Money Hacks: how the distinction bias leads you to pay for features you don’t need

Money Hacks explores Behavioural Economics concepts and how unconscious biases can influence our financial decisions. Here's how the Distinction Bias leads you to pay for features you don’t need.

Think about the last time you got a new smartphone. You probably started with a good idea of what you wanted: What type of camera it should have. How much memory. You may have even decided on a brand. In theory, you should have been happy with any phone that met those specifications.

Then you started shopping.

You quickly found a phone that met your needs. But you also saw a bunch of other phones. For just a bit more money, you could get an even better camera. More memory. A more popular brand. Your must-have list changed. After comparing phones, you ended up spending more to get one one with a lot more features than you originally wanted. If this sounds familiar, you’ve fallen victim to the Distinction Bias.

What is the distinction bias?

The distinction bias states that, when we compare products side-by-side, we give too much importance to minor differences. If we only see one item and it meets our needs, we can buy it and feel good about our purchase. But, if we’re presented with similar products side-by-side, we’re often pulled in by features and qualities that add very little to our happiness – but add a lot to the cost.

While smartphones are just one example, this happens all the time. At the grocery store we may pay more for a virtually identical product that has a more appealing label. When car-shopping, we’re talked into the upgraded feature package for just a small increase to the monthly payment. When buying clothes, we pay significantly more for a similar piece simply because it has a different logo. In fact, just about any time we shop for something, we’re presented with a “better” version of that thing, at a higher cost.

It’s not about cost vs. features. Think cost vs. happiness.

When choosing between similar products, we generally think in terms of cost vs. features. We see the more expensive version and try to determine if the extra features are worth the extra cost. We may wonder what it cost the manufacturer more to add those features. Or if a more familiar brand offers better quality.

But the thing is, these questions can be hard to answer. And the answers don’t always lead us to a better purchase decision. Instead, we should think in terms of cost vs. happiness. The questions we should ask are how – if at all – the extra features will increase our happiness.

When comparing similar products, ask yourself:

  • Can I think of specific situations where I’ll use these extra features?
  • Will I still care about these features two weeks from now? Will I even notice them?
  • Will these features make my life significantly easier or more enjoyable?
  • Is there another way I could use that extra money that would bring me more happiness?

Asking these questions – and answering them honestly – will allow you to evaluate your choices differently. Chances are, if you weren’t looking for those extra features when you started shopping, they won’t add much to your happiness.

Make a list and check it twice

As with many Behavioural Economics concepts, being aware of the bias is half the battle to overcoming it.

Another thing you can do is create a list of the features you’re looking for before you start shopping. In some cases, the features you want will lead you to a more expensive option – and that’s totally OK. For example, if product reliability or longevity is important to you, you’ll likely pay more for this now, but hopefully save money in the long run. The key is to be clear on what’s important to you before you start shopping.

Then, before you make your purchase, revisit that list to see if your list of “must haves” expanded as you shopped. If so, step back and think about why those extras weren’t on your list initially. Ask yourself the questions above. There are no right or wrong answers. But being aware of the Distinction Bias while you’re shopping will help ensure your spending leads to more happiness and not just more features.