I found this minor anecdote, from Peter Baker's authoritative NY Times article on Obama's decision-making process for Afghanistan, to be quite fascinating:
On Oct. 9, Mr. Obama and his team reviewed General McChrystal's troop proposals for the first time. Some in the White House were surprised by the numbers, assuming there would be a middle ground between 10,000 and 40,000.
"Why wasn't there a 25 number?" one senior administration official asked in an interview. He then answered his own question: "It would have been too tempting."
General McChrystal, it turns out, is a shrewd student of decision-making. He realized that the introduction of a compromise option - say, a troop buildup of 25,000 soldiers - would have been irrationally attractive. This is known as the compromise effect, and it was first documented by Amos Tversky and Itamar Simonson.
Here's an example of the compromise bias in action: A group of sixty undergraduates received descriptions and pictures of microwave ovens taken from an actual catalog. They were asked to choose between an Emerson oven priced at $110 and a Panasonic priced at $180, which had a few more features. Both items were on sale, a third off the regular price. In this scenario, 57 percent of subjects chose the Emerson and 43 percent chose the Panasonic.
Now let's consider a second scenario, faced by another group of undergraduates. They were presented with the same two microwave options, but given a third choice as well: a $200 Panasonic oven at a 10 percent discount. Of course, this Panasonic oven is a clearly inferior choice, since it comes with a much smaller discount; it's mere presence in the catalog shouldn't influence our decision. Nevertheless, the introduction of this new alternative dramatically increased the attractiveness of the other Panasonic oven, so that 60 percent of subjects new chose it.
Retail stores have long manipulated this bias, as they constantly present consumers with deliberately mediocre and expensive options, just so other options seem more reasonable. (The easiest way to make a $50 T-shirt seem like a good deal is to surround it with $100 T-shirts.) When it comes to decision-making, context is everything.
The point is that most of us are natural compromisers, eager to find a middle-way. (There's some suggestive evidence that the tendency to pursue the compromise option is mediated by culture, with East Asians more likely than Westerners to show the compromise effect.) Furthermore, our compromising tendencies can be skewed by the audience: when American subjects were told that they might have to defend their choice in front of a whole classroom, they shifted towards the safety of the middle option. Obama, of course, needed to justify his decision to an entire planet.
If the implication here is that McChrystal was trying to fool or manipulate Obama, as if he and Obama were the negotiators, that's where they both will have fooled you - as they are somewhat smarter than this scenario would give them credit for. If the 40,000 number hadn't been leaked by the military, the White House would have leaked it for them.
Much of the action as reported in the article amounted to a "play" put on for public consumption and public manipulation. (I watched similar games being played from an inside position during the Vietnam War, and also watched how the media was played by the players in the bargain.)
I agree, it seems as if McChrystal was passively setting up the politicians for middle of the road compromise by giving the bare minimum and a purely hopeful troop count.
This also resembles the standard car dealership or pawn shop haggling technique: purposely asking for more than you really need just to get the number you really want. The customer saves face by being an educated consumer, while the owner knew was willing to pay X-15% (or some arbitrary percentage) all along.
Interesting. And what is exactly is the significance of the advertisement for a Panasonic microwave oven that is currently showing up on the right side bar? Would I have found the logic of your post as compelling if were an ad for an Emerson microwave oven? (Are you playing with us? :)
That maybe explains the stimulus package as well - if you believe stimulus is valid, you will also likely conclude the package was far too small. If you deny that stimulus is valid, you will conclude it was too big. The compromise between the two has resulted in a pretty half-hearted stimulus, (mostly) lacking enough power to validate the stimulus itself - the economy is still stuck in a lousy equilibrium.
When exhibited in politics, the compromise bias is known as the "Gerald Ford Is Always President" phenomenon. You can elect the furthest left or furthest right candidate you wish, but once they start making actual decisions, the actual divergence to left or right will be far smaller than you expected.
1 - McChrystal actually wanted 80,000 but knew it wasn't going to happen. You could argue that this number was put out anyway to induce an attraction effect, but I think the case that he was playing Obama is a little sketch.
2 - I'd be careful using the term "irrational" here. As noted above, the need to explicitly defend one's choice increases the compromise (and attraction) effect. One can argue that this is irrational, as the explanation is not actually an inherent characteristic of the options. But the ability to defend one's choice clearly has utility, particularly in politics. Considering all of Obama's options appeared equally crappy, choosing the option that was maximally defensible and had the potential for broadest support among the electorate (the people funding the war) doesn't seem all that irrational.
There is a saying in Hokkien (Fujian dialect commonly used in Fujian province, Taiwan)...
"No fish, shrimps will do"
Fish is idealised as Luck as well as a cherished ideal dish on the chinese dining table.
Shrimps- the smallest version are usually salted,dried/sun-ed and preserved and it is sold in huge quantity cheaply.
If you can't get the fish, you can negotiate for the shrimps. It is a compromise, but the magic of this saying is that it allows the person who ends up with the shrimps to have a gracious exit.
And, no one loses face, everyone wins.
Your comment about retail pricing reminded me of this feature from NY Mag, an excerpt from "Priceless: The Myth of Fair Value (and How to Take Advantage of It)":
It discusses the "mind games" behind restaurant menu layouts. Perhaps you saw the excerpt or read the book? I have not, but it is on the "to do" list.