Theory of Relativity

Einstein's Special Theory of Relativity describes the motion of particles moving at close to the speed of light. Eistein's theory of relativity talks about question of whether rest and motion are relative or absolute, and it shows that the objects continue to move in a straight line in space-time. Because most of us have little experience with objects moving at speeds near the speed of light, Einstein's predictions may seem strange.

However I will share a different theory of relativity that everyone of us experience day in and day out. This blog is an excerpt from the chapter on "Truth of Relativity" from the book "Predictably Irrational" by Dan Ariely. I strongly recommend readers to read this great book by Dan Ariely.

Humans rarely choose things in absolute terms. We don't have an internal value meter that tells us how much things are worth. Rather , we focus on the relative advantage of one thing over another, and estimate the value accordingly. Most people don't know what they want unless they see it in context.We dont know what kind of car we want to buy- until we compare cars, test ride them, check what our friend's have. We don't even know what we want to do with our lives - until we find a relative or a friend who is doing just what we think we should be doing. Everything is relative, just like the airplane pilot landing in dark wants the runway lights on either side of the landing stretch.

Dan makes this point with an excellent example. An advertisement for Economist subscription looked like the one given below

1. Internet-only subscription for $59

2. Print-only subscription for $125

3. Print-and-Internet subscription for $125

If you were given these choices, what would you choose? Through a survey on MIT management students it was found that 84% people chose option 3 , 16% chose option 1 and obviously none chose option 2.

When the experiment was repeated with only the following options:

1. Internet-only subscription for $59
2. Print-and-Internet subscription for $125

68% people chose option 1 and 32% option chose option 2.

By adding a decoy option of "print-only" most of them in a predicatbly irrational manner chose Print-and-Internet option over Internet-only option.

So the next time you go to a store for buying TV or Washing machine or other goods beware that there be could be a decoy optional model that would influence you to choose the most expensive option. I would not be surprised, even after reading this blog, you end up choosing the expensive one . No wonder we humans are predictably irrational.

Relativity is (relatively) easy to understand. But there's one aspect of relativity that consistently trips us up. We tend to focus on comparing things that are easily comparable - and avoid comparing things that cannot be compared easily. An example will clarify the above statement:

Suppose you are planning a honeymoon in Europe and your choice is either Rome or Paris. The travel agent gives you three options

1. Rome package which includes airfare, hotel accomodation, sightseeing tours, and a free breakfast every morning.

2. Rome package which includes airfare, hotel accomodation, sightseeing tours, but NO free breakfast every morning.

3.Paris package which includes airfare, hotel accomodation, sightseeing tours, and a free breakfast every morning.

Which option would you choose. The survey shows that most people chose option 1. When the option 2 was not given, it was a difficult to choose between Rome and Paris as the package contents were similar. Even now it is similar, but adding a decoy - Rome without breakfast, makes Rome package more attractive than Paris package. This is what we mean when we say that we tend to focus on comparing things that are easily comparable.

So next time you want you kids or others to choose an option that you wish them to choose add a decoy that is relatively inferior to that option. Going by this predicatbly irrational behavior you may have your way.

The next example of this theory of relativity is an excellent one. Suppose you have two errands to run today. The first one is to buy a new pen, and the second is to buy a suit for work. At an office supply store, you find a nice pen for $25. You are set to buy it, when you remember that the same pen is on sale for $18 at another store 15 minutes away. What would you do? Most people faced with this dilemma say that they would take the trip to save $7.

Now you are on your second task: you're shopping for your suit. You find a luxurious suit for $455 and decide to buy it, but then another customer whispers in your ear that the exact same suit us on sale for $448 at another store, just 15 minutes away. Do you make this second 15-minute trip? In this case, most people say that they would not.

Interestingly in both the above cases you save $7 for 15 minutes of your time. However in one case you take the trip and the other you dont. Is is not an irrational behavior? The problem is that we compare the relative advantage and when the percentage gain is less we do not go the extra mile eventhough the gains in absolute terms is same in both the cases. This behavior of us is exploited very well and we do not mind paying extra $20 to a $500 catering bill for soup entree when we will clip coupons to save 25 cents on a one-dollar can of condensed soup.

The impact of this theory of relativity can be seen from the next example. In 1993 federal securities regulators in America forced companies, for the first time, to reveal details about the pays and perks of their top executives. When this happened the CEO salaries went up three times the salary before executive compensation went public. The reason for this increase is because media started running special stories ranking CEOs by pay. This publicity had CEOs comparing their pay with that of everyone else. In response executives' salaries sky rocketed.

Did you ever look deeper to find why an employee is never happy with his compensation? Its because he is comparing his salary to others around - again an outcome of this relative theory. In the absolute terms his salary may be lot higher to have a better standard of living. But it does not help. As they say "The grass is always greener on the other side of the fence".

So can something be done about the problem of relativity? . The good news is that we can sometimes control the "circles" around us, moving toward smaller circles that boost our relative happiness. If we are thinking about buying the house, we can be selective in choosing the houses that are not above our means. If we are thinking about buying a new car, we can focus on models that we can afford, and so on. By learning to make the circles of comparison smaller, not larger, we can break the cycle of relativity. So next time you want to buy something, downgrade the choice by one notch. You will be lot happier and not get sucked into the vicious circle of wanting more because there is no end to this expanding vicious circle.

I end this blog with an Einstein's quote - " The distinction between the past, present and future is only a stubbornly persistent illusion".

Happy Reading.

Ram