The name of this particular book, which I re-read recently, is Priceless: The Myth of Fair Value (and How to Take Advantage of It), and it’s written by a delightful man named William Poundstone. Remarkably, Mr. Poundstone has found a lot of ways to make psychological studies on economics unusually interesting. As marketers, we should probably know a lot more about economists and economics, as many times they’ve already exerted quite an influence over the goods and services we are helping to sell. They’ve already licked all the cookies, if you will, and that’s that. But, as marketers, as people helping to determine the “why” for consumers, shouldn’t we also understand the “why” that came before? The why of supply and demand or, more interestingly, all the whys that completely confound logic, yet still contribute to price setting, perceived value and purchasing?

You might be reconsidering this blog at this point, and that’s probably my fault for throwing in phrases like “supply and demand,” so let me answer this for you: Yes, you should definitely know about the first why. And because I am not in the habit of writing academic book reports, I will save us the footnotes and bibliography. All these ideas are paraphrased from the book, and are simply chosen based on my own judgment of their interest and/or relevance. Let’s jump in.

That’s the reason we can make a game show like “The Price is Right”—because it’s actually quite impressive when someone can guess the cost of something without context. If you’ve ever tried to price your belongings for a garage sale, you’ve experienced coherent arbitrariness in a nutshell with a thought something like this: “I have no idea what this Raising Arizona DVD should go for, but it’s at least twice as much as Legally Blonde 2.” So, great movie = 2x terrible movie, but value of used DVD in 2016 to an unknown neighbor = ???

This helps marketers in a lot of ways. Want to sell an expensive $200 breadmaker? Introduce a $400 breadmaker. Now $200 is “reasonable” by comparison. Want to move a bunch of shirts for $40 a pop? Point out that they used to cost $80. Is $40 the appropriate value of a shirt? We don’t know, but we’re saving $40!

Anchoring
Because we’re all so clueless about true value, we’re pretty easy to influence when it comes to prices. Or really just numbers. Any numbers. At all. In Priceless, we learn about a completely unbelievable study in which participants were asked a question: “What is the percentage of African Nations in the U.N.?” While this may not be something most people can answer, we can all agree that whatever guess they posit could not possibly be influenced by something as unrelated as, say, spinning a wheel with arbitrary numbers on it, could it? Or by writing down your own social security number before answering?

Wrong. So, so wrong. It seems that, when faced with a question we don’t know the answer to, or even a question that has a range of answers that we DO know, our brains lock onto the arbitrary first number. We then unconsciously use this first number as an anchor, adjusting up or down from this point to reach a new number that we settle on as an answer.

Of course, we use anchors within reason. No one’s going to visualize their own ten-digit social security number and then decide that the percentage of African nations in the U.N. is a few billion percent. But the study did show that people who spin or write higher numbers before answering the question guess consistently higher percentages than those spinning or writing lower numbers. Holy crap, think what that means for society.

It’s not a matter of inexperience or stupidity, it’s a matter of how our brains work. This means we’re all susceptible—this impacts the price of real estate (tested = true), salary negotiation (tested = true) and what you pay for a vehicle (tested = true).

The Ultimatum Game
Economists are a logical bunch and, as such, considered the rest of us to be so as well, even as recently as the 70s. (!!!) Marketers probably could have told them otherwise a whole lot sooner, but what economist wants to accept “yes, but this one’s pink” as a justification for spending $80 over the original purchase price?

For over a century, economists refused to acknowledge any value in the field of psychology, especially as applied to financial decision-making. One extremely well-known study that finally forced economists to admit that people can be knowingly, purposefully illogical with money is called the ultimatum game.

In the ultimatum game, two people are paired up. One, the proposer, is given ten dollars to split between themselves and their partner. They can keep nine dollars and offer their partner one; they can offer an equal split of five and five, etc. The crux of the game is that the other partner has to accept the offer for either to receive any money.

Were we all logical with money, we would accept any amount that netted us even a single dollar, right? Except that’s not what happened. Most people would accept a split that netted them three dollars, but not a split that netted them only two, choosing at two dollars to punish an “unfair” proposer at their own expense by not accepting the deal! Stranger still, most proposers chose to offer a fifty-fifty split right up front, regardless of what they thought would be accepted, because that was “fair.” I imagine consumers look at businesses this way sometimes, choosing to use their money as a reward for fair play—a.k.a. social responsibility.

In other variants on the ultimatum game, we learn how players interact when influenced by other factors like gender, level of attractiveness, testosterone levels and, perhaps most interestingly, whether or not someone else can tell how fair you’re being. It turns out that when people were given the opportunity to propose a split in which the receiver has no way of knowing what the original amount was, they’re a lot less generous. Of course, marketers already know that, too. That’s why social media is such a great place to encourage do-gooding—so everyone else can see us doing it.

Consumers are creatures of heart and shallowness, good days and bad days, fairness and vengeance, intellect and stubbornness. It’s what makes marketing and PR so darn interesting. Generation Z, which you’ve heard us talk so much about, is the next generation to come into buying power, and they’re truly more authentic and altruistic than any generation to date. How they spend their money won’t follow the logic of economists or even the “watch-me-be-charitable” social media announcements of Millennials. We’ve all got a lot to consider, and it’s a lot more than money.

Also, in case you’re wondering, the percent of African Nations in the U.N. is 23, at least at the time Priceless was published.

*Yes, really.