I had finally bought a new tube of toothpaste today. I had been using toothpaste from a tube that has been “empty” for the past five days. A tube of toothpaste is not really empty until you have split is open with a pair of scissors and wiped the last traces of toothpaste for one last brushing session.
These past five days, the trace amount of toothpaste that I was able to squeeze out of an empty tube had been sufficient to clean my teeth. That means that during the times when there was a lot of toothpaste still left in the tube, I had been using more than what I needed to clean my teeth. That was actually quite evident because most of the toothpaste just ended on the basin, still in unused clumps, when I rinse my mouth afterwards.
If it were just toothpaste, this is would be a waste of time on the mundane but we also behave in this manner in other things with far greater consequences. This thing with the toothpaste is just an illustration of how we do not behave as rational consumers.
In business school, we were tested on how rational we were as consumers. Assume that you are in a mall and right next to you is a convenience store where you can buy a can of soda for $11 while you can also get the same soda for $1 at the end of the mall which is about 500 meters away. Where would you buy the can of soda?
Now assume that you are in the same mall and next to you is an electronics store where you want to buy a digital camera which would cost you $5,010. The same camera is available at an electronics store at the other end of the mall which is about 500 meters away and would cost you $5000. Where would you buy a digital camera?
The rational consumer would buy both the can of soda and the digital camera at the far end of the mall. Ten dollars for a 500 meter walk is still $10 dollars whether you are buying a can of soda or a digital camera. Of course, the really savvy consumer would have parked at the other end of the mall if he knew stuff there were $10 cheaper. But I digress.
The irrational consumer, on the other hand would trudge 500 meter to save $10 on a can of soda but would not do so for the same amount of savings when buying a high ticket item.
There are more common forms of irrational consumer behavior such as putting money on a savings account which earns 2% interest per annum while maintaining a credit card balance which charges about 4.5% interest per month.
Going back to the toothpaste issue, I just realized that I had been irrational in my use of toothpaste. I had been using more than what is needed when there is still plenty of toothpaste left when I should always be using only what I need.
This business school flashback is courtesy of the recent drop in oil, and consequently in fuel, prices. The rapid increase in gas prices have forced use to use what is only necessary. When gas prices go down, we might be tempted to backslide and once again use what is available, much more than what we only need.
These past five days, the trace amount of toothpaste that I was able to squeeze out of an empty tube had been sufficient to clean my teeth. That means that during the times when there was a lot of toothpaste still left in the tube, I had been using more than what I needed to clean my teeth. That was actually quite evident because most of the toothpaste just ended on the basin, still in unused clumps, when I rinse my mouth afterwards.
If it were just toothpaste, this is would be a waste of time on the mundane but we also behave in this manner in other things with far greater consequences. This thing with the toothpaste is just an illustration of how we do not behave as rational consumers.
In business school, we were tested on how rational we were as consumers. Assume that you are in a mall and right next to you is a convenience store where you can buy a can of soda for $11 while you can also get the same soda for $1 at the end of the mall which is about 500 meters away. Where would you buy the can of soda?
Now assume that you are in the same mall and next to you is an electronics store where you want to buy a digital camera which would cost you $5,010. The same camera is available at an electronics store at the other end of the mall which is about 500 meters away and would cost you $5000. Where would you buy a digital camera?
The rational consumer would buy both the can of soda and the digital camera at the far end of the mall. Ten dollars for a 500 meter walk is still $10 dollars whether you are buying a can of soda or a digital camera. Of course, the really savvy consumer would have parked at the other end of the mall if he knew stuff there were $10 cheaper. But I digress.
The irrational consumer, on the other hand would trudge 500 meter to save $10 on a can of soda but would not do so for the same amount of savings when buying a high ticket item.
There are more common forms of irrational consumer behavior such as putting money on a savings account which earns 2% interest per annum while maintaining a credit card balance which charges about 4.5% interest per month.
Going back to the toothpaste issue, I just realized that I had been irrational in my use of toothpaste. I had been using more than what is needed when there is still plenty of toothpaste left when I should always be using only what I need.
This business school flashback is courtesy of the recent drop in oil, and consequently in fuel, prices. The rapid increase in gas prices have forced use to use what is only necessary. When gas prices go down, we might be tempted to backslide and once again use what is available, much more than what we only need.
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