So, we're going to talk about mental accounting and price perception now. And I'm going to tell you I love this material, this is some of my favorite material not only in pricing but all of marketing. Because it really shines alight on human behavior in the way that other techniques really don't. Now, what is mental accounting? Really, what mental accounting is? Is the realization, that people don't handle money in perfectly rational ways. And coming up with kind of thoughts or guidelines or predictions about how people will manage their money in all kinds of situations including spending their money which we're interested in. Since we want to tie this back to pricing, so I'm going to go deep through different principles of mental accounting but I'm going to tie them back in to pricing, promotion and deals structure. That we can use in the real world, that will make people happier with the prices in deal structure that they are going to see. Now, when I do this I'm going to draw together a law the different research. I've got my name on here but I tell you what, I'm not leading white. We've got Daniel Kahneman and Amos Tversky at the top these are nobel prize winners. We've also got a lot of other people that have done very important research at the boundary of human psychology and economics. And that's what we're going to be leveraging when we talk today. So well, what's it the basis of all these is something called evolutionary psychology and here is what it means in short, just we believed that the thumb evolved in away to help us grab tools, okay. And to catch fish, and to do the kind of things that would help early mankind survive in a harsh environment. We now believe that a lot of our thoughts also evolved in that way. Now, some of those thoughts are helpful for us in our every day lives. They help us survive, they help us protect our children. They do all kinds of good things for us. Some of those thoughts however, are rather called maladaptive. Which means, they used to help human beings survive in the harsh environments in which, human beings have spent most of their existence. But they're not particularly helpful now. In some of those adaptive and maladaptive thoughts are going to be useful when we start making pricing decisions. So, here are just a few of them to kind of set your intuition. One is called our fish brain and I’m going to talk about that in some detail momentarily but maybe one that you can relate to right away is most people's taste for sugar and fat, right. Think about what would sound good to you right now. Maybe a piece of chocolate? Maybe a thick juicy steak on the grill, right. That could be good. Human beings like sugar and fat. The reason we do in general, is because sugar and fat signal high caloric content in food. It means the food's got a lot of calories in it. Now that's a really good thing, if you're walking across the frozen ice bridge between Alaska and present day Russia which was the ice bridge from Asia over to North America. And you're trying to find food and you find a berry that tastes very sweet. If the berry tastes sweet, that means it probably has a lot of calories in it and it's a good thing for you to eat and survive. And meat that has a lot of fat in it, taste good why? There is a lot of high calorie content in that and that would help you survive. In today's world, not so much right, wouldn't be nicer. If a big bowl of kale tasted as good as some nachos with cheese on them, right. Or some chicken wings. Mm-hm, kale, chicken wings. What do you think most people are going to grab? They're going to grab the high fat food because their ancient brains are telling them, that's what you need to survive. And this is going to come into play, not so much the taste for sugar but certainly the fish brain, certainly something called pattern confabulation are tendency to see patterns in everything. And another effect called frugal heuristics which means, trying to make very quick decisions in presence of lots of data. I'm not going to talk about those so much because is going to be with us, right after me. And she's going to talk about some of the psychology related to those particular concepts. But I do want to talk momentarily about our fish brain because it looms large in pricing. What is the fish brain? It's a term that's in psychologist use. And what it means is that well, maybe a quick sort of visual example would be the best way to do this. I know this is very hard but imagine you're a fish swimming in the prime mortals sea and a fish comes by that you can eat and you miss it, is that a bad thing? It is, it's a bad thing, if you do that too often you're going to starve. But now imagine, that a fish swims by you that could eat you. Is that a bad thing? Yeah, that's a really bad thing, game over. Genes don't make it to the next generation, right. So that's an ancient survival thought. And it shows up in the human brain now. And how does it show up? All human beings, tend to see negatives more clearly than positives. We focus on threats, in the negatives in any situation before we go out and see, what are the opportunities, what are the positives there. What are the things that can go wrong that's our natural reaction. Almost everybody does this, their a few people that don't, their a few people that won the serotonin genetic lottery, what is that mean? That means they have a lot of serotonin sitting on their brain. That serotonin makes them very happy. These are the people that go out and start garage bands. They don't save for retirement. They don't think that much of the future, right. They don't plan, but they're really, really happy because that serotonin makes them happy. They could be on a drug Prozac, that could make you happier and see positives more clearly than negatives that's true. And well, unrelated de-pricing in any way that I'm going to try to draw in, there is evidence that practicing Buddhist meditation. And perhaps other type of meditation, can increase the serotonin levels in the brain and make you see positives in a more clear light. But again these are the exceptions and the rule is, people just tend to see the negatives more clearly than positives.
