Wednesday, September 14, 2016

Goldilocks effect

The Goldilocks principle is derived from a children's story "The Three Bears" in which a little girl named Goldilocks finds a house owned by three bears. Each bear has its own preference of food and beds. After testing all three examples of both items, Goldilocks determines that one of them is always too much in one extreme (too hot or too large), one is too much in the opposite extreme (too cold or too small), and one is "just right".

The Goldilocks principle states that in a given sample, there may be entities belonging to extremes, but there will always be an entity belonging to the average. Or in other words, in a sample, there will always be a U-shaped distribution. When the effects of the principle are observed, it is known as the Goldilocks effect. src wiki

In economics, a Goldilocks economy sustains moderate economic growth and low inflation, which allows a market-friendly monetary policy. A Goldilocks market occurs when the price of commodities sits between a bear market and a bull market. Goldilocks pricing is a marketing strategy that, although not directly related to the Goldilocks principle, uses product differentiation to offer three versions of a product to corner different parts of the market: a high-end version, a middle version and a low-end version.

James Clear defines the principle as

The Goldilocks Rule states that humans experience peak motivation when working on tasks that are right on the edge of their current abilities. Not too hard. Not too easy. Just right.

He gives an example of playing a game of Tennis. If we were to play against a child then we would be bored because of the easy opponent. At the other extreme if we were to play against a champion we would be demoralised into submission. However, we would love to play a game against an equal thus making the game more interesting and challenging for us.

Another example in this article is his observation about comedian Steve Martin's career. He realised his love for comedy at the age 10 and by age 28 he was a superstar. The secret of his success was that he would improve his comedy routines in small steps. Every year he would add just a minute or two to his routine thus keeping him motivated and managing the risks. He says it took him 10 years learning, 4 years refining and 4 years of wild success.

This HBR article however speaks of an aberration when 2 men are paired together to take decisions.

Marketers have long known that, when given a set of choices, individuals tend to choose the middle ground, the compromise option.

In a research involving more than 1200 participants, people were paired male - male, male - female and female - female.

The participants were asked to make a series of choices, where they could select either extreme items in a set (for example, a restaurant that was very expensive but had a very short wait time, or was very inexpensive and had a very long wait time) or moderate “compromise” alternatives (both price and wait time fall between the two extremes)

It was found that
1. Women always preferred the middle option whether alone or in pairs.
2. Pairs of men always chose the extreme options far more than single men or men - women pairs

One example that was cited was that if a father son pair went to buy a car, they were more likely to choose either fuel efficiency or one offering better interior design.

The complete research can be found here.

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