The other day we talked about how fairness can affect a person's financial reasoning and distort their perception of the value of your businesses offering. Today I want to introduce another irrational factor that transcends financial reasoning as it relates to the perception of value. Today’s post will introduce how “transparency asymmetry” can destroy the value of your offering.
As consumers, we too often associate effort with value. Let’s say you locked your only set of keys in your car and you had to hire a locksmith to pick the lock. If one locksmith spent over an hour to get your door open most people would have no issue paying the locksmith $100 for his service call. However, if the locksmith showed up, opened up your door in just 60 seconds, and then said “That will be $100 please,” most people would think that a $100 service fee was too much since there was so little observable effort on the part of the locksmith to open the door.
Logically, you should have been much happier with the second locksmith since he didn’t waste an hour of your time to unlock your car, however as irrational humans we would likely give the second “60-second” locksmith a bad review on a site like Yelp saying he overcharged us, while crowing about the first “1-hour” locksmith that tried and tried until he finally got the door unlocked.
I recalled a recent experience when a raid array disk drive enclosure I use for video content crashed. Attempting to fix the problem myself, I bought a new enclosure and installed the old disk drives into the new enclosure. What I discovered to my horror, was that the new enclosure used a different controller, and when it tried to access the data on the disk drives, the new controller overwrote some data on the disk drives making the disks unreadable. The data on the disk drives contained video content that represented years’ worth of effort that could not be replaced.
Fearing the data was lost forever, I went to a local data recovery company. The technician placed one of my drives in a fixture on his bench, and with only a few keystrokes there was my data. Because the disk drive itself was rendered useless, the technician copied the disk’s content to a new drive, which took a few minutes and then said that would be $200 for the labor and $80 for the new disk drive. The whole process took him only a few minutes of effort. One part of me was so happy to have the data back but another part said; “Wow, $200 labor for less than 5 minutes of effort equated to $2,400 per hour.”
In another example, Salvador Dali once was said to have made a painting for a woman that took him a few minutes to complete. The woman said; “I can’t believe how well you captured my essence in the painting”. Handing over the painting, he said; "That would be $5,000." She was outraged at the price saying that it only took him a few minutes to paint it. Salvador Dali replied; “It took an entire life, plus a few more minutes to paint it. That's how long it took me- not just a few minutes.”
What causes many people to be outraged by a price is what is known by behavioral economists as “Transparency Asymmetry”. The concept of transparency asymmetry is based on our inability at adequately ascribe value to something that we can’t see. In our example of the locksmith, it might be his acquired skills of how door locks work, in the data recovery example the cost of his specialized equipment like his fixture and software, or in the case of Salvador Dali the value of his knowledge that took a lifetime to master.
As consumers,
