Price psychology: why few extra dollars are fine for a TV but not for coffee

Price psychology entails various psychological effects that influence our choices that are related to change in prices. One of the most common ones is called the range effect which describes how you judge the change in price not based on the absolute amount but based on percentage. 

Price psychology photo

A cup of coffee that used to cost 5 dollars but now costs 8 dollars might seem overpriced, but a 500 dollar TV that now costs 503 dollars seems perfectly fine because the change in percentages is small. This way we might refuse to buy coffee that costs a few dollars more but we will gladly overpay the same amount on a more expensive item. 

The range effect is not only about price psychology. The same effect exists when you wait in line at the store. If the store is always busy and you usually spend 5 minutes in line, then 2 extra minutes spent waiting in line won't seem like much. But if you usually wait only for less than a minute in line, then extra 2 minutes in line will seem massive. 

Thought experiment!

You are about to buy an expensive phone at the online store. The phone is already in your online basket and It costs 805 dollars. Suddenly, you find out that you can buy the same phone at a different website for 802 dollars.

What would you do?

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