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Reference points influence our choices from "summary" of Thinking, Fast and Slow by Daniel Kahneman
Our choices are often influenced by reference points that we use as benchmarks. These reference points can be anything from previous experiences to societal norms. When making decisions, we tend to compare our options to these reference points in order to evaluate their value. This comparison can significantly impact the choices we ultimately make. For example, if we are considering buying a new car, we might compare the price of different models to the cost of our current car. If the prices of the new cars are significantly higher than what we paid for our current car, we might feel hesitant to make the purchase. On the other hand, if the prices are similar or lower, we might be more inclined to buy a new car. Reference points can also influence our perceptions of gains and losses. When we are presented with a potential gain, we tend to compare it to our current situation. If the gain seems significant in comparison, we are more likely to take the risk. Conversely, when faced with a potential loss, we are more averse to taking action if the loss is compared to a reference point that represents a higher value. Moreover, reference points can vary depending on the context in which decisions are made. For instance, in a pricing strategy, companies might set a higher price for a product and then offer a discount to make the price seem more appealing. By establishing a high reference point initially, customers are more likely to perceive the discounted price as a good deal.- Reference points play a crucial role in shaping our decisions and influencing the choices we make. By being aware of how these benchmarks impact our perceptions, we can better understand the reasoning behind our decisions and potentially make more informed choices.
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