I’m interested in how to explain tricky ideas in simple language. (This was the intention of Behavioural Economics For Kids). Julia Donaldson is an useful place to start looking for ideas to help with this. She, an exceptionally successful children’s author, is excellent at conveying engaging stories with interesting messages in few words. There is a great example of reference dependence in A Squash And A Squeeze.
Reference Dependence In A Squash And A Squeeze
Donaldson illustrates a well-known psychological effect, reference dependence, in her book A Squash and A Squeeze. The plot is straightforward. A little old lady complains that her house is too small. She asks for help from a wise old man who uses his knowledge of psychology. Instead, of making the house bigger, he makes it seem bigger.
The wise old man’s advice was simple:
- “Take in your hen”.
- He follows this with “Take in your goat”.
- What’s next, “Take in your pig”.
- Finally, “Take in your cow”.
It will surprise few to hear that the old woman’s quality of life wasn’t improved by having four farmyard animals in her small house.
“The little old lady cried, ‘Heavens alive! It was teeny for four and its weeny for five. I’m tearing my hair out, I’m down on my knees. My house is a squash and a squeeze.'”
The old man’s solution was equally simple: “Take them all out”.
Without the animals the old lady concludes. “My house is beginning to feel pretty big.” (All quotes from Donaldson, 2004)
The House Seems Bigger Making The Old Woman Happier
To make the house seem bigger it was only necessary to compare her existence with something worse. The old lady’s house still wasn’t a mansion but after the debacle with bringing the animals in her reference had changed. No longer was she comparing her house to a bigger house. Now she was comparing her house to how it felt when there was a cow dancing a jig on the table. When a person’s utility changes with the reference compared against this is known as reference dependence. The good news is that it means we can make ourselves happier by avoiding comparing what we have with some unattainable ideal.
More troubling is the implication that our preferences aren’t stable. This challenges the marketing concept: How should marketers offer consumers what they want if what consumers want depends upon what they happen to be thinking about.
Let’s ignore that intractable problem and concentrate on the book’s simpler message. Neither chickens, goats, pigs, nor cows make good house guests.
For more on reference dependence see here.
For more on the marketing concept see here.
Read: Julia Donaldson (2004), A Squash and A Squeeze, Macmillan Children’s Books.