Tuesday, May 13, 2008

Why Things Cost $19.95

Not sure how related to medicine this in, but I thought it was an engaging experiment in psychology. The article Why Things Cost $19.95 in Scientific American tries to explain why consumers behave the way they do:
University of Florida marketing professors Chris Janiszewski and Dan Uy suspected that something fundamental might be going on, that some characteristic of the opening bid itself might influence the way the brain thinks about value and shapes bidding behavior. In particular, they wanted to see if the degree of precision of the opening bid might be important to how the brain acts at an auction. Or, to put it in more familiar terms: Are we really fooled when storekeepers price something at $19.95 instead of a round 20 bucks?
The article does on to describe their experimental set-up, and their explanation of the results:
Why would this happen? As Janiszewski and Uy explain in the February issue of Psychological Science, people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.
Check out the article for more details on the experiment and results. I, for one, will never look at a price-tag the same way again.


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