Tag: cheema
Saving With Shoeboxes: An Open Letter To My Bank
by chris on Jul.23, 2009, under rfc
Suppose you go to the movies. You buy a gallon bag of popcorn for $5. Your twin also pays $5, but she receives her popcorn in four sealed quart bags. You are both equally hungry, have equivalent stomachs, and have the same love for salty treats during showings of Up. Will you both eat the same amount of popcorn?
Probably not. At least, that’s the answer suggested by the behavioral economist Dilip Soman. I subscribe to the podcast Arming the Donkeys by Dan Ariely. On last week’s show, Dan interviewed Dilip about “The Effect of Bracketing on Spending“, cowritten with Amar Cheema.
The basic finding of Soman and Cheema is this: portions affect consumption. Nothing new to dietitians, perhaps, but definitely new to economists. Soman explains that, ceteris paribus, your twin will eat less than you, because putting the same amount of popcorn into different bags creates “brackets” that contextualize consumption. There’s nothing to stop you from eating all of the giant tub of popcorn, but the tiny barrier of opening the bag makes you think about how much you are eating and gives you the chance to reevaluate your total consumption.
Soman and Cheema found the same effect held true with gambling. Roughly speaking, give a gambler an envelope with $X, or give them 10 envelopes each containing a tenth of $X, and they will gamble differently. According to Cheema, partitioning this way can reduce spending by 50%.
Now, what on earth does this have to do with my bank?
