Customer Reviews

Priceless: The Myth of Fair Value (and How to Take Advantage of It)

5 star:		(11)
4 star:		(9)
3 star:		(7)
2 star:		(1)
1 star:		(2)

 

 

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!

Oliver Fritsch
Cendesic Marketing

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.

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.

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.

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: [...]

The title tells it all -- this book is Priceless.

Disturbing, jaw-dropping but priceless. It is an expose on how we are being ripped off every day in virtually every business endeavor we undertake. Really some amazing data here.

When it comes to the price we should pay, we as a nation are painfully gullible. Thus we are at the complete mercy of advertisers, salespersons and marketers, hucksters all. They decide the prices of the items we buy and it has no relationship to quality or rationality.

Most of us don't even realize we are being manipulated. Many of us think we are pretty savvy; we compare prices, shop the sales, really believe things are discounted. We think we get a good deal. Dream on slumbering giants.

The author puts it succinctly "the numbers that make our world go around are not so solid, immutable, and logically grounded as they appear. In the new psychology of price, values are slippery and contingent, as fluid as the reflections in a fun-house mirror."

Poundstone introduces us the concept of "anchoring." It is widely practiced. A retailer offers an over priced item which he has no intention of selling. But it draws customers in. They ultimately settle on a lower priced model. It's not bait and switch but it is as unethical. An example he presents is an expensive, $429, breadmaker Williams-Sonoma offered. It hardly sold. But its $279 model flew off the shelves. People thought they were getting a bargain. Actually they were being fleeced.

Poundstone explains the same is true in the more you ask the more you get philosophy. It is certainly prevalent in the law. Sue for more than is proper, and you'll get more.

Teaser rates, rebate coupons and late-night infomercials have all claimed victims among us. Reading this book will help us fight back or at least bring a smile to our face when we realize we have been snookered -- once again.

I found this book to be an entertaining and well-researched romp through the strategy of pricing and human decision-making. Here is the basic lesson of the book - Prices are not an absolute and the perception of a "fair price" is subject to manipulation and positioning. By using the right techniques and taking advantage of certain cognitive fallacies and biases that we all have just about any price for an item can be made to look fair. How to accomplish this is explained throughout the book.

First off, there is no such thing as a "fair price". Pricing is based on our perception about what is fair and our subjective idea of a particular item's value. This perception can be manipulated, unknown to us, by factors such as anchoring (very powerful), priming and framing, which are the three most powerful tools in the persuasive toolbox.

I love learning how the mind works and how we act and make decisions so for me this was a fun and informative book to read. I enjoyed reading the book from cover to cover, not only for the subject matter, but also because I like the emphasis on scientific studies and practical experimentation that backed up the information in the book. While I like my information delivered in this manner I can see how others might find it dry and maybe a little too academic. That is something to be considered before picking up this book.

As mentioned previously, the three primary persuasive techniques covered in depth were priming, framing and anchoring, with most of the studies exploring these these subjects being based on the Ultimatum Game. If you don't know or are curious about what the Ultimatum Game is, including it's many variations, then this is the book to read. He covers just about every variation of playing the game that exists. I found the knowledge imparted from these studies to be very insightful and valuable.

The information in this book was so valuable to me that it's one of the few books I've read with a highlighter and notepad at the ready so I could capture the various strategies for use in my business. Just how powerful are the techniques of anchoring, priming and framing? More than you would think. I've taken some of the things I learned in the book and use it in my daily business life. I am now more aware of the effect priming, framing and anchoring have on people, myself included, when it comes to our feelings about how things should be priced.

All pricing is based on psychology, something about which most of us have a limited understanding. We tend focus way too much on the cost in dollars of an item and not enough on the value of a particular item to us personally. Interlaced with our perception of value is our concern with not being "taken advantage of" or looking out of sync with the group. Prices are best viewed relative to other prices and not solely in and of themselves. It is rare that a price stands alone because that gives us nothing to compare to it. Provide that comparison, obviously positioned to be favorable to ourselves, and we can make a price appear however we want it to appear, as a great bargain or overly expensive.

Everyone should know the techniques used to manipulate our perception of price, whether on the consumer side or as the business owner. We are all being influenced and persuaded unconsciously and unknowingly all the time. Knowledge of how this is done is the best way to be sure you get the best value for yourself in any consumer encounter.

This book is an effort to dispel the myth of homo economicus, the hypothetical creature that always acts rationally to maximise utility. The book is an overarching review of behavioral finance, the body of economic research that proposes hypotheses based on actual experiments rather than theoretical models. Overall I found the book quite comprehensive and reasonably well written.

However there is no disguising the fact that it is basically a collection of academic paper reviews. I found the structure to be slightly disjointed with the book lurching from topic to topic in a rather haphazard fashion. This is certainly recommended for those with an interest in finance and economics. For the general population the content may be a little dry and I would not consider this book as palatable as more popular works such as Freakonomics.

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.

Herbert Simon's most enduring contribution is that we are confined to our own `bounded rational'. We are too busy, to ill-informed, and occasionally too boneheaded to think things through. Therefore, our decisions resort to heuristics, or mental shortcuts, to arrive at quick, intuitive choices.

In addition as we learn in 'Priceless', our mental intensity to subjective perception follows the characteristics of a power curve law. Examples of this mental intensity include: it takes 1.7 times the amount of sugar in a soft drink to double the sweetness perception. On the other hand, it takes a light bulb 4 times brighter to double the brightness perception.

What this all leads us to, is that the cost of being so acutely sensitive to contrasts, and ratios, is a relative insensitivity to the absolute. Without a basis for an absolute 'price', we use our mental shortcuts to determine a value and/or price. Merchandisers of course know this, and subtly pull and yank our chains to influence our decisions which may not be of the best value.

In the end, we are influenced mostly by contrasts (comparative assessments) which matter the most, and absolute values do not matter as much, and only sometimes enter the picture.