew as an alternative to young drinkers’ usual favorite brands. Sometimes, it seems that people just plain like to try new things—we crave variety as a form of stimulation or to reduce boredom. Variety seeking, the desire to choose new alternatives over more familiar ones, even influences us to switch from our favorite products to ones we like less! This can occur even before we become satiated or tired of our favorite. Research supports the idea that we are willing to trade enjoyment for variety simply because the unpredictability itself is rewarding.

Another irrational impulse we often experience is loss aversion. This means that we emphasize our losses more than our gains. For example, for most people, losing money is more unpleasant than gaining money is pleasant. Our sense of risk differs when we face options involving gains versus those involving losses. To illustrate this bias, consider the following choices. For each, would you take the safe bet or choose to gamble?

In one study, 70 percent of those given option 1 chose to gamble, compared to just 43 percent of those offered option 2. Yet, the odds are the same for both options! The difference is that people prefer “playing with the house money”; they are more willing to take risks when they perceive they’re using someone else’s resources. So, contrary to a rational decision-making perspective, we value money differently depending on where it comes from. This explains, for example, why someone might choose to blow a big bonus on some frivolous purchase but would never consider taking that same amount out of her savings account for this purpose.

Finally, research in mental accounting demonstrates that extraneous characteristics of the choice situation can influence our selections, even though they wouldn’t if we were totally rational decision makers. As one example, researchers gave survey participants one of two versions of this scenario:

You are lying on the beach on a hot day. All you have to drink is ice water. For the past hour, you have been thinking about how much you would enjoy a nice cold bottle of your favorite brand of beer. A companion gets up to go make a phone call and offers to bring back a beer from the only nearby place where beer is sold (either a fancy resort hotel or a small, run-down grocery store, depending on the version you’re given). He says that the beer might be expensive and asks how much you are willing to pay for it. What price do you tell him?

Participants who read the fancy resort version offered a median price of $2.65, but those who got the grocery store version were only willing to pay $1.50. In both versions, the consumption act is the same, the beer is the same, and they don’t consume any “atmosphere” because they drink the beer on the beach.^[49] So much for rational decision making!