[ExI] Eliot Spitzer and the Price-Placebo Effect

[hkhenson]

This is important information.  Ghod knows what this psychological 
trait had to do with reproductive success in the stone age, but you 
can be assured it did.  Keith

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/16/AR2008031602168.html

Eliot Spitzer and the Price-Placebo Effect
By Shankar Vedantam
Monday, March 17, 2008; Page A03

In Eliot Spitzer's sex scandal and tragicomic downfall, the question that
bugged many people did not have to do with ethics or politics, but whether
Spitzer got a raw deal.

What does someone like Spitzer get when he pays a prostitute $5,000, as
opposed to $500 or $50? Could sex with one prostitute really be 10 times
better or 100 times better than sex with another? The revelation of the true
identity of "Kristen" -- the woman with whom the former New York governor
allegedly shared a $1,000-an-hour Mayflower Hotel tryst in February -- only
complicated matters. Now people could calculate what they would have done in
Spitzer's shoes.

Spitzer's poor moral, political and legal judgment is beyond question, but
on the delicate question of whether Kristen might have been "worth it," a
host of unusual studies suggest the governor probably would have gotten his
money's worth. The question, as it turns out, has little to do with either
Kristen or prostitution, and nearly everything to do with Spitzer himself.

Specifically, an area of Spitzer's brain known as the medial orbitofrontal
cortex.

This part of the brain makes judgments about pleasure, and intriguing new
research has found that the price people pay for something can subtly and
unconsciously change how much pleasure they derive from it. The medial
orbitofrontal cortex research suggests that, contrary to conventional
wisdom, people who buy something at a discount may unconsciously derive less
satisfaction than people who pay full price, or a premium, for the very same
thing.

"I definitely think it is the same phenomenon with Spitzer," said Baba Shiv,
a Stanford University behavioral economist, who was part of a team of
researchers who studied the medial orbitofrontal cortex. The study was
published in the Proceedings of the National Academy of Sciences.

Shiv and his colleagues studied not prostitution but another domain where
the pleasure that people derive from their purchases is subjective and prone
to personal expectations: wine drinking.

Along with California Institute of Technology neuro-economist Antonio Rangel
and others, Shiv had people evaluate two bottles of wine, priced at $10 and
$90. What the volunteers did not realize was that the wine in the expensive
and cheap bottles was the same.

A host of studies have previously shown that people's judgments about
quality are powerfully influenced by price. Because of a general assumption
that expensive things have higher quality, people have been shown to value
everything from clothing to food more highly when the price is marked up,
compared with when the same items are cheap. Shiv and his colleagues
expected the subjects would say the expensive wine was better, and this was
exactly what they found.

What surprised the researchers, however, was that when they conducted a
brain-imaging study of the wine tasters, they found that people who drank
the more expensive wine had a larger activation in their medial
orbitofrontal cortex.

In other words, the subjects were not reporting that the expensive wine was
better merely because they figured it ought to be better. Rather, they were
actually experiencing more pleasure when they drank a bottle of wine priced
at $90, compared with when they drank the same wine from a $10 bottle.

Shiv called this phenomenon the price-placebo effect, because of its
similarity with the placebo effect in medicine: When people think they are
getting medication but actually get sugar pills, they sometimes experience
the side effects and benefits of the real drug.

Nor is the phenomenon limited to questions of medicine or pleasure. In an
earlier study published in the Journal of Marketing Research, Shiv and his
colleagues presented volunteers with a series of word puzzles. All the
volunteers were given an "energy drink" that was said to boost mental
acuity. The catch was that some volunteers were asked to buy the drink at
full price -- $1.89 -- while the others got the drink at a discount: 89
cents. The researchers made clear the drinks were identical; the people
getting the discount were told the cheaper price was because of a 
bulk purchase.

When asked to unscramble words such as T-U-P-P-I-L (pulpit) and B-E-R-K-A-M
(embark), people who paid full price were able to solve nearly twice as many
puzzles as those who got the discount.

"The price-placebo effect comes from the fact that you form this global
belief that low price equals low quality," Shiv said.

Part of what changes when people pay more is their own psychological
investment. A wine connoisseur who pays extra feels different from someone
who pays less for the same bottle of wine, because the larger financial
investment increases the motivation to be satisfied. Among word-puzzle
solvers, the people who got the energy drink at a discount were more likely
to throw in the towel when the going got tough. Those who paid full price
hung in there -- and their persistence paid off.

The research raises a philosophical question that is at least as interesting
as the salacious Spitzer scandal: If you paid a premium for something, and
as a result derived more pleasure and value from it, does this mean you were
ripped off or that you actually got a better deal than the person who got a
discount?

This mind-bending question prompted Shiv to make an important change in his
own life: He now asks his wife to buy the wine.