This chapter in Dan Ariely's book is called "The Power of Price." Remember that the thesis for Predictably Irrational is that people make irrational choices (even though we'd like to think there's a good reason behind all of the decisions we make), they're alittle bit messy, and we can even predict the kinds of bad choices people will make because we do them over and over again.
This chapter is very simple, and it touches on a fact that we all intuitively know about ourselves: We tend to think that the more expensive something is, the better it is. In fact, according to Ariely, we can trick our brains into believing that a higher priced good is actually better feeling, more productive, better tasting, more effective, whatever, than it's lower priced counter-parts even when the two are absolutely identical. If you buy two different boxes of aspirin, one name-brand and one over-the-counter, you are actually more likely to get headache relief from the high-priced, name-brand product than the over-the-counter one. Why? Is the name-brand one better? Not necessarily. It's just more expensive, and we trick ourselves into believing that something that costs more is actually better.
Ariely interestingly talks about this phenomenon with regard to the health care industry's role in global economics with a great question. Read this: "America already spends more of it's GDP per person on health care than any other Western nation. How do we deal with the fact that expensive medicine may make people feel better than cheaper medicine. Do we indulge people's irrationality, therebye raising the costs of health care? Or do we insist that pople get the cheapest generic drugs on the market regardless of the increased efficacy of the more expensive drugs?" That is a great question. . . It's amazing how we can literally trick ourselves into depending on high priced things we don't need and then back ourselves into a corner when we find out we don't really need it.
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