Spending More Makes You Feel Good?

So I saw this on CNN recently:

Researchers in California have uncovered that Americans are more satisfied by a wine's taste if they "know" it's more expensive. Antonio Rangel, associate professor of economics at the California Institute of Technology, has analyzed the reactions of 21 volunteers who were presented 15 wines in a random manner, the only information being the price.

Unbeknownst to them, two of the wines were repeated, but presented with different price tags. The researchers also carefully observed changes in a part of the brain known as the medial orbitofrontal cortex, which plays a central role in many types of pleasure.

They found out that test subjects were more pleased by the taste of wines they thought were expensive.

Well, there you go. Although the sample size in this study was small, I still think it is an important study. This is not dissimilar to the not-as-scientific study performed by the libertarian comedians Penn and Teller, who tried to see how patrons reacted in an upscale, high-end restaurant when they were served very cheaply-prepared food. See the clip in my September article here. But wait! There’s more:

As part of the test, a pricey $90 wine was provided marked with its real price and again marked $10, while another wine was presented at its real price of $5 and also marked with a $45 price tag. In both cases, the volunteers thought that the wine was better when the higher price tag was presented.

This should be no secret to most people; however, most consumers still fall prey to it because they are convinced that more expensive products are “better” and “cheaper” is somehow less in quality. For consumer goods, not just wine, this is just false. But why do people behave this way? From the study:

The results showed that the way in which the brain works is that it mixes pleasure with expectation as to how good the wine should be. Since the expensive wine was supposed to be better, their brains perceived it as the superior drink.

This means that no matter how good a cheap wine may taste, consumers will still likely buy the more expensive wine and believe it tates better.

Again, not all that surprising. But it’s usually the “well duh” stuff that trips up the average consumer in restaurants, in the electronics store, the grocery aisle, and even the car salesman’s lot. I’ve had countless people try to justify why one particular shoe “wears better,” how no mp3 player’s sound quality can rival the iPod, or the name brand grape soda taste better than the store brand. To be fair, sometimes these conclusions are true, usually though its hard to objectively prove. Marketing departments at major companies know this, and it usually works in their favor. People buy more expensive goods with the expectation (feeling) that it should be better, and their brain’s logic center loses out and confirms this “feeling.”

There are times though, when it doesn’t work. Witness the sales race between the PlayStation 3, Microsoft’s Xbox 360, and Nintendo’s Wii. On paper, the PS3 looks as if it should be “better” by a long run, and it is of course more expensive. The same occurs for the Xbox 360. The consumer market however, bucked the trend and opted for the cheaper Wii, and demand continues to outpace supply for the device.

But let this be a warning that you should always consider—never underestimate the power of marketing, and don’t ever think that paying more for something makes it better. Moving forward, you should be aware (and more careful) of your spending decisions.