Harvard Psychologist Reveals How We're Constantly Being Manipulated By Prices

Psychological science has found out at least two things about human nature:

We don't always act in our own best interest.
We're easily manipulated.

If you take it from Harvard psychologist and "Stumbling On Happiness" author Daniel Gilbert, these tripped-up tendencies are evident in the way we make purchases.

Speaking at this month's World Business Forum in New York, Gilbert unpacks some of the research that he and his colleagues have done, mainly around how comparing things affects our behavior.

In short, the comparisons we draw shape the purchases we make - for better or worse.

He used your neighborhood wine store as an example. Say you're going over to your friend's housewarming and you want to pick up a gift.

There's an $8 bottle of wine, a $27 bottle, and a $33 bottle. Which do you buy?

Most people don't want the most expensive, and they don't want the least expensive because, Gilbert says, "you don't want to feel cheap."

So most people will opt for the middle price.

A smart retailer will put this information to use by placing a super expensive bottle, like $100 or so, on the same shelf, Gilbert says. It's not a problem if it doesn't sell - the purpose of the $100 bottle is to make that $33 bottle look reasonable.

Our comparison shopping gets us tangled up in other ways, too.

According to Gilbert, economists maintain that before buying anything you should ask yourself, "What else could I do with this money?"

But there's a problem. "You can't possibly compare the thing you might buy with everything else," Gilbert says.

"Rather than comparing with the possible," he continues, "people compare with the past."

This can get us into trouble.

In another set of experiments, Gilbert presented his subjects with two different purchasing decisions.

In one, there was a $2,000 Hawaiian vacation package that got marked down to $1,600.

In another, that $2,000 vacation package went on sale for $700, but you decide to mull it over for a week. And by the time you get to the ticket agency, that deal is gone - you're left with a $1,500 offer.

Which would you buy? In Gilbert's experiments, most people took the first offer but rejected the second. That's because we're constantly comparing today's prices with the past, which means we can lose out on our best deals.

It also explains why we're so drawn to sales. If a product is cheaper today than it was yesterday, we want it.

"That's why 'Price Cut' are the most magical words in marketing," Gilbert said.

For more from Gilbert, watch his awesome TED Talk below.