Gotcha: “I paid more, so it must be better …”

One of my favorite sports’ movie scenes is from “Major League”

Newly hired manager Lou Brown is chatting with the Indians’ general manager.

One of the team’s players –Roger Dorn – pulls up in a fancy ride, hops out and unloads his golf clubs.

Brown says to the GM: “I thought you didn’t have any high-priced talent.”

The GM shoots back: “Forget about Dorn, he’s just high priced.”

image

Lou Brown almost fell for a common trap …

Sometimes people do perceive that higher priced products are better – even when they’re not.

They’re subconsciously using price as a “quality cue”.

Here’s some research that supports the dynamic …

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.

Excerpted from Free Market Madness by Peter Ubel

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