Predictably Irrational: The Hidden Forces That Shape Our Decisions is a brilliant book – a must read for anyone trying to understand people’s decision making processes.
The Power of Price
Why a 50-Cent Aspirin Can Do What A Penny Aspirin Can’t
The placebo effect is well-known and real. It’s not just a matter of fooling oneself; placebos can actually trigger endorphins and opiates and other biological reactions that actually change body and experience. What is interesting, however, is that price has an impact on efficacy.
Ariely, Waber, Shiv, and Carmon made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours.
- When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief.
- When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief.
- The more pain a person experienced, the more pronounced the effect.
- A similar study at U Iowa showed that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs.
- A further study on SoBe Adrenalin Rush showed that students at the gym reported less fatigue when told that the drink was more expensive.
- And this wasn’t just self-perception. Ariely gave the subjects a 15-question puzzle as well.
- The control group that didn’t drink SoBe got 9/15 correct
- The “expensive” group got 9/15 correct
- The “discount” group got 6.5/15 correct
- One more variation: Ariely printed “Drinks such as SoBe have been shown to improve mental functioning” on the cover of the quiz booklet, and referred to 50 scientific studies showing its efficacy.
- The “discount” group improved their score by 0.6
- The “expensive” group improved their score by 3.3…in other words, they did better than the control group!
- The effect declined when subjects were asked to stop and reflect on the relationship between price and quality. They were far less likely to assume that discounted drinks were less effective.