Would you rather pay $79.00 or $95.88 for the same service? Amazon just figured out how to get the $95.88 from some people.
People who sign up for Amazon Prime get “free” (but we know there is no such thing as “free”) 2 day shipping, access to kindle e-book lending and video streaming. The choice though is $7.99 a month or $79.00 for the entire year.
Making a decision about Amazon prime involves our ability to delay gratification. For many people, the current pleasure of a $7.99 bargain far outweighs the current pain of $79 even if we enjoy the benefit in 12 months by having 20% more in our pocket.
Scientists who study delayed gratification usually cite Walter Mischel’s marshmallow experiment. The experiment was all about self-control. Sitting at a table with a marshmallow or a cookie, a 4-year old was told he or she could have one cookie now or two by waiting a bit. After testing hundreds of children, Mischel observed that some could last 20 minutes, others capitulated immediately, and the average resistance time was 7 or 8 minutes. The video below shows a wonderful example of a marshmallow experiment.
Decades later in a follow-up study, Mischel discovered that the SAT scores of children who held out for 15 or 20 minutes were 210 points higher than those who lasted only 30 seconds. The “high delayers” also had better jobs, were thinner, and more likely not to take drugs. Contemporary researchers are now discovering that parenting and genetics both can impact our self-control.
The ability to delay gratification, however, takes us far beyond Amazon Prime and marshmallows. At home, it relates to the housing crisis when many of us selected mortgages that were cheaper in the short run but then ballooned into massive unaffordable obligations. For business, it takes us to current incentives that lead CEOs to avoid long-term hugely beneficial investments because a short run project will get a fast return. And with government, we can cite excessive borrowing that reflects again an inability to delay gratification until it is affordable.
Sources and Resources: Thanks to my web designer Julian Foster who recommended the Wired article that presents lots more detail about the Amazon prime offer. I also suggest looking at Nobel laureate Daniel Kahneman’s Thinking Fast and Slow for further discussion of self-control and gratification.