A very useful from Eliezer Yudkowsky at Overcoming Bias. Bottom line: you get more credit from buying the top item in cheapie categories than by buying low to moderate priced items in more exclusive types of goods. But the reaction also depends on whether the recipient is able to evaluate what they have received.
From Overcoming Bias:
With the expensive part of the Hallowthankmas season now approaching, a question must be looming large in our readers’ minds:
“Dear Overcoming Bias, are there biases I can exploit to be seen as generous without actually spending lots of money?”
I’m glad to report the answer is yes! According to Hsee (1998) – in a paper entitled “Less is better: When low-value options are valued more highly than high-value options” – if you buy someone a $45 scarf, you are more likely to be seen as generous than if you buy them a $55 coat.
This is a special case of a more general phenomenon. An earlier experiment, Hsee (1996), asked subjects how much they would be willing to pay for a second-hand music dictionary:
Dictionary A, from 1993, with 10,000 entries, in like-new condition.
Dictionary B, from 1993, with 20,000 entries, with a torn cover and otherwise in like-new condition.
The gotcha was that some subjects saw both dictionaries side-by-side, while other subjects only saw one dictionary…
Subjects who saw only one of these options were willing to pay an average of $24 for Dictionary A and an average of $20 for Dictionary B. Subjects who saw both options, side-by-side, were willing to pay $27 for Dictionary B and $19 for Dictionary A.
Of course, the number of entries in a dictionary is more important than whether it has a torn cover, at least if you ever plan on using it for anything. But if you’re only presented with a single dictionary, and it has 20,000 entries, the number 20,000 doesn’t mean very much. Is it a little? A lot? Who knows? It’s non-evaluable. The torn cover, on the other hand – that stands out. That has a definite : namely, bad.
Seen side-by-side, though, the number of entries goes from non-evaluable to evaluable, because there are two compatible quantities to be compared. And, once the number of entries becomes evaluable, that facet swamps the importance of the torn cover….
What does this suggest for your holiday shopping? That if you spend $400 on a 16GB iPod Touch, your recipient sees the most expensive MP3 player. If you spend $400 on a Nintendo Wii, your recipient sees the least expensive game machine. Which is better value for the money? Ah, but that question only makes sense if you see the two side-by-side. You’ll think about them side-by-side while you’re shopping, but the recipient will only see what they get.
If you have a fixed amount of money to spend – and your goal is to be seen as generous, rather than to actually help the recipient – you’ll be better off deliberately not shopping for value. Decide how much money you want to spend on impressing the recipient, then find the most worthless object which costs exactly that amount. The cheaper the class of objects, the more expensive a particular object will appear, given that you spend a fixed amount. Which is more memorable, a $25 skirt or a $25 candle?
Gives a whole new meaning to the Japanese custom of buying $50 melons, doesn’t it? You look at that and shake your head and say “What is it with the Japanese?”. And yet they get to be perceived as incredibly generous, spendthrift even, while spending only $50. You could spend $200 on a fancy dinner and not appear as wealthy as you can by spending $50 on a melon. If only there was a custom of gifting $25 toothpicks or $10 dust specks; they could get away with spending even less.
PS: If you actually use this trick, I want to know what you bought.