Picture this. You visit a consumer store, wanting to replace both the air conditioners in your house.
The salesperson suggests that you buy a five-star-rating model, as it is more energy-efficient than the three-star model that you have been using. The difference is about Rs 8,000 per air conditioner. Which model will you buy?
Whether you buy an air conditioner or a diesel car, the decision is the same. You will choose to pay a higher upfront cost if you believe that you can save on the running costs - the lower fuel cost on the diesel car and the lower energy costs on the five-star air conditioner. But more often than not, you will not use your air conditioner long enough to save on the energy costs.
Nor will you drive your diesel car so much that you save on the running costs. Yet, you do buy such seemingly energy-efficient products for higher prices. Why?
It is the same reason that prompts you to take a one-year membership to the nearby fitness centre even when a monthly or a weekly membership is available. We are, of course, talking about how your brain functions when you shop.
Pleasure and pain
Your brain battles with pain and pleasure. A region in your brain called the insula lights up when you feel pain or anticipate pain.
Now, parting with cash to purchase a product causes pain and, hence, activates your insula. Of course, the flip side is the pleasure of owning the air conditioner or the diesel car. Your brain is flooded with a naturally-producing chemical called dopamine when it experiences pleasure; that is what overcomes the pain in your brain and prompts you to still buy the air conditioner or the car!
The point is this: The cumulative anticipated pain of paying higher running cost each month is likely to be more than the pain of paying a one-time upfront cost to buy the energy-efficient product.
That, perhaps, prompts us to buy the five-star air conditioner or the diesel car. On the positive side, you expect to save on the running costs when you pay a higher price upfront for the product; anticipating savings also makes you feel good.
Of course, not all of you are swayed by the energy-efficient spiel. The reason may not be far too seek. When you believe that you are unlikely to use the five-star air conditioner or the diesel car enough to save on the running cost, your focus is on the product price. The pain of parting with higher upfront cash is, hence, more!
(The author is the founder of Navera Consulting. Feedback may be sent to >knowledge@thehindu.co.in )