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 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: [...]
I found the book to be well written, entertaining enough that i finished its 336pp in three evenings of enjoyable reading. I read some of the other less than stellar reviews and would wholeheartedly disagree with those critics on the value of this book. It simply proposes to tell one of how marketers use various gimmicks to control prices, and some of these are in subliminal manners. I was never under the guise that this book was meant to be considered a course in price theory, which would be a junior level course in a pursuit of a bachelors degree with a major in economics, but some readers might have thought that reading this one book would prepare them to challenge Greenspan or Summers on economic theory. We all have our biases and prejudices in all areas of life, and PRICELESS helps to explain how and why we may feel in a certain way about the price of Gucci bag, a pair of Jimmy Choos, and etc. The evidence provided is primarily anecdotal and not meant to be an all encompassing erudite study in economics. If you want to read a very entertaining book on how many large marketers decide to set what they consider to be their optimal prices for their various products then add this book to your reading list. If you want to become an economic expert, I would suggest enrolling in an institution of higher learning and expecting to take four years of concentrated study in that area before you even think of grad school. I liked this book enough that I bought additional copies for each of my kids, so that should say how much I liked it.
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 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 January 30, 2010
A fascinating, useful and well written book. This author is an expert in this area. If you have ever bought a car, negotiated with your child or been to an auction, the author is talking directly to you. The field is called psycophysics and Poundstone brings it to life. After you read this you will understand how anchoring your sell with a very high price is better for getting the highest price, why he who sets his price first has the advantage, how web pages are using background images to prime readers to make decisions and where union negotiators have a winning plan regardless of the outcome. Ever wonder how the Sierra Club negotiates and will always come out ahead of the resource companies? He tells you why you ignore what clients say they want and watch what they do. This is a must read for the CEO, CFO, CMO and every parent.
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 February 12, 2011
I really enjoyed the book Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street (review forthcoming), so when I learned the William Poundstone had written a new book, I went out and bought it.
This book, Priceless: The Myth of Fair Value (and How to Take Advantage of It), covers rationality in decision making, and how markets and marketers take advantage of the deficiencies in rationality in average people.
There are many in the investment community that admire behavioral finance, and many who say that it might be true, but where are the big profits to be made from it?
This book doesn't cover behavioral finance per se, but it does cover its analogue in pricing and marketing. In a negotiation, the first person to put a price on the table tends to push the final price agreed to closer to his price. Leaving aside no-haggle dealerships, why do car dealers post high prices for vehicles? Because only a minority does the research to understand what the minimum price is that a dealer will accept. The rest pay more, often a lot more. Personally, I do a lot of research before I buy a car, and it helps me spot dealer errors in pricing.
The book is replete with examples of how there is no "fair" way to price things out. What are the proper damages for a jury settlement? The attorney for the plaintiff is incented to come up with the highest believable amount for the jury, because they will render a verdict less than that. Make the ceiling as high as possible, and the plaintiff will get more.
We call placing the first price on the table "anchoring," because it pulls the final result toward itself. The book is filled with experiments dealing with anchoring.
The book also spends a lot of time on the "ultimatum game," where a person gets $10, and must offer some of it to a second person, but if the second person turns him down, the first person gets nothing. The main lesson here is that pride is stronger than greed. Yes, it can be construed as a question of fairness, but when someone gives up money to deny money to someone else, it is not fairness but envy. Why pay to make someone else worse off? To teach him a lesson? What an expensive lesson.
Much of this book was a walk down memory lane for me. I discovered Kahneman and Tversky in the Fall of 1982, and I found their ideas to be more cogent than much of the "individuals maximize utility" cant that was commonly heard from most professors teaching microeconomics. People are far more complex than homo oeconomicus. Small surprise that most tests of microeconomics as a system are not confirmed by the data.
Kahneman and Tversky showed via a wide array of examples that the decisions people make are affected by the way they are presented to them. People can be manipulated in limited ways in order to affect the decisions that they make.
The book deals with many marketing tricks, particularly the powerful word, "free," and how it dupes people into buying something to get something for free. For another example, why companies sell really expensive items that few will want, because people will buy the next most expensive item with greater probability, versus less expensive items of the same class.
Other topics covered include:
The virtue of complex billing
Why nines work well in pricing.
Alcohol, and its value in bargaining
How changing symbols can affect willingness to deal.
Why to keep a `neutral' friend with you in bargaining.
And much more.
I really enjoyed the book. It won't be of as much value to investors, but it will be of great value to consumers. Learn how marketers trick you.
Who would benefit from this book
Most people would benefit from the book. We all need to understand our thinking biases better, so that we make smarter purchases, and avoid wasting money. If the ideas of the book are applied well, you could pay for the book many times over in a year.