If you’ve ever wondered why you gravitate towards expensive things, here’s a possible reason. Obviously, it’s not the whole story (but it sure gives you a good excuse).

• Standard economic theory is based on the assumption that consumers will always act rationally (if it’s more expensive, you’ll buy less, etc.), but psychologists and behavioral economists have been continually proving that this rule is often not followed.
• They argue that just because there is a price increase on a pair of jeans, it doesn’t mean you will now buy fewer pairs – you might actually buy more. Their studies show that people receive more pleasure from items they think are more valuable because they’re expensive (even if they aren’t better quality).
• On the other hand, real-world experimentation has shown that maybe this rational consumer does exist. Some decision making (like choosing which food to eat) is really about basic economics – your preferences aren’t going to change with pricing tricks.

Facts & Figures

• Consumers sometimes react “irrationally” by economics standards – when the price of a good increases, sometimes people want to buy more.
• In an experiment, reward centers of the brain lit up more for a $100 bottle of wine versus a $10 one. It was the same wine.
• In an experiment on food though, people would not want a more expensive entree even if they wouldn’t have to pay for it. They wanted the food they liked – their preferences and rational economic thought won out.

Best Quote

“Maybe, sometimes, old-fashioned economics is just about right. Maybe when it comes to food, people do have reasonably stable preferences. Some people like shrimp and some don’t, even if it’s worth a lot of money.” – Dr. Moses Shayo, Hebrew University of Jerusalem

Tags: consumer spending, economics