Priceless: The Myth of Fair Value – Book Review
I just recently finished reading a book, so I better write up a review so I can collect my free Pizza Hut Personal Pan Pizza! I read about Priceless: The Myth of Fair Value on Aaron Swartz’s 2010 Book Review (I’m trying to read as much as that dude does). Pricing has always been pretty interesting to me, so I figured a book about pricing would be a good, quick non-fiction read. Ironically, I opted to pay zero price for the book, borrowing it from the library instead of buying it.
Previously, I read Cheap: The High Cost of Discount Culture, which also concerned pricing, but mostly in the super cheap range. Priceless takes more of a psychological stab at human behavior. There are a few experiments that both books alluded to, like the Hershey’s kiss experiment. Having read these two books (and the Freakonomics ones), I kind of think I should’ve been an economist.
Priceless starts out a bit slow by giving you a crash course in human psychology. Homo Economicus is described as a human who makes only rational decisions, and only the most rational. As a model, HomoEco is probably only useful in lab situations. As the book describes, human behavior is not only often irrational, but also very easy to manipulate. Priming and Anchoring are ways to change a person’s opinion on something before they’ve even seen it.
The book gives this example. Research subjects were asked which percentage of the UN is comprised of African nations. Before that question, they were asked to give an over/under on a percentage. The percentage given was either really low (10%) or somewhat average (60%). The difference in that first question, is the percentage of African nations in the UN above or below (10/60%) affected their guess of what it actually was. The scary thing is that this works with many things, including pricing. Another experiment involved real estate and a differing list prices. Subjects (both normal people and real estate agents) were given list prices of a home and were asked to give a reasonable bid. Even the real estate professionals were susceptible to the anchoring effect of the suggested prices, though to a lesser degree.
After giving a solid scientific basis for human irrationality (specifically regarding pricing), the book goes through many short examples where the these effects were either exploited or tested in slightly different contexts. It’s all pretty interesting stuff, especially to someone who feels they are above Jedi price tricks like me though I am probably not).
There are also a few methods described to try to ward against anchoring and priming. One is to immediately set up an argument. If someone says “do you think this book is worth 26.99?” and you say “yes,” then immediately think of reasons why it might be worth less than that. This is also why you should always take a friend with you to the car dealership to argue with.
Overall I thought the book was really interesting. If you can get past all of the cognitive science at the beginning (I might’ve found it boring because I had heard about most of it before), the second half of the book is a really quick and interesting read.