C H A P T E R 1
The Truth about Relativity
Why Everything Is Relative—Even
When It Shouldn't Be
One day while browsing the World Wide Web (obviously
for work—not just wasting time), I stumbled on the fol-
lowing ad, on the Web site of a magazine, the Economist.

predictably irrational
2
I read these offers one at a time. The fi rst offer—the Inter-
net subscription for $59—seemed reasonable. The second
option—the $125 print subscription—seemed a bit expen-
sive, but still reasonable.
But then I read the third option: a print and Internet sub-
scription for $125. I read it twice before my eye ran back to the
previous options. Who would want to buy the print option
alone, I wondered, when both the Internet and the print sub-
scriptions were offered for the same price? Now, the print- only
option may have been a typographical error, but I suspect that
the clever people at the Economist's London offi ces (and they
are clever—and quite mischievous in a British sort of way) were
actually manipulating me. I am pretty certain that they wanted
me to skip the Internet- only option (which they assumed would
be my choice, since I was reading the advertisement on the Web)
and jump to the more expensive option: Internet and print.
But how could they manipulate me? I suspect it's because
the Economist's marketing wizards (and I could just picture
them in their school ties and blazers) knew something impor-
tant about human behavior: 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
value accordingly. (For instance, we don't know how much a
six- cylinder car is worth, but we can assume it's more expen-
sive than the four- cylinder model.)
In the case of the Economist, I may not have known whether
the Internet- only subscription at $59 was a better deal than the
print- only option at $125. But I certainly knew that the print-
and- Internet option for $125 was better than the print- only
option at $125. In fact, you could reasonably deduce that in
the combination package, the Internet subscription is free! “It's

the truth about relativity
3
a bloody steal—go for it, governor!” I could almost hear them
shout from the riverbanks of the Thames. And I have to admit,
if I had been inclined to subscribe I probably would have taken
the package deal myself. (Later, when I tested the offer on a
large number of participants, the vast majority preferred the
Internet- and- print deal.)
So what was going on here? Let me start with a funda-
mental observation: most people don't know what they want
unless they see it in context. We don't know what kind of
racing bike we want—until we see a champ in the Tour de
France ratcheting the gears on a par tic u lar model. We don't
know what kind of speaker system we like—until we hear a
set of speakers that sounds better than the previous one. We
don't even know what we want to do with our lives—until
we fi nd a relative or a friend who is doing just what we think
we should be doing. Everything is relative, and that's the
point. Like an airplane pi lot landing in the dark, we want
runway lights on either side of us, guiding us to the place
where we can touch down our wheels.
In the case of the Economist, the decision between the Internet-
only and print- only options would take a bit of thinking. Think-
ing is diffi cult and sometimes unpleasant. So the Economist's
marketers offered us a no- brainer: relative to the print-only op-
tion, the print- and- Internet option looks clearly superior.
The geniuses at the Economist aren't the only ones who un-
derstand the importance of relativity. Take Sam, the tele vi sion
salesman. He plays the same general type of trick on us when
he decides which tele vi sions to put together on display:
36-inch Panasonic for $690
42- inch Toshiba for $850
50-inch Philips for $1,480

predictably irrational
4
Which one would you choose? In this case, Sam knows
that customers fi nd it diffi cult to compute the value of differ-
ent options. (Who really knows if the Panasonic at $690 is a
better deal than the Philips at $1,480?) But Sam also knows
that given three choices, most people will take the middle
choice (as in landing your plane between the runway lights).
So guess which tele vi sion Sam prices as the middle option?
That's right—the one he wants to sell!
Of course, Sam is not alone in his cleverness. The New
York Times ran a story recently about Gregg Rapp, a restau-
rant con sul tant, who gets paid to work out the pricing for
menus. He knows, for instance, how lamb sold this year as
opposed to last year; whether lamb did better paired with
squash or with risotto; and whether orders decreased when
the price of the main course was hiked from $39 to $41.
One thing Rapp has learned is that high- priced entrées on
the menu boost revenue for the restaurant—even if no one
buys them. Why? Because even though people generally won't
buy the most expensive dish on the menu, they will order the
second most expensive dish. Thus, by creating an expensive
dish, a restaurateur can lure customers into ordering the sec-
ond most expensive choice (which can be cleverly engineered
to deliver a higher profi t margin).1
So let's run through the Economist's sleight of hand in
slow motion.
As you recall, the choices were:
1.