The sensitivity range of our senses is quite amazing. We can hear a whisper, and a scream that is a million times louder doesn’t overwhelm us. The scream may not seem a million times louder, but that is the magic of our sense of hearing. This sensitivity range works well for hearing, but in financial matters, it can get us in trouble.
If we hear a sequence of sounds with each sound ten times louder than the previous one, we perceive the volume as growing in equal size steps. It’s hard to believe that the energy in the last sound is about nine times more than the total energy in all the other sounds combined.
When it comes to spending, we can sometimes see similar things happening. “I haven’t bought any coffee or donuts for a week now; so, I’ll treat myself to a new iPod.” If you don’t have a good sense of scale, saving small amounts several times may seem to balance with one large purchase. But the savings on coffee and donuts may be only $20, and the iPod may cost $200.
Another way we can lose our sense of scale is in the context of a larger purchase. When you lift a 50-pound weight, you won’t notice if it is an ounce heavier than normal. In the same way, when you are negotiating the price of a $30,000 car, spending an extra $500 on rust-proofing may not seem like a big deal. But it’s a mistake to let the larger figure throw you off.
There are many ways that others can fool you into overpaying for add-ons. And there are even more ways that you can fool yourself into overspending.