Flashback – Price Deception

[On New Year’s Eve 2012 I posted a look at the various ways advertisers use prices to convey a false impression. Make prices appear low to suggest a bargain; jack them up to give the impression of special quality or luxury items. Because of the date, I ended with a brief note on champagne. Though it’s only June, why not read this and then find something to celebrate?]

We are deceived by a lot of things, by ourselves and by others, especially advertisers. We are all familiar with the pricing scheme of marking items as $19.99 instead of $20 to make them seem like a bargain, even though many people, when asked, will describe the $19.99 shirt as a $20 shirt.  Consciously we are not fooled, but subconsciously it registers as a better deal. Consider that  nine-tenths of a penny per gallon on the price of gasoline.

Surprisingly, the opposite strategy is also used. When paying a higher price, we often believe we are buying better quality even when we are really getting substantially the same thing. In prior postings I brought your attention to tests of (more expensive) organic foods showing that they are not nutritionally superior. Recently we learned that family cars outperformed luxury cars in the new crash tests. I have seen many Consumers Digest-type articles saying that ordinary moisturizers help your skin as well as the high-priced brands that claim to be superior. Higher-priced brand name drugs continue to sell well against similar or even identical generics by virtue of perceived quality. “When served microwaved food from the frozen food section in the setting of a fine restaurant, most people never notice.”

I remembered some time ago seeing a story about wine judging. Experts were asked to rate a certain group of wines. Later, in what they thought was a different event, they were presented with the same wines. The ratings of the same wines by the same judges came out completely different – no correlation whatsoever. I couldn’t find that source, but was overwhelmed by similar stories.  One told of wine tasting experts fooled in general, recommending wines with expensive labels with eloquent descriptions of their superiority over the same wine poured out of an different bottle. Experts also gave differing descriptions when served a white wine and the same wine with red food coloring added. Others couldn’t tell if a wine was red or white when they drank them from black-colored glasses.

It’s not only the experts who are fooled. “Expensive wine is like anything else that is expensive, the expectation it will taste better actually makes it taste better.” This article gave even more examples.  HDTV clarity and cheese tasting elicited the same perception errors based on price. A January 2008 study showed that adults rated the same wine as tasting better when it came from bottles labeled $45 than from ones labeled $5.

How would this apply to the art world? Experts always want to tell us what to think and what is real art. We often look at the work and scratch our heads. Here is a comment from a friend who visited an exhibition of what was proclaimed to be a major contemporary British artist at the Aberdeen (Scotland) Art Museum. “Imagine a giant empty exhibit hall with nearly-blank canvases, each about 7 feet square, or painted unevenly in reddish-orange oil. A life-size bronze casting of a rumpled sleeping bag.” I'm sure most of us would be equally puzzled at the praise for such an exhibit, but in the art world there is so much hype, and it’s so easy for the experts to pompously fall back on the accusation that others "just don’t get it." We buy that logic and that’s why we get what we get. (For an amusing spoof on contemporary art check out a film called Untitled).)

The effects of high price and over-reliance on so-called experts apply in many other fields. So before you buy something based on the name or the price, do the research. Whether it’s food, art, drugs, wine, cosmetics or cars, more expensive is not necessarily better. When all you have to go on is expert opinion rather than evidence, you are usually safe to trust your own taste.

Which brings us to the real topic for today – champagne. It is, after all, New Year’s Eve.  In this case I have done the research for you, and guess what?  More expensive is not necessarily better. As this British source says, “In a blind test that has thrilled the marketing departments of the major retailers and perturbed at least one of the grande marques, six wine experts gave a resounding vote of support to some of the less glamorous bottles.”

So buy what you like and save a little cash. Happy Critical Thinking in the New Year [or Independence Day], and Cheers!

Flashback – Perspective and Gas Prices

[In the fall of 2011 I published a piece with that title. At that time, eight and a half years ago, people were looking forward to prices dropping to about where they are today. The point of the discussion was how short memories are, how easy it is to complain when things change for the worse and how quickly we take benefits for granted. Here it is again for your consideration.]

A couple of days ago the AP published an article on lower gas prices. The price has dropped significantly since summer and some people were amazed and thrilled to find prices below $3 a gallon.  If things go well some parts of the country could see prices as low as $2.50 in the near future (or not).

What does this have to do with perspective? To me it’s a reverse example. Here we have people very happy with prices below $3 and possibly headed toward $2.50, whereas not too long ago we were hearing cries of pain and anguish at prices as high as $2.50. But compared to $4.00 it seems like a bargain. People tend to have short memories and get used to things as they are, reacting with some discomfort to changes. In this example it is joy rather than discomfort, but because we have experienced such economic and technological growth and improvements throughout our lives, our expectations are set and any loss or reduction causes discomfort.

Perspective should remind us that how things are today is not the way they always were. Gas was not always three or four dollars a gallon, but televisions were not always digital, with 50-inch screens, surround sound, 200 channels, or even in color (and we had to get out of our chair to change the channels). Less than one hundred years ago most Americans had to live without radios, a second car, a washing machine, a vacuum cleaner, in-door plumbing, Social Security or any expected retirement, Medicare or any health insurance. More recently people got along fine without home computers, dishwashers, smartphones, moon roofs, garage door openers and home air conditioning. But it’s easy to take these things for granted and feel we could not live without them, when, in fact, people lived for all of history without them. Recognition of this makes it easy to understand how Greek citizens can march in protest over loss of benefits while their country teeters on the edge of bankruptcy.

Perspective is about values, values that keep our wants from morphing into needs (and needs into rights), values that remind us what is vital vs what we can really live without. It’s nice to see the price of gas turn around, but it should also remind us to be grateful for what we have and to consult our core values when we decide how to spend the extra cash. Martin Luther King, Jr. put it very bluntly in his 1964 lecture at the Nobel Peace Prize ceremonies: “Yet, in spite of these spectacular strides in science and technology, and still unlimited ones to come, something basic is missing. There is a sort of poverty of the spirit which stands in glaring contrast to our scientific and technological abundance. The richer we have become materially, the poorer we have become morally and spiritually.” I think he was talking, in part, about perspective, and I wonder if we have been progressing or declining since then.

Using Perspective to View Gift Cards

While shopping a couple of days ago, I noticed some people gathered around the gift card display at a local store. There were gift cards for a number of other stores and restaurants in town. 

There are a number of ways to interpret this. One is that those people were too lazy to try to figure out a good Christmas gift for some of the people on their list and decided to give them a gift card, which is only slightly more personal than an envelope full of cash. Another is that they didn’t really understand the tastes of the people they were buying for, for example, unable to come up with something appropriate for teenaged grandchildren living many miles away. A third is that it is so difficult to buy for people who have met all their wants and needs. The third is a distinct possibility in a country where nearly everyone has enough stuff. 

Gift cards originated in the mid-1990s. Around that time common ads asked, “What can you get for the man (or woman) who has everything?" Yes, Americans at that time already had most of everything they needed, especially compared to earlier times. When they were popular, the solution recommended by these ads was something exotic or unusual – and probably not what the person really wanted anyway.

Since then the market for gift cards has skyrocketed, growing from just over $80 billion in 2009 to $160 billion last year. Consumers are tempted with special offers and discounts from nearly every store or restaurant. Retailers also love gift cards because a small fraction of them goes unspent, pure profit for the store, and when people use them they typically spend more than the value of the card.

Does this mean that the number of men (and women) who have everything is growing? That could be the case, but we don’t seem to appreciate it. Gift cards are a convenient way to deal with this problem, if it can be called a problem.

This information comes from the Progress Paradox (p. 80) written in 2003: “Average Americans…not only live better than more than 99 percent of the human beings who have ever existed, they live better than most of the royalty in history.” We are better off than ever. In 1900, the life expectancy of an average American at birth was approximately 47 years, and what were then considered luxuries only enjoyed by the very rich are now very common, considered as necessities by nearly everyone. We also have conveniences they never dreamed of. In a historical sense twenty-first century Americans are the people who have everything - making it so hard to shop for us.

A good, healthy reaction at seeing the crowd around the gift cards is to rejoice that those people have it so good that they can afford to buy the gift cards (at an average around $50 each) and that their friends and relatives are so well off that it presents a challenge to those trying to figure out what to get them for Christmas (or any other occasion). 

This good feeling about the state of our society may help to buoy us up over the weeks ahead – at least until Congress is back in session. 

iPhone Perspective

When the Utah representative, promoting the new healthcare plan, suggested that people could spend money on healthcare “[r]ather than getting that new iPhone,” it pushed some people’s hot button.  A few days later Wired came out with the headline “No, iPhones Aren’t Luxury Items. They’re Economic Necessities.”  In it the author explains how, only ten years after their introduction, iPhones and similar smartphones have moved from the novelty category to must-haves.  To get ahead and stay ahead, “you have to stay connected in an economy built on the assumption that anyone is always reachable anywhere.”

Of course, you would expect Wired to take this stance, just as Car and Driver might scoff at people wanting to ride their horses to work.  But they make some strong arguments.  Even if the lawmaker was referring only to those who buy the newest model, discarding a perfectly functional phone, he probably picked a poor analogy.  What Wired can’t argue is that all Americans make excellent decisions when prioritizing their spending.

Given that Wired is right and iPhones are in fact a necessity, there are still two disturbing aspects of the article.  One has to do with perspective and the other with magic-money-tree thinking.

Perspective helps us take the long view, in this case to look back and understand how we got here and where we are heading.  Only ten years ago this condition of constantly being connected was not nearly as urgent.  Twenty years ago, it was not even possible, except for a few very rich or innovative with their car phones or big, clunky handheld portable telephones, both of which were limited to making phone calls.

Today we must think about society in terms of Moore’s Law, the insight that processing power doubles every 18 to 24 months, exponential growth.  You buy a new computer and it seems obsolete a few months later.  By some accounts you have more computing power in your smartphone than on Apollo 11.  And things just keep getting smaller, faster and more connected.  On their website Intel proudly states, “The inexpensive, ubiquitous computing rapidly expanding all around us is fundamentally changing the way we work, play and communicate.”

The perspective question is how are we changing with it?  Are we struggling to keep up?  We may be technologically savvy, but how many parts of our lives are falling through the cracks?  How are we reacting to the big and small threats that accompany these rapid advances?  If we are getting so advanced and sophisticated, why do we still face so many basic problems:  retirement insecurity, the obesity epidemic, inadequate sleep, a struggling education system and fears that our children and grandchildren will have shorter, less happy lives as they struggle to pay off overwhelming personal and public debt?

That fundamental change in work, play and communication has not translated into a fundamental change in thinking and behavior.  So many decisions are still reactions.  We use social media to fight with strangers or stress about frightening potential outcomes based on politically motivated predictions.  We blithely share our personal data, while constantly on guard against hacking and identity theft.  Our focus is distracted from simple solutions (like eat less and exercise more) by the constant barrage of demands on our time.  Faulty behavior in the five key dimensions results from everyone walking through life staring at a device while processing the information with a primitive brain (evidenced by PSAs reminding parents to tell kids to stop texting while crossing the street).

The magic-money-tree aspect of that article is also a problem.  They cite the following:  “Last year, the United Nations Human Rights Council declared that the internet was a basic human right.”  This is the same organization that protested when Detroit turned off the water supply to those who were seriously delinquent in paying their bills.  The UN likewise called access to clean water a human right – even if you won’t or can’t pay for it. 

The UN, Wired and many others must understand that rights are recognized and respected not granted.  We have rights to free speech, religion, to bear arms, etc.  Those rights are guaranteed by a requirement on the government not to interfere or deny them.  They are not like these UN-established rights, a good or service you can demand that the government or someone else pay for.  A declaration of these rights does not make the cost go away.  

Yet we scurry through our lives as they become exponentially more complex, texting, taking calls or making appointments on the run, mystified by such basic economic concepts.  Without better performance in the five key dimensions, how will we ever be successful in this new, fundamentally changing society?  If what was brand new ten years ago can become a necessity today and technology is growing exponentially, we must be alert and approach new threats and risks deliberately, not with the same behavioral habits as our ancient ancestors.

Price Deception

We are deceived by a lot of things, by ourselves and by others, especially advertisers.  We are all familiar with the pricing scheme of marking items as $19.99 instead of $20 to make them seem like a bargain, even though many people, when asked, will describe the $19.99 shirt as a $20 shirt.  Consciously we are not fooled, but subconsciously it registers as a better deal.  Consider that  nine-tenths of a penny per gallon on the price of gasoline.

Surprisingly, the opposite strategy is also used.  When paying a higher price, we often believe we are buying better quality even when we are really getting substantially the same thing.  In prior postings I brought your attention to tests of (more expensive) organic foods showing that they are not nutritionally superior.  Recently we learned that family cars outperformed luxury cars in the new crash tests.  I have seen many Consumers Digest-type articles saying that ordinary moisturizers help your skin as well as the high-priced brands that claim to be superior.  Higher-priced brand name drugs continue to sell well against similar or even identical generics by virtue of perceived quality.  “When presented microwaved food from the frozen food section in the setting of a fine restaurant, most people never notice.”

I remembered some time ago seeing a story about wine judging.  Experts were asked to rate a certain group of wines.  Later, in what they thought was a different event, they were presented with the same wines.  The ratings of the same wines by the same judges came out completely different – no correlation whatsoever.  I couldn’t find that source, but was overwhelmed by similar stories.  One told of wine tasting experts fooled in general, recommending wines with expensive labels with eloquent descriptions of their superiority over the same wine poured out of an different bottle.  Experts also gave differing descriptions when served a white wine and the same wine with red food coloring added.  Others couldn’t tell if a wine was red or white when they drank them from black-colored glasses.

It’s not only the experts who are fooled.  “Expensive wine is like anything else that is expensive, the expectation it will taste better actually makes it taste better.”  This article gave even more examples.  HDTV clarity and cheese tasting elicited the same perceptive errors based on price.  A January 2008 study showed that adults rated the same wine as tasting better when it came from bottles labeled $45 than from ones labeled $5.

How would this apply to the art world?  Experts always want to tell us what to think and what is real art.  We often look at the work and scratch our heads.  Here is a comment from a friend who visited an exhibition of what was proclaimed to be a major contemporary British artist at the Aberdeen (Scotland) Art Museum.  “Imagine a giant empty exhibit hall with nearly-blank canvases, each about 7 feet square, or painted unevenly in reddish-orange oil. A life-size bronze casting of a rumpled sleeping bag.”  I'm sure most of us would be equally puzzled at the praise for such an exhibit, but in the art world there is so much hype, and it’s so easy for the experts to pompously fall back on the accusation that others "just don’t get it."  We buy that logic and that’s why we get what we get.  (For an amusing spoof on contemporary art check out a film called Untitled).)

The effects of high price and over-reliance on so-called experts apply in many other fields.  So before you buy something based on the name or the price, do the research.  Whether it’s food, art, drugs, wine, cosmetics or cars, more expensive is not necessarily better.  When all you have to go on is expert opinion rather than evidence, you are usually safe to trust your own taste.

Which brings us to the real topic for today – champagne.  It is, after all, New Year’s Eve.  In this case I have done the research for you, and guess what?  More expensive is not necessarily better.  As this British source says, “In a blind test that has thrilled the marketing departments of the major retailers and perturbed at least one of the grande marques, six wine experts gave a resounding vote of support to some of the less glamorous bottles.”  Here's a short, light-hearted video with the same conclusion. 

So buy what you like and save a little cash.  Happy Critical Thinking in the New Year, and Cheers!