A few months back, Ellen Ruppel Shell, in her book “Cheap: The High Cost of Discount Culture,” warned of the hidden economic, political and psychological costs of our pursuit of ever-lower prices for consumer goods. Now comes William Poundstone’s “Priceless: The Myth of Fair Value” to tell you that, no matter whether you buy cheap or expensive, chances are you will pay too much.
This is because, Poundstone says early on, consumers don’t really know what anything should cost. He spends the rest of the book zestfully and entertainingly explaining why this is so and how producers and sellers take advantage of it.
Poundstone, author of several other works, has produced a peculiar book, about economics, psychology, intellectual infighting, everyday shopping, the personal lives of economists and the sometimes borderline-cuckoo world of psychologists. He makes complicated economic and psychological concepts palatable by using a nimble, colloquial style in refreshingly short chapters.
The first half of the book, especially, is given over to discussion of such imponderables as “psychophysics,” “leitmotif” and “Allais’ paradox.” All of it has to do, one way or another, with price-setting. Occasionally it may be difficult to follow, but it is never boring.
Cost and price are two different notions; the first is a value, the second a number. Worldwide, price-consulting firms expert in the psychology of pricing advise companies how to put the most profitable numbers on their products.
So, for general readers, it is in legerdemain such as the following where the rubber meets the road — or, more appositely, where the “Invisible Hand” reaches into their pocketbooks:
Anchoring. This, the central concept of “Priceless,” posits that an initial value (the “anchor”) serves “as a mental benchmark or starting point for estimating an unknown quantity.” Prada, for instance, may offer seven-figure watches — which it does not even expect will sell — to make the four-figure watches next to them look like a terrific deal.
Invisible shrinkage. This allows businesses to hide cost increases; the price and appearance of the product stay the same, but the contents shrink “invisibly.” Soapmakers change the contour of the bar, shaving off a half-ounce, and peanut butter manufacturers increase the size of the “dimple” in the bottom of the jar to decrease contents. When, after repeated changes, this ruse meets the point of no return, a “new, economy-size package” at a higher price is introduced, making comparisons difficult, and a new cycle of shrinkage ensues.
Menu bracketing and bundling. Restaurants bracket two or three sizes of one item in such a way that it pushes you to choose the one they want to sell; it may look like the cheapest but in reality isn’t. In bundling, several items are sold together for a supposedly bargain price; this encourages you to buy more items than you intended, thereby boosting profits. By frequently shifting the offerings within bundles, the restaurant deliberately creates confusion, and the customer can never easily compare prices.
Shopping direction. Studies have shown that, for unknown reasons, shoppers who move through a store in a counterclockwise direction spend more. Supermarkets, therefore, usually place their main entrance on the right of the building to encourage counterclockwise shopping.
Perhaps the starkest example of the fluidity of pricing is the gas-station air machine that “pulls two of the most audacious grifts ever conceived.” One side sells air, the other side sells vacuum. Yet the price of the air has “little to do with the amortized cost of the machine and everything to do with psychology.”
In other situations, also, it is hard to judge what you’re getting: batteries (how can you tell what their “life” should be?), liquid laundry detergents, spray cans and — “the greatest ongoing con job of American capitalism” — text messages.
Dozens of other fascinating topics are explored: the “ultimatum game,” prospect theory, priming (related to anchoring), rebates — which, Poundstone asserts, make no sense at all, for “every product that offers a rebate has to be more expensive because of it” — and the magic allure of the number “9.”
Ah, once again the children of dark are shown to be shrewder than the children of light (probably because they can see in the dark). At the end you will be left wondering what money and prices really mean — the dizzying, quirky, irrational sort of wonder that Alice found in “Wonderland.”
Roger K. Miller is a novelist and freelance writer, reviewer and editor.
NONFICTION
Priceless: The Myth of Fair Value (And How to Take Advantage of It)
by William Poundstone, $26
