The Less Is Better Effect
“Most of us think of ourselves as deeply rational decisionmakers, but research shows that how we process information very much depends on the way it’s presented. We come at a choice differently depending on how many options are available, and how those options are framed.
We tend to place a value on things by comparing it to other things around it. I don’t know how much a 4-cylinder car should cost, but I know it should cost less than a 6-cylinder car.
We tend to assign wildly different values for the same item if we encounter it alone vs. next to other items. When we have other reference points for comparison, we can make a more informed judgment about an item’s value—but if that item is presented alone, we have a mighty inclination to overestimate its value. This means we often overpay.”