Context Is the Product.

Context Is the Product.

Walk into any Starbucks and someone will probably be paying $4.95 for a cup of hot water with a tea bag floating in it. They won't question it. They won’t even flinch.

Offer that same person a box of 20 premium tea bags for $99 in the grocery store, and they’ll act like you just tried to mug them in broad daylight.

Same price. The tea hasn’t changed. The person hasn’t changed. The value hasn’t changed. What’s changed is the context.

In the coffee shop, the tea is compared to other drinks on the menu. Compared to a $8 latte, it feels modest. In the grocery store, it's compared to the cost of standard tea bags. Compared to those, it feels inflated. The context defines the comparison. The comparison defines the value.

This is consistent with how people actually think. We’re not equipped to assess things in absolute terms. We look for cues. We anchor to whatever is around us. We substitute the question we can’t answer with one we can. Not “Is this tea worth $4.95 a bag?” but “Is this more than I normally pay for tea?”

In 1981, Tversky and Kahneman published a paper that made it impossible to believe people always make decisions rationally. It showed that the way a choice is presented can flip a person’s decision entirely, even when the outcomes are identical. Behavioral economists paid attention. People like Thaler and Shiller built on the work and turned it into a new field. But many economics kept going as if nothing had changed. The rational-agent model stayed in place. The framing effect became a footnote rather than a foundation. The paper was cited often, applied rarely, and accepted only in theory. Kahneman wouldn’t win the Nobel Prize in Economics until 2002 (While Tversky was acknowledged in the announcement, the Royal Swedish Academy of Sciences does not award prizes posthumously). By then, the ideas had been sitting in plain view for decades.

Value is not strictly a property of the object. It is a function of the environment in which it is evaluated.

This is where a lot of businesses go wrong. They think people care about the objective properties of a product. They think value can be engineered into the thing itself. So they fixate on the tea. They improve the leaves. They cut the price.

But the problem isn’t the tea. The problem is that value doesn’t live in the tea.
It lives in the frame.

Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453–458. https://lnkd.in/gY9T_5ct