(intro music) My name is Laurie Santos. I teach psychology at Yale
University, and today I want to talk to you
about pricing biases. This lecture is part of a
series on cognitive biases. Congratulations! You've just won a raffle, and
your prize is a bottle of wine Here are your choices. Option number one is a lovely
bottle of California Pinot Noir the costs twenty dollars. Option number two is another
bottle of Pinot Noir, from the same region, that
costs fifty dollars. Which would you choose? If you're like most people, you probably
went with the more expensive wine. People tend to pick the most expensive
option, whether their choices involve wine, or meats, or even cassette players. What's a bit weirder, though,
is the fact that we still like higher-priced good even when we know
that the price it totally arbitrary. One experiment that showed this bias
at work was done by the neuroscientist Hilke Plassman and her colleagues. They allowed people to taste a
glass of wine from two bottles that were labeled as either
ten dollars or ninety dollars. What they didn't tell
participants, however, was that the two bottles were identical. They contained exactly
the same wine inside. Even though the wines should have tasted
identically, people reported liking the wine with the more expensive
price tag even better. It seems that merely labeling one thing as more expensive makes us like it more. We seem to be confusing a
good's price with its value. This confusion is what's
known as a "price effect." Simply telling someone
something costs more make them like it more. And the effect seems to hold for
lots of different kinds of goods. You might be tempted to think
that people aren't as fooled as it seems in Plassman and
colleagues' studies. Maybe people just say they
like expensive stuff better, even though they don't really
subjectively feel like it's better. Plassman and her colleagues worried
about that too, which is why they used a pretty ingenious technique to test
whether subjects actually liked one wine better than the other. Rather than just asking subjects, they
used brain imaging techniques to test how people's brains processed the
same wine with different price tags. They found that the parts of a
subject's brain that process rewards, the same spots that would fire
a lot if you won some money, or saw an attractive mate,
or even tasted an amazing dessert, fired more for
the very same wine when it was labeled with a higher price tag. So our pricing biases
appear to affect more than just the subjective evaluations
we report on a survey. We seem to like higher-priced things more, even at the level of the
reward areas in our brains. But arbitrarily higher prices don't just
affect what we like. They can also affect how
well a given product works. The behavioral economist
Baba Shiv and his colleagues let people pay different
amounts for an energy drink, and then tested how those drinks worked. Did they make people
more or less energized? Shiv and his colleagues found that people reported feeling more energized
after drinking the very same energy drink with a higher price tag. But they also did better on a
set of mental acuity puzzles. Somehow, participants really were
more energized after a drink with a high price tag than when drinking
an identical drink with a lower price tag. These results suggest that the price we
pay, for an aspirin, or a bottle of wine, or even an energy drink, doesn't
just affect what's in our wallets. Because of price biases, our minds assume
that higher prices mean better quality, even in cases where the price
of a good is totally arbitrary. Subtitles by the Amara.org community