Publication Date, and a Mystery

Today is the official publication date of Priceless: The Myth of Fair Value (And How to Take Advantage of It). That means Amazon has it in stock, and so should most bookstores. It also means, as with most books nowadays, that someone is already selling used copies on Amazon. No mystery there: Review copies are sent out early, and (underpaid) reviewers often sell their books. The mystery is that one of the used books is selling for $39.99. The brand-new book has a list price of $26.99 and Amazon is currently selling it for $17.81. What would motivate someone to click past the Amazon price to pay more than twice that for a used book? (It's not autographed because, uh, I haven't autographed any copies yet.) I half-wondered whether some robo-resale outfit was confused by the cover, which has a fake price tag with multiple prices — but none of them is $39.99.

How to Convince People That Black is White

For generations, Harvard psychology students were treated to a jaw-dropping classroom experiment. With the aplomb of a magician, Professor S.S. "Smitty" Stevens (1906-1973) would darken the room and reveal a white disk. Then Stevens turned a spotlight on the disk. Instantly, it turned black. Unless you're seen it, the sense of logic turned upside is hard to convey. Perhaps Chico Marx said it best: "Who you gonna believe, me or your own eyes?"
The secret was marvelously simple. The "white" disk was actually gray. Stevens made sure it was the brightest thing in a dark room, and that made it look white. Then Stevens illuminated a ring of (truly) white paper around the gray disk. The white paper was so more reflective that it made the gray look black by contrast.
As Stevens put it in his textbook, Psychophysics, "black is white with a bright ring around it." The Orwellian tone of that must have been intentional. In Orwell's 1984, Big Brother convinces everyone that war is peace, freedom is slavery, and black is white. Stevens managed the same feat (with lighting rather than a cage of rats). His point was that human perception is sensitive to contrasts, not absolute values. Subjectively, it's all relative. (This too is a chilling talking point of Big Brother's minions.)
I write about Stevens (above) in my new book, Priceless. Stevens' studies of perception were an important precedent for behavioral decision theory and the marketing based on it. It turns out that contrasts rule with economic judgments as well as sensory ones. A BMW 3-series may seem expensive until you compare it to a 7-series. Then the 3-series looks, well, reasonably priced. Such contrast effects are a foundation of contemporary marketing. Like it or not, they allow marketers to push our buttons as effectively as Stevens did—to convince us that expensive is cheap, consumption is thrift, and luxury is necessity.
Because Stevens' experiment was so influential, I wanted to find a way to illustrate it within the pages of my book. Obviously, I can't control the lighting of a printed page (though that might be possible with next generation Kindle?). I found the next best thing, an amusing perceptual illusion that works nicely on the page. But this weekend, I came across a strikingly exact counterpart of Stevens' experiment. It's art, not science, specifically a 1966 work, Multiplication Electronique III, by the Argentinian artist Gregorio Vardanega. It's currently at the Museum of Latin American Art, Long Beach, Calif. (through Jan. 24) and is owned by the Cisneros Fontanals Art Foundation, Miami.
The visual trick works perfectly even on my cell phone photos. At top is a typical shot of Vardanega's ever-changing work. You see a four-by-four wooden grid of squares, something like the cardboard grids holding holiday ornaments. Each square cubicle is partitioned (via a 5-by-5 grid) into three concentric smaller squares. Light bulbs switch on and off, illuminating different squares and sub-squares. This produces a sequence of scintillating black-and-white abstractions.
Periodically, all the light bulbs switch off at once. You see the work "in its true light" — that is, in the normal gallery lighting that's been there all along. The whole thing is painted white. The blackness was all in your head.
Stevens' message is that this is not a mere "optical illusion." This is how we all experience the world. It applies to pleasures, pains, and prices — joys and griefs and discounts — and everything.

Decoding Fast-Food Menus

Fast-food menus are among the most rigorously tested products of our consumer culture. Because the decision of what to order for lunch isn't that important in the grand scheme of things, we don't spend much time or thought on it. Instead, we rely on cues in the environment. If your friend mentioned having a barbecue sandwich yesterday, you're more likely to try it today (assuming you like barbecue, and the friend). Memories are short, so the most powerful source of cues is the menu. The prices are designed to get consumers to order more than they might have otherwise.
• The most common trick of fast-food menus is the "combo meal." As everyone understands, the combo meal offers an incentive to order something extra. The burger plus fries plus soda combination costs just pennies more than burger plus soda à la carte. You might as well get the fries — it seems like you're throwing away money not to order it. For most consumers, this is irresistible.
There's another reason fast-food places offer combo meals. They foster confusion. It’s hard to be sure how much the burger costs, and how much the drink costs—and whether it’s too much. So consumers are a bit less price-sensitive with combos. Of course, eventually repeat customers become familiar with the prices of their favorite combos. For this reason, fast-food menus are an ever-changing caloric kaleidoscope. New entrees are offered, and old ones change or vanish. Combos can be super-sized. Do you want curly fries? You can’t buy exactly the same thing you did last time (neither can you compare prices, exactly).
• The Starbucks menu uses the "rule of three." The menu offers three sizes of coffees, given the enigmatic names of Tall, Grande, and Venti. (They're 12, 16, and 20 ounces respectively; 24 ounces for cold Venti drinks, to allow for ice.) Since Starbucks newbies won't know what they're getting, they tend to order the middle choice, Grande. In the psychology literature, this is known as "extremeness aversion" — people instinctively favor a middle choice, figuring it's safer. Guess what? You've just ordered two cups of expensive coffee. The Grande's sixteen ounces is two regular cups. Here's a secret: Most Starbucks will serve you eight ounces of coffee, but you have to ask for a "Short" coffee (which isn't listed on the menu). You have to remember that password "Short": Company policy says that a customer who asks for a "small" coffee is to be given a "Tall" one.
• Anyone who doubts the power of prices ending in 9 should check out a fast-food menu. The menu above, at a Los Angeles Pollo Loco outlet, has 75 prices, and all but one end in the digit "9."
• The exception: a deal offering 10 buffalo wings for $5. Quick: How much is that per wing? It takes most of us a moment to do the math. And that's the point: not many people bother, not with kids screaming in the back seat. But "10 wings for $5" sounds like a better deal than "50 cents a wing."
• Critics have blasted the nutritional value of fast food, causing both the industry and government to take action. Since 2008 New York City has required fast-food places to post calories—in large fonts—on menus. This may or may not have promoted healthier eating. It probably hasn't hurt chain profits, though. The reason is that consumers now have two sets of numbers to juggle: calories and dollars. As many experiments have shown, the human mind has a finite capacity to deal with numerical information. By encouraging diners to pay more attention to calories, the new menus prompt them to pay less attention to prices. That gives chains scope to charge a little more. (Not only that, the salads are among the most expensive things on McDonald's menus, anyway.)

SEE ALSO
Poundstone, William. "Menu Mind Games." New York, December 14, 2009.
Poundstone, William. "Menu Psych." YouTube, 2009.

New York Magazine Excerpt

New York magazine is running an excerpt of my upcoming book Priceless. It tells how to decode menus. Patrons of the New York eatery Balthazar should particularly take note.

The Gender Surcharge

The January 2010 Consumer Reports has an article that's sure to provoke some outrage. "Roam any drugstore and you'll see products that seem to be twins, except for one thing: One is for women, the other for men. We discovered that products directed at women—through packaging, description, or name—might cost up to 50 percent more than similar products for men."
For instance, a can of men's Barbasol shaving cream costs $1.69. A skinnier can of the women's version contains less product yet sells for $2.49. Nivea Body Wash for men is $5.49; the same size container of the women's product is $7.49. A four-pack of Schick Quattro razors is $10.49 for men, $10.99 for women. The biggest difference CU found was for Neutragena eye cream, at $9.99 for the gentlemen and $14.99 for the ladies.
Even when prices seem the same, they're not. Both men's and women's Degree antiperspirant cost $3.59 — but the men's version contains 2.7 ounces, v. 2.6 ounces for the women's. And even when products seem to be different, they may not be. Excedrin Menstrual Complete has the same active ingredients, in the same amounts, as the regular Excedrin. But 20 gel caps of Menstrual Complete runs $6.49, v. $5.99 for 20 gels of the regular pain reliever.
The magazine asked the manufacturers to comment. Their explanations ranged from the half-believable (women shave in the shower, so their shaving cream comes in a more expensive rust-resistant can) to the amusingly ingenious (women's Nivea "has skin-sensation technology.")
Psychologists suspect that gender plays a big role in the prices we pay. It is nonetheless tricky to draw conclusions from the shopping aisle, where there are so many variables. Some of the most compelling experiments have used a simple bargaining game, the "ultimatum game." One person is given $10 to split with another. A split might be "I keep $6 and you get $4." Provided the other person agrees, the money is divided as proposed. But should the other person reject the offer, neither gets anything. Think of a vendor in a bazaar setting a price. He want to keep as much profit as possible for himself by naming a high price. But if he demands too high a price, the customers will walk away.
In a typical ultimatum game, the splitter keeps a little more than half of the $10, and the other person OKs the deal. Psychologist and behavioral economist Sara Solnick, now at the University of Vermont, did a clever version of the game focusing on gender. The players sat on opposite sides of a partition and could not see each other. One group learned the first name of their partner and thus knew the partner's gender. Another group never heard names and had no idea whether they were playing with a man or a woman.
The splitters who didn’t know their partner's gender offered an average of $4.68 out of $10. But for those who knew their partner was a man, the average offer was a more generous $4.89. When they knew they were dealing with a woman, the average was only $4.37.
Solnick also had players state the minimum offer they would accept. This minimum was higher when they knew their partner was female. Women got the short end of the stick, no matter which role they played.
It's possible that similar dynamics apply in the supermarket aisle. Women's products may cost more because women are a little less price-sensitive than men. Is that unfair? Maybe, but Solnick's experiment leaves little scope for anyone to feel morally superior. Her subjects were college kids too young to remember a pre-feminist past. They probably would have loudly rejected a sexual double standard, had they been asked. But they had no idea this experiment was "about" gender. Both women and men unconsciously set higher "prices" for female partners.
That underlying psychology poses some difficult challenges to our would-be egalitarian society. What's to be done when people who aren't sexist unknowingly act as if they were? It's a question we'll probably be wrestling with for years to come.
As usual, Consumer Reports has this sensible advice for shoppers: Ignore the gender marketing and buy whatever is cheaper.

SEE ALSO
Solnick, Sara (2001). "Gender Differences in the Ultimatum Game," Economic Inquiry, April 2001, 39(2): 189-200.

Double Take

Some readers may be wondering why the cover of my new book, Priceless, looks something like that of Chris Anderson's recent book Free. Did my publisher rip off the Free design? Short answer: no.
"It takes as long to make a book as to make a baby." That was the wry industry maxim back when publishers took three-martini lunches and Bennett Cerf was a panelist on What's My Line?. From finished manuscript to physical books took nine months. For reasons mysterious to almost everyone, the digital age hasn't speeded things up one iota. You might think that, now that manuscripts don't have to be rekeyed by typsetters, they could have shaved it to, oh, eight months? Nope. It's still nine. Anyway, the Priceless cover was created a couple of months before Free came out — notwithstanding the fact that Priceless is being published in January, six months after the Anderson book.

We started bouncing around ideas for a cover in April 2009. Publisher Thomas LeBien had the notion of putting a fake price on the jacket and having it "marked down" to the real price. By the end of May, the artist had developed this idea into the cover you see above. Hill and Wang had had success with a trompe l'oeil cover for my Fortune's Formula (left). The fake roulette chips made people want to pick up the book, and maybe that had something to do with the book's success. The Priceless design continued this theme with a very realistic pricetag projecting from a clothbound volume (this is all a printed jacket, of course). I loved the cover, and so did seemingly everyone who saw it. It was quickly approved and went out in the Hill and Wang catalogs.
Then on June 24, I saw a piece in the Los Angeles Times about Anderson's book, with an illustration of the cover. I e-mailed my editor, Joe Wisnovsky, and after due editorial handwringing, it was decided to stick with the cover we all liked. The reasoning was:
• The books are being published six months apart, and that makes it a bit less awkward.
• The two books' subject matter is quite distinct. Priceless is about the hidden psychology of prices, and Free is about giving away free content in the Internet, to promote the sale of something else.
• As mortifying as this might be to us (we thought we were so original!), it's not such a big deal with book buyers. Many won't notice, anyway.
• Some Chris Anderson fans might falsely assume that Priceless is a follow-up or response to Free. It's not, but if they want to buy it, it's a free country.
• Mainly, we just thought the cover worked and there was no point in switching to a less appealing cover to avoid an honest coincidence. The verisimitude is amazing, particularly in the actual object. Joe Wisnovsky showed both covers, side by side, to his brother-in-law, a French architect and talented amateur artist. He pronounced ours far more intriguing and eye-catching. Okay, it's like passing around baby photos — I'm sure that Chris Anderson likes his cover better. But I think it's a cool cover.
Just in case you're wondering, the hardcover version of Free costs $29.99, and Priceless is $26.99. Yes, that's another similarity: both use charm prices (ending in "9").

How Much for a Can of Whoop Ass?

How much would you pay for a can of Whoop Ass? Regular Facebook users will recognize the Whoop Ass as a popular "virtual gift" in the networking site's Gift Shop. The price is 10 credits. That's $1 in Earth money. For the same price, you can buy a rose, a slinky, a troll doll, or your favorite team's mascot — all virtual. They're nothing more than icons you can post on a friend's page — pixels with a price tag. The surprising thing is how big the virtual goods industry has become. Merchandise-that-isn't-really-there is one the few bright spots in a dismal economy. By one estimate it brings in a billion dollars a year, just in the U.S. To put it in perspective, that's roughly what Americans spend on lipstick or Mini Coopers.
It wasn't so long ago that virtual goods were limited to "weapons" and "spells" that hardcore gamers bought, to the befuddlement of most everyone female or over 30. That started to change with Second Life, the networked simulation game. The currency of Second Life is called "Linden Dollars," with about L$266 to the U.S. Dollar. By that standard, many prices in Second Life are bargains. A Linden Dollar will buy a new hair style or tattoo for your avatar. That sounds really great, until you try to explain to a nonplayer exactly what it is you bought.

One of the attractions of Second Life is that you can play for free. You quickly discover that this is like saying you can live in Manhattan for free — by sleeping on friends' couches. Your Second Life avatar will be homeless unless you fork over $9.95 a month (real dollars) to get a premium account with 512 square meters of land. That's about enough for a small tract house. Intentionally or not, much of Second Life is a dead-on caricature of our society's obsession with real estate. The point of Second Life is to impress your virtual friends, and that generally means building a virtual McMansion. Larger properties are available for sale or auction and yes, there are Second Life home flippers.
"For outsiders, the selling of virtual goods — items with no actual value in the real world — might seem the very definition of a swindle," wrote Claire Cain Miller and Brad Stone in The New York Times. Actually, the virtual product business says a lot about the real-world price decisions we all make. The products may be imaginary but buyer psychology is pretty much the same.

The virtual merchants use a trick familiar to every world traveler. Confronted with an unfamiliar currency, we all splurge and tip more freely than we would, blinded by a smokescreen of exchange rates and prices strictly for tourists. To Americans overseas, yen or lira just don't seem like "real money." That's the reason for the virtual currencies. We normally feel a conflict between the desire to spend and the obligation to save. Spending is fun, and saving is what we do because we'll feel guilty otherwise. But once you buy Linden dollars, credits, or other virtual currencies, you're committed to spend. What else are they for? It's difficult to convert virtual currencies back to real money, and nobody feels a pang of guilt about not squirreling Linden dollars away in a 401(k). The exchange rates of virtual currencies are often intentionally confusing. To convert Linden dollars to U.S. dollars, you have to divide by 266. Much of the time, that's just too much bother. Instead, Second Lifers think in Linden Dollars, which is to say, they take cues from the prices they see posted in the virtual world. Your friend buys an island, and you want an island. It's only money — and fake money, at that.