Turning traditional economic theory on its head

“Worth a read?” is not your ordinary book review; it is a meta-review. In other words, it provides an overview of the opinions contained in a variety of book reviews published in the media at large. This week we look at “Priceless: The Myth of Fair Value (and How to Take Advantage of It)”, written by William Poundstone and released in South Africa in May 2010.

What is it all about?

Few of us can forget the 1994 court case in which a jury awarded a woman almost $3 million in damages after she spilt a cup of McDonald’s coffee on her lap. If you thought that this staggering amount was arrived at through logic, reason and an evaluation of her medical expenses, think again.

In “Priceless”, author William Poundstone shows how the price we pay for products has very little to do with value, production costs or supply and demand. Rather, consumers are sitting ducks for a range of pricing strategies, which inevitably leads to our paying more for a product than we should.

“Priceless” is in many ways a summary of discoveries in the field of behavioural decision theory, or the theory of how people make decisions. Poundstone shows that, in the human mind, people are unable to assign a fair price to an object without some form of benchmark again which to measure it. And it is this ‘weakness’ that leads to our being exploited by those setting the prices.

For example, retailers ‘anchor’ their products by assigning an exorbitant amount to one product, which then makes the rest of the products look cheap by comparison. Think top-of-the-range Prada handbag or the lobster omelette at your local restaurant.

Poundstone also discussed "invisible shrinkage", where manufacturers subtly change the shape of the packaging, allowing them to charge the same while offering less of the product. For example, have you noticed that your 340ml can of Coca-Cola is now a 330ml can? I didn’t think so.

Combining economics, psychology and everyday shopping, “Priceless” turns traditional economic theory on its head.

Who is the author?

William Poundstone is an American author, columnist and historian. He is the author of a number of books, many of them revealing the ‘truth’ behind things we take for granted.

For a fascinating visual description of the author (which includes his links to Tupac Shakur and Kevin Bacon), be sure to click on "About Me" on Poundstone’s website, http://home.williampoundstone.net.

What do others say?

“Priceless” is essentially an academic work, and some critics have claimed that it may be difficult for the layperson to follow. However, on all counts the book is accessible, enjoyable and never boring – thanks to Poundstone’s use of short chapters and his skill at making complicated concepts palatable.

If you have read widely before on behavioural decision theory or behavioural economics, you are not likely to find much new in this book. However, if you never noticed that 330ml can of Coca-Cola, go out and buy a copy of “Priceless”.

“Publishers Weekly”: "While Poundstone’s case studies are vivid, the abundance of theories and experiments might prove overwhelming for the casual reader. Nevertheless, the scope of the analysis – its attention to economic abstractions as well as real-world consequences – braids together theory and practice to leave an indelible impression on the reader."

“Business Week”: "Poundstone delights readers with examples of how marketers take advantage of people’s cluelessness about prices. And he explains why their tricks keep working long after we should have wised up."

Max Bazerman, professor of Business Administration at Harvard Business School: "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."

How do I get hold of it?

“Priceless: The Myth of Fair Value (and How to Take Advantage of It)” is published in South Africa by Penguin Books. It is available at Exclusive Books at a price of approximately R230.00.