Chapter 119 Question 107

Why do real estate agents often show clients two almost identical houses, but one is cheaper and better than the other? A buyer is having a headache because he has to choose between two houses.One, a Greek Revival farmhouse in good condition, is listed for $300,000; the other, a newly renovated Victorian townhouse, is listed for $280,000.Buyers tend to favor the latter.That's when his real estate agent arranged for him to see another Greek Revival farmhouse.The house, in slightly worse condition than the previous one, was listed at $320,000.On the way back, the buyer announced his intention to buy the first Greek Revival farmhouse.What makes a real estate agent think it's a good idea to show a client another house?

This episode reminds me of a story about a man who asked a waitress at a fast food restaurant what sandwiches were on the menu.Had chicken salad and roast beef.The waitress answered.So the diner ordered a roast beef sandwich.The waitress said again, oh, I forgot, we also have tuna.As a result, the diner replied, in this case, I'd better have the chicken salad. The diner changed the option, which violated a basic axiom of rational choice theory, that is, if a worst option is added to the candidate list, it should not affect the previously selected option.The diner's initial choice indicates that he prefers a roast beef sandwich to a chicken salad sandwich, and this preference should not be changed by the addition of a tuna sandwich to the list.

However, according to Tamar.Simonson (Itanlar Simonson) and Ayingsi.According to Tversky's experiment, this preference reversal is actually quite common.It seems to be the case that people are often undecided between two options that are difficult to compare.Each has attractive features, and people are reluctant to choose one for fear of later regretting not choosing the other.In this case, Simonson and Tversky argue, introducing a seemingly unrelated new option can have a profound impact. Realtor's clients can't choose between their first Greek Revival farmhouse and Victorian townhouse.But when it came time to compare the first farmhouse with the second farmhouse, the client was not embarrassed because the second farmhouse was of poor quality and expensive.In the second comparison, the first farmhouse easily won, so the client had a love for the house and a crow's mentality, and brought this psychology into the second comparison with the Victorian row house.

According to the traditional rational choice theory, it is a waste of time for the broker to show the client the second farmhouse.In practice, however, this approach often works.