PRICELESS

THE MYTH OF FAIR VALUE (AND HOW TO TAKE ADVANTAGE OF IT)

Bright analysis of the psychology of pricing.

Poundstone (Gaming the Vote, 2008, etc.) immersed himself in the young field of behavioral decision theory to write this engaging book about the many irrational factors that influence the prices of things. Founded by University of Michigan psychologist Ward Edwards in the early 1960s, the field has produced insights that are now widely used by price consultants who help corporations “extract the maximum willingness to pay from each consumer.” Prices are simply made-up numbers, writes the author, and most people are clueless about them. Experiments by psychologists at the Oregon Research Institute and elsewhere reveal the many ways to sway people who are estimating monetary values. For example, setting an absurdly high initial, or “anchor,” price on an item (or demanding an exorbitant cash settlement from a jury) will generally lead people to pay more than they might have. In retail stores, obscenely high-priced items (such as a $7,000 handbag) make everything else (such as similar $2,000 handbags) look affordable. Similarly, in another exploitation of the “contrast effect” in prices, more $800 shoes will be sold when $1,200 shoes are displayed next to them. After describing the field’s major researchers and their work, Poundstone devotes most of the book to explaining how behavioral decision-making plays out in the real world, where price numbers are influenced by many irrelevant factors. He explains how supermarkets are able to charge premium prices for “organic” and “green” products; how restaurant menus are designed to draw attention to profitable dishes; how rebates cast a magic spell on consumers, many of whom never submit claims or cash the checks that are sent out; and why the sky’s-the-limit prices charged for text messages are “possibly the greatest ongoing con job of American capitalism.” Online shoppers will be dismayed to learn how background images on websites can affect product choices, and Poundstone provides plenty of useful information for negotiators, car and home buyers, investors and others trying to figure out what to pay.

Readable and revealing.

Pub Date: Jan. 12, 2010

ISBN: 978-0-8090-9469-1

Page Count: 320

Publisher: Hill and Wang/Farrar, Straus and Giroux

Review Posted Online: June 24, 2010

Kirkus Reviews Issue: Oct. 15, 2009

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Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our...

THINKING, FAST AND SLOW

A psychologist and Nobel Prize winner summarizes and synthesizes the recent decades of research on intuition and systematic thinking.

The author of several scholarly texts, Kahneman (Emeritus Psychology and Public Affairs/Princeton Univ.) now offers general readers not just the findings of psychological research but also a better understanding of how research questions arise and how scholars systematically frame and answer them. He begins with the distinction between System 1 and System 2 mental operations, the former referring to quick, automatic thought, the latter to more effortful, overt thinking. We rely heavily, writes, on System 1, resorting to the higher-energy System 2 only when we need or want to. Kahneman continually refers to System 2 as “lazy”: We don’t want to think rigorously about something. The author then explores the nuances of our two-system minds, showing how they perform in various situations. Psychological experiments have repeatedly revealed that our intuitions are generally wrong, that our assessments are based on biases and that our System 1 hates doubt and despises ambiguity. Kahneman largely avoids jargon; when he does use some (“heuristics,” for example), he argues that such terms really ought to join our everyday vocabulary. He reviews many fundamental concepts in psychology and statistics (regression to the mean, the narrative fallacy, the optimistic bias), showing how they relate to his overall concerns about how we think and why we make the decisions that we do. Some of the later chapters (dealing with risk-taking and statistics and probabilities) are denser than others (some readers may resent such demands on System 2!), but the passages that deal with the economic and political implications of the research are gripping.

Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our minds.

Pub Date: Nov. 1, 2011

ISBN: 978-0-374-27563-1

Page Count: 512

Publisher: Farrar, Straus and Giroux

Review Posted Online: Sept. 4, 2011

Kirkus Reviews Issue: Sept. 15, 2011

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Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.

GOOD ECONOMICS FOR HARD TIMES

“Quality of life means more than just consumption”: Two MIT economists urge that a smarter, more politically aware economics be brought to bear on social issues.

It’s no secret, write Banerjee and Duflo (co-authors: Poor Economics: A Radical Rethinking of the Way To Fight Global Poverty, 2011), that “we seem to have fallen on hard times.” Immigration, trade, inequality, and taxation problems present themselves daily, and they seem to be intractable. Economics can be put to use in figuring out these big-issue questions. Data can be adduced, for example, to answer the question of whether immigration tends to suppress wages. The answer: “There is no evidence low-skilled migration to rich countries drives wage and employment down for the natives.” In fact, it opens up opportunities for those natives by freeing them to look for better work. The problem becomes thornier when it comes to the matter of free trade; as the authors observe, “left-behind people live in left-behind places,” which explains why regional poverty descended on Appalachia when so many manufacturing jobs left for China in the age of globalism, leaving behind not just left-behind people but also people ripe for exploitation by nationalist politicians. The authors add, interestingly, that the same thing occurred in parts of Germany, Spain, and Norway that fell victim to the “China shock.” In what they call a “slightly technical aside,” they build a case for addressing trade issues not with trade wars but with consumption taxes: “It makes no sense to ask agricultural workers to lose their jobs just so steelworkers can keep theirs, which is what tariffs accomplish.” Policymakers might want to consider such counsel, especially when it is coupled with the observation that free trade benefits workers in poor countries but punishes workers in rich ones.

Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.

Pub Date: Nov. 12, 2019

ISBN: 978-1-61039-950-0

Page Count: 432

Publisher: PublicAffairs

Review Posted Online: Aug. 29, 2019

Kirkus Reviews Issue: Sept. 15, 2019

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