16 January 2008

Expectations Screw-up Observations

In the past, my brother and I have observed a very good way of pushing a product: start with a product that is similar in quality1 to the best products out there, then charge a whole whack more for it.

The reasons this works is twofold:
1) prestige value - consumers appreciate that they bought something exclusive
2) expected value - consumers assume that the more expensive product is better

But it turns out that there may be more involved than that. According to a recent paper by Antonio Rangel and colleagues from the California Institute of Technology, not only do consumers expect a more expensive product to be better, they actually interpret it to be better, too:
They asked 20 people to sample wine while undergoing functional MRI's of their brain activity. The subjects were told they were tasting five different Cabernet Sauvignons sold at different prices.

However, there were actually only three wines sampled, two being offered twice, marked with different prices.

A $90 wine was provided marked with its real price and again marked $10, while another was presented at its real price of $5 and also marked $45.

The testers' brains showed more pleasure at the higher price than the lower one, even for the same wine, Rangel reports in this week's online edition of Proceedings of the National Academy of Sciences.

In other words, changes in the price of the wine changed the actual pleasure experienced by the drinkers, the researchers reported.
This is not really a surprising finding; it's just the placebo effect, albeit in a consumption scenario rather than a health care scenario.

Just another reminder to the woo crowd who push the "Don't knock it before you try it" piece of doggerel: your brain2 is very good at fooling itself - don't trust it.

1 It doesn't have to actually be better, but it can't be too much worse or else the illusion of superiority fails.
2 Actually all our brains - I don't want woos thinking I'm picking on them.

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At January 16, 2008 5:57 PM, Blogger langmann said...

This is an old theory in economics and has already been demonstrated though its good to have more proof, thanks for the article.

Its called a Giffen good. Check it out, Giffen deserves the credit even though he's dead.

At January 16, 2008 6:52 PM, Blogger TheBrummell said...

I'm curious if such improved happiness with wine (or anything, I guess) can be quantified.

In other words, was the $45 wine $40 better than the (same) $5 wine? Because if the answer is "yes", then I'd like to figure out some way of fooling myself twofold: once into thinking I'd paid $45 for a bottle of wine, and once more into thinking it really was worth $45. Actually, that second one should be a little higher, like $60, so I can feel even better about my wine.

Also, why can't I find $5 wine in Canada?

At January 17, 2008 8:36 AM, Blogger King Aardvark said...

Langmann, thanks for the link. I didn't know it had a name.

Brummell, I'm not sure you'd want to drink $5 wine. I had some ~$9 red wine at Christmas that was absolutely horrible.

At January 17, 2008 3:32 PM, Blogger Carlo said...

So the solution is that we buy each other wine and claim that it was more expensive than we actually paid? Sweet.

But seriously though, there are companies whose entire business revolves around this concept. Sony, for example, is a respected electronics manufacturer, and they usually price their products more expensive than comparable competitors because of the prestige associated with paying more for their name. I saw a short documentary a long time ago about how the hair-care and perfume industries work this way as well. There's about 50 cents worth of chemicals in a bottle of shampoo, but they'll sell it at $60 because it implies that it's of higher-quality than Pantene Pro-V...

At January 17, 2008 3:37 PM, Blogger Carlo said...


Point of contention: If one follows your link, they point out that this example (wine) would not, in fact, be a Giffen good because it does not satisfy the conditions for being so. Instead it would be classified aqs a Veblen good.

At January 17, 2008 4:06 PM, Blogger King Aardvark said...

Thanks guys. I've learned two new things today. Sweet. Makes up for the fact that I didn't learn any new civil engineering today.

At January 18, 2008 11:11 AM, Blogger Stew said...

This effect is also related to how that cheap wine you had in the little Parisian cafe while on holiday tastes absolutely vile when you take out the bottle you brought back with you and serve it to friends.
"Try this wine we found in a tiny St Germain cafe, it's surprisingly good"

At January 18, 2008 2:00 PM, Blogger Stew said...

thebrummell: I was astounded when I saw this video on synthetic happiness.


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