One way in which I’ve observed some very smart and numerate people falling for this fallacy is when they run out of cash in bars and are forced to take money out of those rip-off ATMs that charge $3 or so per transaction. People will often take a larger amount of money than necessary, rationalizing that the rip-off isn’t that bad if it’s only a small percentage of the amount (I’ve heard this “reasoning” expressed loudly several times). This despite the fact that tomorrow they’ll walk by their own bank’s ATM from which they can take money without any fees, so there’s absolutely no benefit from taking more money than necessary from the expensive one.
I am myself not immune to this feeling, even though I’m perfectly aware it’s completely irrational. I would feel awful if I paid $3 to take out a twenty and then took $100 without a fee next day, but paying $3 to take $120 feels much less bad.
Yes, but on several occasions, I have heard people explicitly say that they would take more cash just because it’s supposedly less of a rip-off to pay the same fee on a much larger amount. So it’s not a hypothesis about their observed behavior, but their clearly expressed reasoning.
(Plus, you probably don’t want to take and carry around a significant amount of extra cash when you’re half-drunk in a bar, and it’s just a short time before last call, so you can’t possibly need more than the cost of one or two more drinks and perhaps a cab ride home.)
So it’s not a hypothesis about their observed behavior, but their clearly expressed reasoning.
But expressed reasons are often not true confession of real reasons. It is risky to put a great deal of store in people’s explanations of their actions. Edit: to clarify, by “real reasons” I don’t even necessarily mean conscious or mentally present reasons. Our real reasons may be “reasons” in the sense that the “reason” we have eyes is to see. This is of course an evolutionary “reason”. Similarly, our behavior may have evolutionary “reasons” which we have no access to whatsoever, forcing us to make something up in order to fill in the gaps. We do seem to have a strong tendency to do that—to fill in the gaps, to explain ourselves, both to others and to ourselves.
The question is whether it’s worth $3 to you at that moment to avoid a) starting a tab, b) walking to the nearest no-fee ATM, or c) not drinking for the rest of the night.
Sometimes it is and sometimes it isn’t, but you’re bang on that the amount of cash you get out doesn’t make a difference.
And the sad thing is people doing that is probably part of the reason why it costs $3 per transaction, although it can’t be that much if they don’t add a percentage on to it.
One way in which I’ve observed some very smart and numerate people falling for this fallacy is when they run out of cash in bars and are forced to take money out of those rip-off ATMs that charge $3 or so per transaction. People will often take a larger amount of money than necessary, rationalizing that the rip-off isn’t that bad if it’s only a small percentage of the amount (I’ve heard this “reasoning” expressed loudly several times). This despite the fact that tomorrow they’ll walk by their own bank’s ATM from which they can take money without any fees, so there’s absolutely no benefit from taking more money than necessary from the expensive one.
I am myself not immune to this feeling, even though I’m perfectly aware it’s completely irrational. I would feel awful if I paid $3 to take out a twenty and then took $100 without a fee next day, but paying $3 to take $120 feels much less bad.
Well, if you aren’t sure exactly how much money you need, you’d want to err on the side of taking too much so you don’t risk making two transactions.
Yes, but on several occasions, I have heard people explicitly say that they would take more cash just because it’s supposedly less of a rip-off to pay the same fee on a much larger amount. So it’s not a hypothesis about their observed behavior, but their clearly expressed reasoning.
(Plus, you probably don’t want to take and carry around a significant amount of extra cash when you’re half-drunk in a bar, and it’s just a short time before last call, so you can’t possibly need more than the cost of one or two more drinks and perhaps a cab ride home.)
But expressed reasons are often not true confession of real reasons. It is risky to put a great deal of store in people’s explanations of their actions. Edit: to clarify, by “real reasons” I don’t even necessarily mean conscious or mentally present reasons. Our real reasons may be “reasons” in the sense that the “reason” we have eyes is to see. This is of course an evolutionary “reason”. Similarly, our behavior may have evolutionary “reasons” which we have no access to whatsoever, forcing us to make something up in order to fill in the gaps. We do seem to have a strong tendency to do that—to fill in the gaps, to explain ourselves, both to others and to ourselves.
Taking out the larger amount of money saves the small amount of effort/time needed to get money from the free ATM the next day.
The question is whether it’s worth $3 to you at that moment to avoid a) starting a tab, b) walking to the nearest no-fee ATM, or c) not drinking for the rest of the night.
Sometimes it is and sometimes it isn’t, but you’re bang on that the amount of cash you get out doesn’t make a difference.
And the sad thing is people doing that is probably part of the reason why it costs $3 per transaction, although it can’t be that much if they don’t add a percentage on to it.