on January 10, 2010
I ordered this book after a good review in the Wall Street Journal.
From the title it sounds like a fairly dry book on pricing theories for a professional marketing audience.
In reality it is a very entertaining, well researched book about how prices are set from all kinds of businesses, how consumers react to them - and why.
Having worked in marketing and as an entrepreneur for 20 years, I have come across some of the stories quoted in the book already. However, I was not aware, that a German professor (Hermann Simon) runs the biggest pricing consulting firm in the world, that restaurant menus are better designed without leading dots before the price (otherwise they guide the eye to the lowest priced item) or that supermarkets yield a $2 higher average shopping cart revenue if the path through the market goes counterclockwise instead of clockwise.
It will take some work to extract pricing lessons for your own business (you actually have to READ the book first!) but it is pleasant enough!
on January 25, 2010
I bought this book after hearing the author interviewed on NPR. In the brief two-minute (or thereabouts) interview the author mentioned some factoids that sounded fascinating and whetted my appetite for more.
Now having read the book, I have to say that, although I learned things about the human mind I never knew before, I was disappointed in how dry the book was overall. The first half was devoted to the history of psychophysics, and numerous experiments conducted over the last hundred or so years. These experiments have served to establish just how quirky, irrational and suggestible the human mind is with regards to numbers, and pretty much debunk the established notion among economists that humans behave rationally when it comes to numbers, always making decisions that will best benefit themselves (the mythical Homo Economicus). Although these experiments were all new and surprising to me, reading about them felt like reading a college textbook. Not exactly my idea of pleasure reading!!
Just about exactly halfway through the book, Poundstone gets more interesting. This is when he starts citing real-world examples of how savvy businesses take advantage of the mind's susceptibility to numbers (often using the service of "price consultants"), all with the intent of getting clueless customers to part with more of their hard-earned money. This part of the book was truly fascinating, as he talked about how super-pricey designer boutiques arrange merchandise in their stores, how restaurants design their menus, and how new and unknown artists price their work to gain attention.
Alas, this part of the book was all too short, as Poundstone soon lapsed again into talking about more experiments.
I did learn some intriguing things about how my own mind works. I had previously thought I was impervious to the influence of advertisers and marketers. Alas, I now realize that when it comes to the murky, arbitrary realm of prices, my brain is as suggestible as anyone else's.
My conclusion: the fascinating factoids mentioned in the two-minute NPR interview were THE entire interesting part of the book -- the rest of it is somewhat tedious and academic. I was pleased with the book overall and would recommend it, albeit only to someone else who is pretty nerdish and interested in this kind of thing. This book is definitely not for everyone.
on February 12, 2010
There is an intriguing irony (if not synchronicity) to my purchase of this book.
The story is, I had been trying to buy this book for a few weeks from Amazon.
But I couldn't (without incurring shipping fees), because Amazon had delisted the hardcover book from their catalog. Why would Amazon refuse to sell a new book by a prominent author? Well, ostensibly it was "retaliation" for the book publisher's (Macmillan's) request that Amazon charge higher prices for Kindle books published by Macmillan. Leaving aside the question of why users without a Kindle should have their ordinary book access restricted because of a pricing dispute over a product they do not want, the imbroglio raises two salient issues about pricing:
(1) Why is $9.99 (what Amazon wanted to charge) the "right" price for a Kindle e-book? Why not $12.00 or $14.00 (which Macmillan wanted to charge)? If you read some of the Kindle users' blogs, they are adamant that $9.99 is the right price, and that $14.00 is too high - but how do they know?
(2) Why would Macmillan care if Amazon charges too little for Kindle pricing anyway? It doesn't directly affect their profits (Amazon makes up the difference).
Well, as it turns out, the underlying framework behind both of these questions is carefully discussed and elucidated in this very book!
As to issue (1), Poundstone argues that much of what we think of as "fair" pricing is nothing more than a collection of cognitive fallacies and biases. The most important of these fallacies are the contrast effect (pricing taking on significance from neighboring prices) and the anchoring effect (we are drawn to a particular number). Poundstone illustrates these effects, and the process by which their importance was recognized first in the literature and then in consumer practice, through a long series of vignettes that recapitulate the genesis and development of pricing theory, behavioral economics, and psychological decision theory. So as it issue (1), Poundstone would probably argue that many of the reasons people give to support $9.99 as being more "fair" than $14.00 are illusory - that pricing is far more fluid and idiosyncratic than most people appreciate.
As to (2), Poundstone might argue that Macmillan is worried about the contrast effect. Macmillan would be concerned that even to a person who does not have nor intend ever to acquire a Kindle, the proximity of the $9.99 would make its hardback price of say $18.00 seem higher than it actually was to a consumer. So this book lends support to Macmillan's position as to issue (2).
Now, let me briefly get to the meat of the book.
The book is structured along the lines of that distinctive modern subgenre of popular economics books in which anecdote and biography are interwoven and are equal partners with theory and experiment. Careful measurements by colorful character, in the stories of these works, gradually overturns entrenched orthodoxy, first in a small-scale and then in the large. Popular exponents of this style include Malcolm Gladwell, whose Tipping Point, Blink, and What the Dog Saw are canonical examples; Michael Lewis, whose Money Ball described the impact of statistics on baseball; Thomas Bass, whose Eudaemonic Pie and The Predictors foreshadowed the more modern style and which treated the impact of statistics and nonlinear modelling (chaos theory) respectively; Sam Savage, whose Flaw of Averages is a good introduction to statistics in this style; and of course Steven Levitt with his Freakonomics series.
This book is a worthy and interesting addition to the genre. Of the many interesting anecdotes, my favorite was probably Eskildsen and the World Trade Center, and how Las Vegas turned out to play a major role in the development of psychology. The cast of characters, including ex-Israeli soldiers among others, was very entertaining. And the theory, although of course subject to some carping (no confidence factors in many of the studies reported, for example) highlighted the key points clearly and gave the reader clear paths for further knowledge.
Thus, I would recommend this book as a good introduction not only to pricing but also to behavioral economics and human decision-making generally.
on June 22, 2016
There is so much to think about in this book. (This is the beginning of a review that will get longer as I study the book further.)
First, the dynamics.
1. The book is 281 pages of text and a total of 57 chapters. That works out to about 4.9 pages per chapter, just enough to read a couple over a lunch break or some other short space of time.
2. The sources are over 18 pages, and there is A LOT of multiple citations for sources per chapter. I don't know if they really had that much data.
Second, the things that they take issue with:
1. I know that they are attacking the concept of utility, as used by economists, but we already knew that economists can't predict anything anyway, and that has been detailed exhaustively by Nassim Nicholas Taleb in his many books. They keep hammering on these issues of arbitrary coherence and utility and the "rational consumer," but there are many, many other reasons why Economics does not work anyway (causal density is too high, according to Jim Manzi in Uncontrolled). The way that they are acting here, the whole of Economics could be fixed if they could just solve this utility problem.
2. We knew that human beings are not calculators, and they don't use utility calculations in making every day decisions. Was it necessary to write a whole book to point this out? Anyone who goes into an, um, inner city convenience store (usually owned by, um, Middle Easterners or East Indians) can see that the lottery machine is the one thing that never stops moving in the store (and that often has its own separate line). People who could make a simple expectation calculation would just let the lottery machine have a rest. The fact that these machines *never do* get a rest is evidence of this inability to calculate.
3. We knew that human beings are logically inconsistent. There have been more black people killed in Chicago this year alone than under questionable circumstances by police in the last 10 years. But the Black Lives Matters protestors don't invest their energy in Chicago. If the number of murders there even fell by only 10%, it would be the entire number of black people who have died under questionable circumstances.
4. The author gets overly abstract. (No surprise here.) Prices are not arbitrary for people who are trying to manage budgets. If you have $100 to work with for groceries per week, it does not matter that cherries are relatively more expensive than strawberries at Store X. It matters that *everything* at Store X is too high and that you are going to calculate absolutely how much you can spend in order to make it until next week.
5. What is he driving at? I know that Economics is not a real discipline (in the eyes of the author), but if he is applying insights from Psychology (and imagining that it is a real discipline), then he is going from the frying pan into the fire. What is the equation here? One shaky discipline plus another shaky discipline together equal clarity?
Verdict: I got this book for $1.11 (plus shipping), and I paid a bit more than I would have had I known what was in it. (I do wonder how many publishing houses he had to go through before he found one that would publish the book, as I take a second look at this no name publishing house.)
on July 6, 2012
Some nerve asking 27 bucks for this book. Actually it's $26.99. Oh wait, Amazon tells me that it's now $10.80. My god! I could *save* $16.19 just by buying this book. I'll buy a million and make a fortune! Wait... I'm confused. And so are you.
I thought this book was a brilliant and critical instruction manual to one of the most important aspects of modern life. First, everything you learned in economics class is demonstrated to be flagrantly wrong. Prices do not reflect some kind of supply/demand curve intersection. Prices are more random. More magical. More predatory. And it is the human brain that is the exploited weakness.
Poundstone's writing, to me, is quite good. I found him literate and well-organized. The pacing is good and the research is thorough. Indeed, my biggest complaint about the book is that I have already read about many of the interesting studies he cites. This does not diminish the effect since everything he cites is a bona fide interesting case.
As I read this book I kept thinking, ok I'm smarter than this, I'm not part of this irrationality. But the inescapable conclusion is that you are. Prices are hard to deal with sensibly using all available information. Our minds are designed for short cut heuristics that mostly work, but which can be exploited. You can minimize the problem but vigilance is required.
My hope is that the author and publisher didn't waste the delicious opportunity to play some price games with the book itself. What would the difference be between a market with a $40 cover price discounted to $10 vs. a market where the book was just priced $10? Can the author prove some money was earned by choosing a better cover illustration? Etc. I hope to see a new chapter in the next edition! Which I will get from the same supplier as I got this edition, the library.
on May 4, 2010
From "The recursive Universe" (1984) till "Fortune's Formula" (2005), I am a longtime mostly happy reader of Poundstone. This time, I'm not.
The present book is a loose collection of newspaper like items, 57 in total and grouped into four parts. Nowhere in the book I found an explanation
what the parts stand for. Nor is there any introduction explaining the structure of the book or its goals. Neither is there any conclusion at the end.
Googling the internet on Kahneman, Tversky and Thaler would probably catch 80 percent of the contents, if not more. But Poundstone did that for me.
Is it worth its price? According to Max Bazerman, Professor of Business Administration, Harvard Business School on the backflap:
"If you can get this book for under $100, grab it! After you read it, you will better understand why the price you paid felt like a bargain".
I got the book for $17.81 (march 2010). Given the set anchor and the priceless project theory, I should feel happy. But I don't.
Which could explain why its current (may 2010) price is under $15.
You can get a free flavour of the anecdotical topics covered in the book at: [...]
on August 9, 2014
Priceless opened a whole new world to me, a world that was always right in front of my eyes. Behavioral study fields always have fascinating tales. Tales about our own behaviour that defy logic and tell us something weird about ourselves. But most books on the subject fail to go past the tagging of these phenomenon and mocking at our own irrationality. They spend inordinate time going after the classical theories. This is where Priceless has something different to offer.
To be sure, the well-written book has the usual things one gets in other books: the name-dropping, jargonizing, experiments that reveal the counter-intuitive aspects of our behaviour etc. This all is interesting, important and entertaining. But, where the book really adds value is in connecting them with real life situation, and offering some unambiguous advises in dealing with real life situations.
For instance, the author makes a remarkable point when he discusses the importance of stating the first number in a negotiation situation - quite opposite of what most of us like to do. The revelations on the display items in a luxury store (that are never intended for actual sale but to create the illusion of value for other items) are useful for any compulsive shoppers. Even the usual topics like anchoring and prospect theory are attached to practical examples.
A book to be read multiple times over time to really imbibe all its important messages.
on June 4, 2014
I've read all this before in Daniel Kahneman's book Thinking: Fast and Slow.
Priceless becomes ponderous after the first 100 pages.
Not sure if I'll make it through this one.
on April 10, 2014
I inherited a small manufacturing company when my husband died in 2011. I've kept it going, and have impressed all my distributors and customers with the excellent upgrades and changes I have made to our products. I'm still climbing a VERY steep learning curve -- I've run an editing company (services) years ago, but never a products company... As a woman, I struggle with pricing and with being "fair" -- which means I sometimes don't charge a fee that I should, or -- as now -- when I should raise prices (to account for all the upgrades I've made), but "feel bad" about it...
This book -- despite others' complaints that it is disjointed -- provided me with 'bite-sized,' easy to follow, clear and useful information and examples to guide me in understanding how the company pricing should be managed. I am VERY grateful to William Poundstone for gathering up all this amazing info into one place, and making it a pleasurable read too! I finished it recently, and am beginning again at the first page -- having now gotten a good grounding, I will pull out my actionable steps!
I don't KNOW for sure that it helped, but I'll bet it did: I submitted with my application to re-fi my house the current Zillow, Trulia, and USAA "home values" -- setting an anchor high enough (I hoped) that the 'credit committee' would take those prices as the anchor for considering the house value. Then I also printed it out, with the list of things done in the remodel done before my husband's death (which the crappy appraiser in 2012 had ignored; he had said no remodels had been done in 15 years -- which wiped out the $70k we spent in 2008!! and appraised the house way way way low!)( and gave that list -- of prices and remodel changes -- to the appraiser, hoping the 'anchors' would lead him to start high -- and stay high -- so my loan-to-value would allow approval. Seems to have worked!
REALLY found this book useful!
on September 3, 2015
This is a wonderful review of the pricing research that exists in the world . I had a number of preconceptions very much challenged by this book . After reading this and having been able to step back a bit I can see the pricing information at work and my own product lines. Plus the book was downright fun and there was a lot of good humor in the book as well.