Priceless: how our unknowing irrationality confounds the price of everything

I just finished William Poundstone's Priceless: The Myth of Fair Value (and How to Take Advantage of It), a popular book on the history and present state of the art in analyzing how people arrive at prices (Poundstone's publisher, Hill and Wang, were kind enough to send this along).

As with other behavioral economics texts, Poundstone is setting out to demonstrate how our own cognitive blindspots cause us to behave irrationally, and how this pervasive irrationality has more to do with the price of goods than any "rational consumer" (as posited in the traditional economic model). Poundstone liberally cites the greats of the field, notably, Dan "Predictably Irrational" Ariely, but even if you've read other recent books on the subject, Poundstone's book brings some new material to the discussion.

First, Poundstone's treatment of the history of behavioral economics is both funny and fascinating, a kind of counterpoint to the history set out in Myth of the Rational Market. The mavericks who set out to investigate the ways in which we are both a) weird, and b) ignorant of how weird we are, were themselves very weird in an enormously entertaining way.

Poundstone's subtitle hints that there will be some kind of Dale-Carnegie-style set of tips and tricks for exploiting pricing weirdness, or at least not falling prey to them. And there are a few of these -- such as taking the time to seriously set out all the reasons an item isn't worth the price you're considering -- but by and large, the book's cautionary tales about how bad we are at understanding our own irrationality are the best tool of all. As Poundstone reiterates throughout the book, experimental subjects, high-priced corporate clients, and friends and relatives just don't believe that their idea of a fair price can be reliably moved by exposing them to random numbers prior to negotiation (high numbers make us willing to accept high prices; low numbers, low prices), even when they've just participated in an experiment showing them exactly that.

Poundstone's explanations make sense of everything from flat-rate mobile phone pricing to packaged goods box-sizes to the insane complexity of those same "simple" flat-rate phone plans. He goes a long way to explaining the way that prices ending in 9s are oddly attractive, and to showing up the dirty tricks involved in rebate pricing and other tricks of the price-gun.

In some ways, Poundstone's thesis -- we make irrational purchases all the time -- should be self-evident. After all, advertisers have spent a century extolling irrational cases for buying their products (what do cowboys have to do with Marlboros?), even as they argued to regulators that everyone who bought a harmful or overpriced product did so on the basis of their rational free will. But the pervasive game-theory story of rational actors acting rationally on the micro, macro and intermediate scales persists, and more importantly, it guides our policy-making and our economic thinking.

I don't think we're always irrational. But I think that we probably spend as much time kidding ourselves, misremembering, mispredicting, and misapprehending, as we do accurately gauging the circumstances and behaving accordingly. I think that our social system has long favored those who understand how to exploit cognitive failures, and that the subtle evolutionary pressure has created a world where the opportunities to be fooled in ways big and small are nearly everywhere.

Priceless: The Myth of Fair Value (and How to Take Advantage of It)


  1. I picked this book up after seeing it on boing boing a few months ago… and am in the process of reading it now– I think it’s excellent, and references some interesting social-psychology studies.

    The next book on my list is “Connected: the surprising power of social networks” – it is along the same vein of the application/connection of social psychology studies to our daily existence:

  2. I’m in a talent bank of professional that do voice overs. They are constantly asking, “how much should I charge for…” I wonder if this book could help them figure that out? Can anyone that read it tell me?

  3. The price tag on the cover says $25.99. The list price at Amazon and Powell’s is $26.99 (but it is on sale for $17.81 at Amazon). I am so easily confused.

  4. I am coincidentally reading this from a borrowed computer. I had no idea that boing boing had become almost impossible to look at without an ad-blocker.

  5. Poundstone is an interesting cat. He’s written like 17 books on all sorts of topics. Here’s an interview I did with him on his book Gaming the Vote, which was just kind of a fascinating history of why we use a voting method that leaves most people dissatisfied, when there are much better methods out there — like, oddly enough, the one they use on the website Hot or Not!

  6. Are there ads on BB?
    I manually block ads (I don’t use an ad-blocker library) and don’t have anything blocked here but only see like ine, small, unobtrusive ad for some american car company. I even have javascript enabled on BB.

    I think your friends computer may have caught a case of something nasty! The computer equivalent of syphilis..

    1. I think they are legit. Top banner and sidebar animated/video. It is the moving pictures that put me over the edge. I could live with static.

  7. I think the sales pitch is that sucking on a Marlboro tastes just like sucking on a cowboy.

  8. “Poundstone’s subtitle hints that there will be some kind of Dale-Carnegie-style set of tips and tricks for exploiting pricing weirdness” Consider, a book written about the irrational buying decisions of consumers is probably not going to be completely honest and forthcoming on its own contents. After all, the book itself belongs to the set of things it describes!

  9. Poundstone has always written about really interesting topics. I’ve read a lot of of his book and I just discovered that he’s written many more — google him for his home page.

  10. Even those of us less vulnerable to some of the more blatant abuses (my mind automagically rounds .9x to the nearest dollar since as a child with limited funds and a regional tax, I never seemed to have enough to buy things) are equally vulnerable to many of these tactics.

    In a way I’m lucky, as I don’t have the need to equal or outdo my neighbour. But if I am hungry, for example, I lust after every food product advertised on TV, for the few minutes it stays in my mind. Analytical monster that I am, I then pause to analyse what I *really* want. I am, however, overweight.

    I’ve never understood car advertising, though. At over $10,000 how could ‘zoom-zoom’ or any other slogan make that much of a difference? Unless, of course, all products are essentially the same, and the difference is little more than luck. (which it could very well be)

    As for the market, look for quotes from those who got in and out fast, making a killing in the process. (Mark Cuban, Yahoo and Youtube, and many more, not all dot.bomb) The key for them was understanding the underlying industry better than the investors.

  11. The word “irrational” should be dropped from these discussions. To an economist, “irrational” refers to any behavior that isn’t focused on maximizing a utility function. The idea is that if we pesky humans don’t fit the theoretical model, rather than concluding that the model is wrong, we then label human behavior as “irrational”. But even when we are engaged in “cognitive failures”, we might be up to something else, something that could be understood by looking at our evolutionary history. For example, we’re much more sensitive to losses than gains, but that might just be because some losses can be fatal, so people who overreact to potential losses are more likely to survive.

    Behavioral economics is the only part of economics that is actually scientific (in that its practitioners study how people actually behave), but even many behavioral economists can’t resist going from “is” to “ought”.

  12. Not really surprising to anyone who’s been exposed to the madness that is gourmet food or name-brand products without actually buying the hype.

  13. Lyd: I also use an adblocker, so I loaded this page in a different browser to see the ads. As far as ads go the ones here aren’t excessive. I can’t stand moving pictures in my field of vision so I’ll leave the adblocker running, but a top banner and a single animation is nothing compared to many other other popular sites.

  14. ‘As with other behavioral economics texts, Poundstone is setting out to demonstrate how our own cognitive blindspots cause us to behave irrationally, and how this pervasive irrationality has more to do with the price of goo…’

    blue goo perhaps?

  15. I’ve been a fan of Poundstone since I was a kid and picked up BIG SECRETS and BIGGER SECRETS. (BIGGEST SECRETS is on my Amazon wishlist.) This seems to be in keeping with his theme of exposing the puppetmasters and charlatans of the world.

  16. I wonder if the term “irrational” includes the use Ellul makes of it, i.e., that which exists outside of consciousness and rationality. I’ll have to read this to see if the author identifies advertising scientists as specialists in manipulating the socially constructed mental illness we call American education.

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