Punch line: Sometimes people do perceive that higher priced products are better – even when they’re not. They’re subconsciously using price as a “quality cue”.
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Excerpted from Free Market Madness by Peter Ubel
Standard economic theory holds that consumers independently evaluate the quality of a product and its price in order to make trade-offs between quality and price. According to this theory, people will be willing to pay more for product A than B if they perceive that A is better than B.
But consider the following experiment, in which
Researchers gave 125 people a beverage that claims to increase mental acuity, and then asked them to solve a series of word-jumble puzzles.
They informed people that the regular price of the beverage was $1.89.
However, they sold the drink at a discounted price of $0.89 to half the participants, selected randomly.
The researchers found that people in the discounted-price group not only reported lower expectations of the drink than those in the full-price group, but also performed significantly worse on the puzzle task, correctly solving 20% fewer puzzles.