Comments on: Video: Chapter 10: the power of price

By: Dr Neil

Dr Neil — Fri, 10 Apr 2009 15:50:52 +0000

I see this in the real estate market right now. Classical economics is simply broken for housing prices.
(Disclaimer: I have an experimental Psyc PhD and do economic modeling and analytics professionally. I am also trying to sell a house).

People want a bargain, but no one has any idea what prices should be right now. Houses are cheaper than they have ever been and people are afraid to buy!

“You get what you expect to get for the price”

High list prices are interpreted to mean “great house.” Try selling a great house at a discount now–you get no traffic even though they are great values.

We see that people are applying a “get what you pay for” frame over a market that simply does not support it–there are plenty of reasons why housing prices have fallen and the LEAST rational assumption is that the quality of all of the houses has changed.

I see that people are making JUST THAT irrational assumption. All “cheap” houses are now poor-quality houses!

People are unable to disambiguate whether a house is cheap because it is bad or because it is a great value. To avoid that ambiguity, they are avoiding all low-priced houses EXCEPT for those that have their flaws flaunted and therefore dissolve that ambiguity for the buyer.

Am I off my rocker about what is going on? I see lots of traffic for high-priced houses in the neighborhood we are selling in and little for the low-priced houses. They are roughly equivalent in terms of quality, so the value is obviously with the cheaper ones!

By: ejly

ejly — Mon, 30 Mar 2009 14:11:56 +0000

I read the book and found it a wonderful read, the experiments are so cleverly designed and the insights are thoughtful. I was thinking about discounting effects on perceived quality (as shown in the video) and about the coffee experiment (cloves in coffee! Yuck.) and wrote up my thoughts in a recent blog post about irrational customers. Good luck to all of us dealing with the irrational customer. It was eye opening for me to look at Apple's marketing efforts through the lens the "predictably irrational" theory provides.

By: Ion

Ion — Sun, 29 Mar 2009 00:02:36 +0000

Actually the original article is this one: http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0004957 .

Cheers!

By: Ion

Ion — Sat, 28 Mar 2009 23:59:56 +0000

Salute Dan Ariely, I just wanted to recommend this article : http://blog.wired.com/wiredscience/2009/03/financebrain.html maybe, you’ll find it interesting.

By: SAM

SAM — Fri, 27 Mar 2009 17:31:44 +0000

I have been trying to watch all the videos and have been fascinated by the thoughts expressed by Prof. Ariely.

This one I’ve seen before, and now I have a question. If we have two meidicinal brands, different names, labels, design, and also different prizes, I can understand the inner logic that makes people believe the most expensive is better.

But if I have only ONE single brand, why should I think that getting each cheaper will make it not have the same effect, hence not being as satisfied as if I had played the whole ammount of the prize? Shouldn’t we feel even better for getting the good one and payed less for it?

And, btw, thanx for all the good material!