Priceless: The Myth of Fair Value (and How to Take Advantage of It)
by William Poundstone
Traditional economics assumes people engage in rational transactions. Not surprisingly, people make irrational decisions all the time. In Priceless, William Poundstone draws from research in psychophysics (the study of sensory perceptions) and behavioral economics to explore the subject of pricing. Concepts such as anchoring, priming, and prospect theory (adaptation, loss aversion, certainty effect) are explained.
The first half of the book gets a bit too bogged down in detail about the academic studies and the backgrounds of the researchers. The latter half is more interesting, focusing on the application of these principles in various contexts, such as luxury goods, restaurant menus, infomercials, phone bills, charm prices, and sale prices.
We’re told that from the consumer’s perspective “there’s absolutely no difference in value” between $3.99 and $3.95. With volume, that four cents adds up. “A small change in prices can make a huge difference in profitability, for good or bad.”
Poundstone, William. Priceless: The Myth of Fair Value (and How to Take Advantage of It). New York: Hill and Wang, 2010. Buy from Amazon.com