Overly good deals put us off

Imagine you're looking for a job that pays £40 per hour. You see two job ads, both for what looks to be the same role, but while one's offering £46 per hour, the other is offering £120. Which would you go for?

Standard economic theory would argue that you'd go for the high-paying job. However, new research in Personality and Social Psychology Bulletin involving more than 4,000 people reveals that when something appears to be too good to be true, we tend to assume that there's a hidden, 'phantom' cost, which can send us sprinting in the opposite direction.

In the first of ten studies on this phenomenon led by Andrew J. Vonasch at the University of Canterbury New Zealand, an investigator approached strangers on a university campus with a box of chocolate chip cookies. He explained that he'd been eating them with his friends and had some left over. He then either asked if they would like one, or said he would pay them $2 to eat one. The team found that while around 40% of people who weren't offered payment took a cookie, only 23% of those who were also offered the money accepted one. Perhaps unsurprisingly, many of those who rejected the cookie-plus-payment said that they felt something had to be wrong with the food.

In further, online studies, participants were asked how they would respond in various scenarios. All of them involved a stranger who either offered or didn't offer money in addition to: a 'free' ice cream sandwich, a request to be let into the lobby of a building, and a lift home from the airport. The team found that, across the board, offers of payment reduced the chances that the participants would accept. They also found that offers of money led participants to infer phantom costs — for example that the stranger asking to pay to be admitted to the lobby did not have good intentions, or that there had to be something "fishy" about being offered $100 to eat an ice cream sandwich.

In three following studies involving theoretical job-seeking scenarios, the researchers found that offering higher wages for a job can backfire similarly. Two of these studies were conducted on US-based participants, who were asked to consider different wages to work as a truck driver or a construction worker, and for the reasoning behind whether or not they found the amount enticing. The third involved a group of Iranian participants, who were similarly presented with a range of hourly rates for a hypothetical cleaning job.

There was a clear pattern in the responses from participants from both countries: when the hourly wage was below normal, people were less keen on taking the job, partly because they weren't motivated by the money, but also because they were concerned that it could be a low-quality job.

When the wage rose to being slightly higher than normal, however, participants started to infer phantom costs. The higher salary was still appealing — so much so, that they were slightly more likely to take jobs paying up to about double the normal wage. But when the wages became extremely high, fears about the scale of potential hidden costs outweighed the monetary appeal. As the researchers put it, the job came to have a negative 'net psychological value' — so they rejected it.

Vonasch and his colleagues also explored whether individual differences in levels of general distrust might affect their decision-making. And indeed, they found that people who scored more highly for general distrust were more likely to infer phantom costs to an unusually good job offer.

However, the team also found a way to increase the chances that someone would accept an offer that initially seemed overly generous: when they were given some kind of explanation. When, for example, some participants were told that the reason for unusually cheap flights was that the seats were uncomfortable, they reported being more interested in buying a ticket, versus 10 times less when there was no such explanation. The team found that this was because a stated cost made them less likely to imagine worse hidden costs, such as a poor safety record. Potentially spurious explanations may then encourage people to accept otherwise suspiciously good deals. The team suggests that 'Black Friday'-themed sales might be so successful because shoppers are given a reason for products being heavily discounted.

While intuitively these results make sense, most of this of research was based on what participants said they would do in a theoretical situation, and some of these scenarios were extreme — being offered $100 to eat an ice cream sandwich, for example.

However, the team argues that now that their work has provided consistent evidence that offering an ostensibly great deal can backfire because of perceptions of phantom costs, further research can now explore just how this plays out in the real world, including into how individual differences in personality and financial circumstances might influence it.

Read the paper in full.