IMP-OST : 20120827 ( Post 1 of 7 )
We all tend to compare things before making a decision.
Given this, the attraction of an option can be increased significantly by comparing it to a similar, but worse alternative.
The contrast effect suggests a strategic move: ask for more than you realistically expect, accept rejection, and then shade your offer downward.
Contrast effect is used to great effect is while selling a fraudulent financial scheme which is basically a Ponzi scheme.
In 1919, Charles Ponzi, an Italian immigrant to the United States of America (US), promised to double the money of investors who invested in his scheme in 90 days.
Charles Ponzi promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage.
Given this, the attraction of an option can be increased significantly by comparing it to a similar, but worse alternative.
This is known as the ‘contrast effect’.
This is a trick used by retailers all over the world to great effect. By displaying two largely similar but differently priced products, the sales of the product with the lower price can be increased significantly by making it look like a bargain.
This is a trick used by retailers all over the world to great effect. By displaying two largely similar but differently priced products, the sales of the product with the lower price can be increased significantly by making it look like a bargain.
The contrast effect suggests a strategic move: ask for more than you realistically expect, accept rejection, and then shade your offer downward.
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| Charles Ponzi |
In 1919, Charles Ponzi, an Italian immigrant to the United States of America (US), promised to double the money of investors who invested in his scheme in 90 days.
Charles Ponzi promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage.
The news spread quickly.
Money started pouring in as no other investments in the market at that point of time promised such high returns, in such a short span of time.
At its peak, the scheme had 40,000 investors who had invested around $ 15 million in the scheme.
Meanwhile, Ponzi had started living an extravagant life blowing up the money investors brought in.
On 10 August 1920, the scheme collapsed.
The auditors, the newspapers and the banks declared that Ponzi was definitely bankrupt.
It was revealed that money brought in by the new investors was used to pay off old investors. Thus an illusion of a successful investment scheme was created.
This type of scheme is now known as a "Ponzi scheme".
Charles Ponzi was not the last guy to run a fraudulent Ponzi scheme.
Such Ponzi schemes have continued since then and keep cropping up all the time - even today, around us.
The contrast effect is at play... when investors decide to invest in a Ponzi scheme.
Money started pouring in as no other investments in the market at that point of time promised such high returns, in such a short span of time.
At its peak, the scheme had 40,000 investors who had invested around $ 15 million in the scheme.
Meanwhile, Ponzi had started living an extravagant life blowing up the money investors brought in.
On 10 August 1920, the scheme collapsed.
The auditors, the newspapers and the banks declared that Ponzi was definitely bankrupt.
It was revealed that money brought in by the new investors was used to pay off old investors. Thus an illusion of a successful investment scheme was created.
This type of scheme is now known as a "Ponzi scheme".
Charles Ponzi was not the last guy to run a fraudulent Ponzi scheme.
Such Ponzi schemes have continued since then and keep cropping up all the time - even today, around us.
The contrast effect is at play... when investors decide to invest in a Ponzi scheme.
It becomes relevant in the context of a Ponzi Scheme when the prospective investor starts comparing the returns on the various schemes available in the market for investment at that point of time to the returns being promised by the Ponzi scheme.
The high returns of the Ponzi Scheme stand out clearly and attract investors especially on greed!
You can also go through our following relevant posts :
You can also go through our following relevant posts :
- Big mis-selling scandals : Learning from the history
- Greed of job promotion : An eye-opener Insider's view "Instead of protecting the interests of clients, make money of them !"
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