Wednesday, June 11, 2008

The price-placebo effect

Earlier this year, when Eliot Spitzer resigned as governor of New York after it was revealed that he had had a series of $1000-an-hour meetings with a prostitute in D.C., the Wash. Post's Shankar Vedantam took the occasion to report on research involving the price-placebo effect ("Eliot Spitzer and the Price-Placebo Effect" (Dept. of Human Behavior), WP, 3/17/08).

A bunch of behavioral economists in California gave two groups of experimental subjects two bottles of wine, one priced at $10, the other at $90. The wine in all the bottles was the same, but the subjects did not know that. Brain imaging showed that people drinking the wine they thought was more expensive had a "larger activation in their medial orbitofrontal cortex," a part of the brain that "makes judgments about pleasure." Those drinking the $90 wine actually experienced more pleasure than those drinking the $10 wine, even though they were drinking the identical substance. An earlier related study found that people given an energy drink supposed to boost mental performance solved more word puzzles when they bought the drink at full price as opposed to at a discount. The explanation apparently has partly to do with increased psychological investment when one's monetary outlay is higher.

But what about the pleasure some people derive from finding bargains? Has any study measured whether medial orbitofrontal cortex activity increases when X gets an unusually good deal on an item that she/he then proceeds to consume or to use? In other words, is there also a "reverse price placebo" effect in some cases, whereby X would experience more pleasure reading a book bought on sale, say, than Y would in reading the same book for which Y had paid full price?

I think I'd better stop here and have some coffee, otherwise the medial orbitofrontal cortex, along with everything else, may be in danger of shutting down.


bro said...

Fascinating. Not clear whether the discount-drinkers of energy drink in the "earlier study" knew they had gotten a bargain. If so, that would argue against the discount-placebo effect you propose (if the study was sound). In any case, the issues of a) whether the subject pays for the item and b) whether the subject thinks it's a bargain are crucial. I can imagine the price-placebo effect working hand-in-hand with a discount placebo effect, to wit: the subject's added pleasure from consuming a presumed luxury product is magnified by the knowledge that s/he paid less. But I wonder whether the discount-placebo effect would activate quite the same pleasure center, since the fact of a discount is not as directly identified with the presumed quality of a product as the fact of a high price. I can also imagine that these effects would work VERY differently across ethnic, religious, class, SES, and generational lines. I know of one person who suffered through the depression and afterwards would drink only cream, never milk. I know of others who had the opposite reaction (so do you!). And then (thinking of Spitzer, who kindly triggered this whole thing) there's the question of whether the effect works the same way across products. Energy drinks and wine are one thing, and, well, I'll stop there.

LFC said...

good points. the effect may work differently across products. the discount-drinkers of the energy drink did know they had gotten a bargain, by the way.
In case anyone out there is interested, the studies were published in Proceedings of the Natl Academy of Sciences (wine) and Journal of Marketing Research (energy drink). The principal author referenced in the WP article is Baba Shiv (Stanford).