Notes
1. The $2.9 Million Cup of Coffee
- “Stella Awards”: See www.stellaawards.com.
- “defective”: Gerlin 1994.
- 180 to 190 degrees: Marinello 1995.
- Settled for less than $600,000: Robbennolt and Studebaker 1999, 354.
- Negotiations with McDonald’s, settlement amounts: Gerlin 1994.
- “The jar used to have”: Marketplace radio show, American Public Media, Jan. 8, 2009. Available at marketplace.publicradio.org/display/web/2009/01/08/pm_deceptive_packaging/?refid=0.
- New Skippy jar has 16.3 ounces: Consumer Reports, Jan. 2009, 63.
- physics degree from the University of Chicago: www2.simon-kucher.com/partners/frank-luby.html.
- Kellogg’s phased in thinner boxes: Hirsch 2008.
- Zest shrinkage: Consumer Reports, Oct. 2008, 63.
- Puffs shrinkage: Consumer Reports, Aug. 2008, 67.
- sixty Ph.D.s: Frank Luby, e-mail, Jan. 29, 2009.
- SKP history, party at castle: www2.simon-kucher.com/SimonKucher_2008.pdf.
- SKP clients: www2.simon-kucher.com/clients/.
2. Price Cluelessness
- Coherent arbitrariness: See Ariely, Loewenstein, and Prelec 2003.
- FREE $ HERE: Southern 1960, 25.
- “At the time, it was not considered”: Kahneman, interview August 30, 2008.
- Wheel-of-fortune study: Tversky and Kahneman 1974, 1128.
- 23 percent: About 45 of the 192 U.N. member nations are African, counting Madagascar and Cape Verde. See www.un.org/members/list.shtml.
- “The default reaction”: Kahneman, interview August 30, 2008.
- San Francisco, Beatles questions: See Orr and Guthrie 2006, 597, quoting an unpublished study by George Quattrone et al., cited in Plous 1993.
- “a number in people’s heads”: Wilson, Houston, et al. 1996, 397.
- “We suggest that because anchoring effects”: Ibid., 398.
- “Cheap seats don’t sell”: www.talkinbroadway.com/rialto/past/1999/8_5_99.html.
- $480 tickets for The Producers: Finn 2003.
- “I now scale all the Orchestra”: www.talkinbroadway.com/rialto/past/1999/8_5_99.html.
- “advertisers and used-car salesmen”: Stanford University News Service 1996.
- “old hat to marketing experts”: Cox 2005, 375.
- “Many people like myself”: Johnson, interview Sept. 9, 2008.
3. The Myth of the Boomerang
- This discussion of the legal ramifications of anchoring is indebted to Orr and Guthrie 2006.
- Damage awards: Malouff and Schutte 1989, 495.
- “boomerang effect”: Malouff and Schutte 2001, 492.
- Results of Chapman and Bornstein study: In the paper, the awards are expressed as natural logarithms of the award amounts. I have converted them to dollar amounts.
- “almost constantly in pain”: Chapman and Bornstein 1996, 540.
- “How likely is it”: Ibid., 524.
- increased modestly with the size of the award: This was significant only at the p<0.09 level (meaning, there’s a 9 percent chance this result could have been the result of chance alone).
- “entrepreneurs”: Marinello 1995.
- “The More You Ask For”: Chapman and Bornstein 1996.
- Jurors should not directly set damage awards: Kahneman, Schkade, and Sunstein 1998; see also Kahneman, Ritov, and Schkade 1999.
- Birds dying in oil pools: Desvousges, Johnson, Dunford, et al. 1992; see also Kahneman, Ritov, and Schkade 1999.
4. Body and Soul
- Description of optometrist experiment: Glanz and Lipton 2003, 138–41.
- “Would you please come over here”: Ibid., 138–40.
- “So I began to think”: Benson 2003.
- Fake optometrist office credited with saving lives: Ibid.
- S. S. Stevens biography: Miller 1975.
- “I was directed to Dr. Stevens’s office”: Ibid., 429.
- “Psychophysics is an exact doctrine”: Fechner 1966, 8.
- “Carving Meat and Setting the Table”: Heidelberger 2004, 43.
- “But then I ruined my eyesight”: Fechner’s autobiographical note is translated in ibid., 322.
- “People called Fechner a fool”: quoted in ibid., 323.
- Little Book on Life After Death: See ibid., 44.
- “How much stronger or weaker”: quoted in Stevens 1975, 59.
- Plateau biography: Ibid., 7; en.wikipedia.org/wiki/Joseph_Plateau.
- power curve rule can be stated in seven words: Stevens 1975, 16.
- “As an experimental fact”: Ekman and Sjöberg 1965, quoted in Stevens 1975, 266.
5. Black Is White
- “tell us how matters stand out there”: Stevens 1975, 18.
- “For example, is it the differences”: Ibid., 18.
- “The print in this book looks black”: Ibid., 79.
- Category and magnitude scales: There is a concise, nontechnical discussion of response scales in Kahneman, Schkade, and Sunstein 1998, 53–55. See also Stevens 1975.
- suggested that he try dispensing with the modulus: Stevens 1975, 26–27.
- “I liked the idea”: Stevens 1975, 28.
- “Black is white”: Ibid., 79. See also the description of this demonstration in Stevens 1961, 85–86.
6. Helson’s Cigarette
- “amateurish experiments”: Guildford 1979, 628.
- “he did have several experiences”: Bevan 1979, 155.
- Experiments with weights: Helson 1947.
- Fechner and Holbein Madonna: Stevens 1975, 228.
- “Instead of asking students”: quoted in ibid.
- “The fact is that common principles exist”: Hunt 1941, 395.
- Contrast and assimilation: Ibid., 401.
- “recency, frequency, intensity”: Avant and Helson 1973, 440.
7. The Price Scale
- “Smitty was a close man with a dollar”: Miller 1975, 431.
- “Suppose I were to tell you”: Stevens 1975, 6.
- $35 to $50: Ibid.
- Indow study: Ibid., 235–37.
- Social status: Ibid., 244–45.
- Seriousness of theft: Ibid., 258–59.
8. Input to Output
- Mob types: See Tuohy 2001. Goffstein took over the Riviera after his boss, Gus Greenbaum, was murdered by the Chicago mob (apparently).
- Murphy biography: See Wikipedia entry, “Charles B. G. Murphy,” en.wikipedia.org/wiki/Charles_B._G._Murphy. Murphy’s Wood Kalb Foundation also supported psychiatry at Yale.
- He came up with Ward Edwards: Paul Slovic interview, July 1, 2008.
- Murphy asked to use the Four Queens for experiments: Phillips and von Winterfeldt 2006.
- “revealed preference”: See Samuelson 1947.
- “impossible for the behavior”: Simon 1945, 79.
- “How any grown-up”: quoted in Mirowski 2002, 454.
- “Do you think the ratio”: Phillips and von Winterfeldt 2006.
- “was nutty”: Barbara Tversky interview, July 8, 2008.
- “occasional colorful and forthright behavior”: Phillips and von Winterfeldt 2006.
- “Ruth’s excellent, if often exotic cooking”: Ibid.
- Paper titled “Behavioral Decision Theory”: Edwards 1961.
- (“a marvelous person”): Lichtenstein interview, July 28, 2008.
- “was actually interested in the economic theories”: Ibid.
- “comparing incomparables”: cited in Goldstein and Einhorn 1987, 250.
- “Always choose the bet”: Edwards 1961, describing “A Study of Decision Making Under Risk” by C. H. Coombs and D. G. Pruitt, published 1960 as Report No. 2900-33-T of the Willow Run Laboratories, University of Michigan, Ann Arbor.
- 1954 Psychological Bulletin article: Edwards 1954.
- “The method of those theorists”: Ibid., 381.
- “a pale wraith of a creature”: Heilbroner 1999, 37.
- “Von Neumann and Morgenstern”: Edwards 1961, 474.
9. Lunch with Maurice
- Econometrica article: Allais 1953. For another influential challenge to Savage’s axioms, see Ellsberg 1961.
- Zeckhauser conceived Russian roulette as example of certainty effect: Kahneman and Tversky 1979, 283.
- “His paradox was great”: Anonymous interview and e-mail.
- (“As a matter of fact”): Allais 1995, 252, 254.
- Mark Machina’s website: econ.ucsd.edu/~mmachina/.
- “We choose between descriptions of options”: Tversky 1996, 7.
10. Money Pump
- “When we had written it up”: Lichtenstein interview, July 28, 2008.
- Article with Slovic’s name first: Slovic, Lichtenstein, and Edwards 1965.
- “I sort of followed hubby around”: Lichtenstein interview, July 28, 2008.
- “It was a terrific inducement”: Ibid.
- “I remember we were in Paul’s office”: Ibid.
- 127 subjects always reversed: Lichtenstein and Slovic (eds.) 2006, 54.
- “These reversals clearly constitute”: Ibid., 63.
- endowment effect: The term was coined in Thaler 1980.
- A 10/12 chance of winning $9: Lichtenstein and Slovic (eds.) 2006, 71.
- “If the odds were . . . heavier”: Ibid., 48.
- “The strain of amalgamating different types of information”: Ibid., 76.
- Audio recording on the Web: The audio is on the Decision Research website at www.decisionresearch.org/mp3/PreferenceReversalInterview.mp3.
- “I see. Well, how about the bid for Bet A?”: Lichtenstein and Slovic (eds.) 2006, 65.
- “Well, now let me suggest”: Ibid., 67.
- “just to make myself look rational”: Ibid., 68.
11. The Best Odds in Vegas
- “Roulette Bet,” “designed by scientists,” “A 25-cent bet”: Purcell 1969.
- “one of the few decision-making experiments”: Ibid.
- “angel” . . . “perfect for Vegas”: Lichtenstein interview, July 28, 2008. Other experiments done at the Four Queens include Goodman, Saltzman, Edwards, Krantz (1979) and unpublished work by Slovic and Lichtenstein (Paul Slovic, e-mail Jan. 28, 2009).
- Pearson . . . had read Edwards’s work: Phillips and von Winterfeldt 2006.
- occupied a balcony: Purcell 1969.
- Profits to go to a home for unwed mothers: Ibid. Paul Slovic (e-mail, Jan. 28, 2009) is unsure whose idea this was. He doubts there were any profits after expenses.
- Game unpopular, Ponticello wanted to improve: Slovic interview, July 1, 2008.
- “The results of this experiment”: Lichtenstein and Slovic 2006, 75.
- “There is a natural concern”: Ibid.
- “I call them as I see them”: Tversky and Thaler 1990, 210.
- “It would be an overstatement”: Lichtenstein and Slovic 2006, xvi.
- “Each of the blind men was partly right”: See Wikipedia entry, “Blind Men and an Elephant,” en.wikipedia.org/wiki/Blind_Men_and_an_Elephant.
12. Cult of Rationality
- “If you can’t talk about a preference”: Lichtenstein interview, July 29, 2008.
- “The first time I talked about it”: Lichtenstein interview, July 28, 2008.
- “I was very young”: Camerer interview, Nov. 28, 2008.
- “would get taken advantage of in the markets”: Ibid.
- Economics and “irrationality”: This capsule history is indebted to the more detailed account in Laibson and Zeckhauser 1998.
- “to discredit the psychologists’ work”: Grether and Plott 1979, reprinted in Lichtenstein and Slovic 2006, 77.
- “We knew Charlie Plott”: Lichtenstein interview, July 29, 2008 79 “Plott is pretty good at spotting”: Camerer interview, Nov. 28, 2008.
- “In a very real sense”: Grether and Plott 1979, reprinted in Lichtenstein and Slovic 2006, 85.
- “Unsophisticated Subjects,” other hypotheses: Grether and Plott 1979.
- “amplifier”: Colin Camerer’s word, in Camerer interview, Nov. 28, 2008.
- Admiring letters from cranks: Ibid.
13. Kahneman and Tversky
- Moshe Dayan witnessed drill: Barbara Tversky, interview July 8, 2008.
- Panicked soldier saved by Tversky: Everyone tells a slightly different version of this heroic act. This account is based mainly on Daniel Kahneman’s account in Stanford University News Service 1996.
- “Amos was something special”: Sarah Lichtenstein interview, July 30, 2008.
- “You were happy”: Stanford University News Service, “Amos Tversky, leading decision researcher, dies at 59” (June 5, 1996).
- Tversky biography: Stanford University News Service 1996; Barbara Tversky interview, July 8, 2008.
- “The story is”: Barbara Tversky interview, July 8, 2008.
- “surprised everyone”: Ibid.
- “He didn’t like to learn”: Ibid.
- “Growing up in a country”: Stanford University News Service 1996.
- Psychology department massacre; Amos one of first to get degree: Barbara Tversky interview, July 8, 2008.
- Quiet, unsure about English: Paul Slovic interview, July 1, 2008.
- English language of “enemy”: Barbara Tversky interview, July 8, 2008.
- “a little mechanical”: Ibid.
- “Amos’s writing was perfect”: Ibid.
- “I remember walking home with him”: Ibid.
- “life-changing event”: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.
- “I will never know”: Ibid.
- leadership test with telephone pole: Ibid.
- “The story was always the same”: Ibid.
- “most significant intellectual experience”: Ibid.
- “It was a remarkably honest”: Ibid.
14. Heuristics and Biases
- “People’s intuitions”: Tversky and Kahneman 1971, 106.
- Tossed coin to determine name order: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.
- “There was a lot of irony”: Kahneman interview, August 30, 2008.
- “In his presence”: Kahneman Nobel autobiography.
- “was the opposite of Danny”: Barbara Tversky interview, July 8, 2008.
- “a pile of money”: Kahneman interview, August 30, 2008.
- “by far the most productive”: Kahneman Nobel autobiography.
- “They were so verbal”: Lichtenstein interview, July 29, 2008.
- “Linda is 31 years old”: Tversky and Kahneman 1983, 297.
- “Linda is a bank teller”: Ibid.
- “a series of increasingly desperate manipulations”: Ibid., 299.
- “Argument 1. Linda is more likely”: Ibid.
- “I thought you only asked”: Ibid., 300.
- Words with r: Tversky and Kahneman 1974, 1127.
- “the easiest to demonstrate”: Strack and Mussweiler 2003, quoted in Orr and Guthrie 2006, 600.
- “Amos and I didn’t quite agree”: Kahneman interview, August 30, 2008.
- Tversky explanation of anchoring: Quattrone, Lawrence, Finkel, and Andrus 1984.
- Einstein question: Strack and Mussweiler 1997, 442.
- clutching at straws, “conversational hint”: Jacowitz and Kahneman 1995, 1162.
- “I didn’t know about priming”: Kahneman interview, August 30, 2008.
15. The Devil’s Greatest Trick
- “When it comes to our behavior”: Carey 2007.
- “Anchoring effects are . . . caused by the fact”: Transcript of 2008 Edge Master Class, www.edge.org/documents/archive/edge253.html.
- “What I tell you three times”: Carroll 2006.
- “There are many, many arbitrary numbers”: Wilson, Houston, et al. 1996, 389.
16. Prospect Theory
- “I would go batty”: Barbara Tversky interview, July 8, 2008.
- “interesting choices”: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.
- Tversky’s idea to put a negative sign on amounts: Kahneman Nobel autobiography.
- “We reasoned that”: Ibid.
- “Our perceptual apparatus”: Kahneman and Tversky 1979, 277.
- “extends to the domain of moral intuitions”: Kahneman Nobel autobiography.
- Loss aversion in real estate: Ibid.
- Loss aversion their greatest contribution: Ibid.
- “The major points of prospect theory”: Lambert 2006.
- the most cited article ever to appear in Econometrica: Laibson and Zeckhauser 1998, 8, which finds 1,703 citations.
- Merckle suicide: Moulson 2009.
- “Humans did not evolve to be happy”: Camerer, Loewenstein, and Prelec 2005, 27.
- “Many of the losses people fear most”: Camerer n.d. (“Three cheers—psychological, theoretical, empirical—for loss-aversion”), 9–10.
17. Rules of Fairness
- “spend a lot of money honestly”: Kahneman, Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.
- Russell Sage biography: Sarnoff 1965. The amount of Sage’s fortune was never made public, according to Sarnoff. Estimates range from $63 million to over $100 million.
- “the improvement of social and living conditions”: Russell Sage Foundation website, www.russellsage.org/about/history.
- “That was the year”: Kahneman interview, August 30, 2008.
- “rules of fairness”: Kahneman, Knetsch, and Thaler 1986a, 729.
- “A hardware store has been selling”: Ibid.
- Football team question: Kahneman, Knetsch, and Thaler 1986b, S287.
- “A severe shortage of Red Delicious apples”: Kahneman, Knetsch, and Thaler 1986a, 734.
- “We had a very good time”: Kahneman interview, August 30, 2008.
- “A company is making a small profit”: Kahneman, Knetsch, and Thaler 1986a, 731.
- Discontinuing 10 percent bonus: Ibid., 732.
- “Conventional economic analyses”: Ibid., 735; “the gap between the behavior”: Ibid., 731.
18. Ultimatum Game
- Plautus dates; earliest complete works of Latin: See E. F. Watling’s introduction to Plautus 1964, 7–8.
- “TRACHALIO: Right, then; listen”: Plautus 1964, 131.
- “The only share you’re going to get”: Ibid., 133–34.
- “We were very pleased with the ultimatum game”: Kahneman interview, August 30, 2008.
- “My brother and I”: Güth e-mail, August 13, 2008.
- “That would have been overkilling”: Strategic Interaction Group 2002.
- “the easiest nontrivial”: Güth, Schmittberger, and Schwarze 1982, 370.
- “Are those students in Cologne stupid?”: Strategic Interaction Group 2002.
- “being quite crestfallen”: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.
- “All our questions on fairness”: Kahneman interview, August 30, 2008.
- (“If the other player offers you $0.50”): Thaler 1988, 197.
- average $4.50 offered: Kahneman, Knetsch, and Thaler 1986b, S291. The authors report three subsamples. For simplicity, I’ve averaged the three results (weighted by the number of subjects in each).
- “It’s the resentment”: Kahneman interview, August 30, 2008.
- “The thing that’s truly bewildering”: Ibid.
- “Is the Ultimatum Game the Ultimate Experiment?”: Halevy and Peters 2007.
- “money alone does not rule the world”: Güth e-mail, August 13, 2008.
- “Something special had to happen”: Kahneman interview, August 30, 2008.
- Boulware’s negotiation strategy: See Boulware 1969.
19. The Vanishing Altruist
- “If you stop construction of that skyscraper”: Finch 2007; Lyons 1993.
- Influence peddling conviction: Lyons 1993.
- “resistance to unfairness”: Kahneman, Knetsch, and Thaler 1986b, S288.
- The definitive dictator game experiment: Hoffman, McCabe, Shachat, and Smith 1994.
- less to do with altruism than with manners: Camerer and Thaler 1995.
20. Pittsburgh Is Not a Culture
- “My Israeli game theory professor”: “Mind your decisions” (blog) at mindyourdecisions.com/blog/2008/01/15/game-theory-tuesdays-the-ultimatum-game-and-hollywood/.
- Four-city study: Roth, Prasnikar, Okuno-Fujiware, and Zamir 1991.
- 40 percent among Israelis: Robinson 2007, 7.
- “visibly upset” . . . “I did not earn any money”: Zamir 2000, 5.
- “Pittsburgh is not a culture”: Camerer interview, Nov. 28, 2008.
- “We both expected the Machiguenga”: Siegfried 2004.
- “That’s actually a tricky thing”: Camerer interview, Nov. 28, 2008.
- 44 percent average offer for Orma: Siegfried 2004.
- a cultural X-ray: Ibid.
- “Offering too much money”: Ibid.
- “Adam Smith had this famous quote”: Camerer interview, Nov. 28, 2008. I’ve corrected Camerer’s extemporaneous (and near-exact) quotation from Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations.
- Chimp experiment: Jensen, Call, and Tomasello 2007.
- “It thus would seem”: Ibid., 109.
21. Attacking Heuristics
- “I don’t know how much [Amos] anticipated”: Barbara Tversky interview, July 8, 2008.
- “I am not really interested in the psychology of stupidity”: Kahneman, Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html. For more reactions from philosophers (and others) see Cohen (1981) and comments.
- “Human incompetence”: Lopes 1991, 67.
- “evident exasperation”: Ibid., 76.
- “woefully muddled”: Ibid., 65, quoting an unidentified Newsweek article.
- Gigerenzer’s critiques: Gigerenzer 1996.
- “Gigerenzer was lying”: The speaker requested anonymity.
- “costly”: Edwards 1954, 382.
- “incoherence is more than skin deep”: Tversky and Kahneman 1983, 313.
- a “lapse in judgment” to be “cured”: Camerer interview, Nov. 28, 2008.
- Could not drive cars: Edwards 1975, 292.
- “We frequently hear about human memory limitations”: Ibid., 292.
- “Not only did he not embrace it”: Kahneman interview, August 30, 2008.
22. Deal or No Deal
- Told few people; died three weeks after stopping going to office: Barbara Tversky interview, July 8, 2008.
- nobody in their right mind would reject $10 or $20: Hoffman, McCabe, and Smith 1996, 292.
- “Don’t be a maryter”: Ibid., 293 (footnote).
- “almost appears to be designed”: Post, van den Assem, Baltussen, and Thaler 2008, 39.
- Average prize value of $131,477.54: This is computed from the 26 prizes of $0.01, $1, $5, $10, $25, $50, $75, $100, $200, $300, $400, $500, $750, $1,000, $5,000, $10,000, $25,000, $50,000, $75,000, $100,000, $200,000, $300,000, $400,000, $500,000, $750,000, and $1 million.
- 76 percent for expected utility v. 85 percent for prospect theory: Post, van den Assem, Baltussen, and Thaler 2008, 27.
- “as closely as possible in a classroom”: Ibid., 29.
- “a person who has not made peace with his losses”: Tversky and Kahneman 1979, 287.
23. Prices on the Planet Algon
- “Here an ordinary cup of drinking chocolate”: “Prices on the Planet Algon” sketch from Episode 35 of Monty Python’s Flying Circus (first aired 1972). See montypython.50webs.com/scripts/Series_3/76.htm.
- “relatively inexpensive!”: Ibid.
- “I was thinking about what I wanted”: Ariely interview, Jan. 9, 2009.
- MIT auction experiment: Ariely, Loewenstein, and Prelec 2003.
- Injury, pain of removing bandages: Ariely (n.d.), “Painful Lessons.”
- reading the work of S. S. Stevens and others: Ariely interview, Jan. 9, 2009.
- the price of everything and the value of nothing: Wilde used this phrase at least twice, in The Picture of Dorian Gray (1891) and Lady Windermere’s Fan (1892). In the latter, the quote is “What is a cynic? A man who knows the price of everything and the value of nothing.”
- “Suppose that a subject”: Ariely, Loewenstein, and Prelec 2003, 77–78.
- “Coherent Arbitrariness” paper: Ibid.
- “In a few moments we are going to play”: Ibid., 80–81.
- “pain threshold”: Ibid., 93.
24. The Free 72-Ounce Steak
- FREE 72 OZ STEAK: See numerous photos on Flickr.com.
- the signature dish of the Big Texan Steak Ranch: See Wikipedia entry for “The Big Texan Steak Ranch,” en.wikipedia.org/wiki/The_Big_Texan_Steak_Ranch.
- “You don’t have to eat the fat”: See “Free 72 Oz. Steak” at www.bigtexan.com.
- Simpsons episode about 256-oz. steak: “Maximum Homerdrive” episode, originally aired 1999.
- Original price $9.95, success rates: See “Free 72 Oz. Steak” at www.bigtexan.com.
- Questions about meat consumption: Jacowitz and Kahneman 1995, 1163.
- 35 percent discount on a Nikon camera: Hermann Simon interview, Feb. 24, 2009.
- “willingness to pay”: Simon 2008, 214.
- “Imagine that you are about to purchase a jacket”: Tversky and Kahneman 1981, 459.
- “Why are we more willing”: Thaler 1999, 186.
- “What we’re saying”: Transcript of 2008 Edge Master Class, www.edge.org/3rd_culture/thaler_sendhil08/thaler_sendhil_index.html.
- Professional Pricing Society, founded in 1984: See the PPS website, pricingsociety .com/Page4782.aspx.
- Skeptical about the application of behavioral theory: See Simon 2008, 212, where he calls Thaler’s “mental accounting” model a “flop” for business applications.
- Pack of Wrigley’s gum first item scanned: See Wikipedia entry for “Universal Product Code,” en.wikipedia.org/wiki/Universal_Product_Code.
- Simon-Kucher & Partners history: Hermann Simon interview, Feb. 24, 2009.
- “Indeed, retail pricing software”: Michaud n.d., 5.
- “Pricing is a dangerous lever”: Tacke and Luby n.d., 9.
- increases profit margins by about 2 percentage points: Simon 2008, 215.
- 1 to 4 percent: Michaud n.d., 5.
25. Price Check
- “There’s an opportunity to make some margin back”: Rendon 2009.
- Counterclockwise shoppers spend more: Keller 2007.
- “If you want to get my attention”: CBC News 2000.
- Beer riddle: Thaler 1983.
- “investing in seemingly superfluous luxury”: Ibid., 231.
- Duke University beer experiment: Huber and Puto 1983, 42.
- Taste tests show beer drinkers can’t distinguish brands: Try Googling “beer blind taste test.” See for instance www.strandbrewers.org/reviews/blind98.htm.
- “safe,” a “compromise” choice: Huber and Puto 1983, 38.
- “less extreme, less expensive”: Ibid., 39.
26. Shilling for Prada
- “You sold one thing”: Binkley 2007.
- “with 322 black diamonds”: Robb Report, Dec. 30, 2008, and www.hublot.com.
- Eva Longoria photographed with Coach python bag: See www.purseblog.com/coach/eva-longoria-style-coach-python-miranda.html.
- “a mixture of anger and happiness”: Binkley 2007.
- Breadmaker story: Shafir, Simonson, and Tversky 1993.
- two commandments of manipulative retail: Simonson and Tversky 1992.
- “Contrast effects are ubiquitous”: Ibid., 281–82.
- “Luxury goods prices”: Von der Gathen and Gersch n.d.
- Coach allots only one or two ultra-expensive bags: Binkley 2007.
- over $1,700 per square foot: At its 2001 opening, Prada’s SoHo store was said to have cost $40 million for 23,000 square feet. See www.galinsky.com/buildings/prada/ index.htm.
- Prada website: www.prada.com. These figures are from the U.K. online store.
27. Menu Psych
- “Daniel Boulud has a restaurant”: O’Dell interview, March 5, 2009.
- Boulud hamburger, competitors: Wharton 2008; see also the db bistro moderne website at www.danielnyc.com/dbbistro.html.
- “Places like Chili’s and Applebee’s”: Coomes 2005.
- Stars, puzzles: Hedden 1997.
- “If you do this with three menu items”: Walkup 2006.
- “By discounting the third item”: Ibid.
- $13 for two scallops: Thaler 1999, 192 (footnote).
- “The menu turns into a price list”: O’Dell interview, March 5, 2009.
- Scrap the leader dots: Hedden 1997.
- “We don’t want to take it off the menu”: Ibid.
28. The Price of a Super Bowl Ticket
- Super Bowl ticket lottery, rules: www.teamonetickets.com/tickets-101/super-bowl-tickets-lottery.html.
- “fair, reasonable price”: Krueger 2001.
- “virtually screams for non-linear pricing structures”: Butscher, Luby, Weber, and Polonetsky n.d., 6.
- Krueger survey: Krueger 2001.
- Members of the Miley Cyrus Fan Club: AP news story, “Hannah Montana Tickets Fuel Lawsuit,” Nov. 13, 2007.
- “Mommy get me tickets”: “Craig P” comment to ibid.
- One women won an essay contest: “Mom Goes Too Far for Hannah Montana Tix,” ABC News, Dec. 31, 2007.
- Springsteen and Ticketmaster: Phillips 2009.
- “transaction utility”: Thaler 1983, 230.
- MRI experiment: Sanfey, Rilling, Aaronson, et al. 2003.
- “The fact that unfair offers activate”: Camerer, Loewenstein, and Prelec 2005, 48.
29. Don’t Wrap All the Christmas Presents in One Box
30. Who’s Afraid of the Phone Bill?
- Justine Ezarik’s August bill: www.youtube.com/watch?v=UdULhkh6yeA.
- “With more than 3 million customers every year”: Simon 2008, 213, says that ticket prices were $5.50 before and increased to an average of $6.13 paid per ticket.
- “Companies need to answer several questions”: Tacke and Luby (n.d.), 10–11.
- $3.02 a minute: Lazarus 2009.
- Netflix prices: See Netflix website, www.netflix.com/Help?action=2&jsEnabled=false&faqtrkid=5&p_faqid=107&p_search_text—embership.
- Academic studies of causes of flat-rate bias: See Lambrecht and Skiera 2006.
- the average ticket price paid went up 11 percent: Simon 2008, 213.
- “Such improvements are not possible”: Ibid., 214.
31. Breakage and Slippage
- About a third of all computer gear comes with rebates: Grow 2005.
- Sperry and Hutchinson Green Stamps history: See www.straightdope.com/columns/read/1940/whatever-happened-to-green-stamps.
- “The game is obviously”: Grow 2005.
- “If you are using another fulfillment company”: Ibid.
- “further research” . . . “special team”: Ibid.
- a face value of $6 billion: Ibid.
- “silver lining”: Thaler 1985, 202.
- “Mr. A’s car was damaged”: Ibid., 204.
32. Paying for Air
33. Cheap and Cheaper
- “If I have 2,000 customers”: Meckes, Krohn, and Butscher n.d., 5.
- Analysis of bargain airlines and price comparisons: Tacke and Schleusener n.d.
- “Three or four years ago”: Sharkey 2009.
34. Mysteries of the 99-Cent Store
- “I’ll tell you what brilliance in advertising is”: quoted in Arango 2009.
- “The 79 cents sold better at 99”: Arango 2009.
- 99 Cents Only Store history: Chang 2008, Wikipedia entry at en.wikipedia.org/wiki/99_Cents_Only_Stores.
- “The 99-cent promise”: Wilson 2008.
- “The number 99 is a magic number”: Chang 2008.
- Charm price history: Hower 1943, 52–53; Allen and Dare 2004, 699.
- “They could be pricing at $3.99”: O’Dell interview, March 5, 2009.
- Taco Bell, 50 Cent promotion: Zambito 2008.
- “For many years, retail prices”: Ginzberg 1936, 296.
- an unnamed large retailer: Ginzberg mentions that the total edition of the spring catalog was 6 million. A quick search on the Web found claims that the Sears Roebuck catalog had 11 million customers at its peak, but this fell off during the Depression. It had more customers than the rival Montgomery Ward catalog.
- “as interesting as they were perplexing”: Ginzberg 1936, 296.
- “The vice-president in charge of merchandising”: Ibid.
- boost sales by an average of 24 percent: Liang and Kanetkar 2006, 378.
- 40 percent, twice that of Wal-Mart: Coffey 2002.
- Star Wars underwear deal: Ibid.
- Nordstrom’s doesn’t use charm prices: See en.wikipedia.org/wiki/Psychological_pricing.
- Eddie Bauer and J. Crew charm prices: Anderson and Simester 2003, 106 (note).
- Costco uses 97-cent endings: Consumer Reports, May 2007. See www.consumerreports.org/cro/money/shopping/where-to-buy/warehouse-clubs-5-07/overview/0507_ware_ov.htm.
35. Meaningless Zeros
- Hershey Kisses, Lindt truffles experiment: Ariely 2008, 51–54.
36. Reality Constraint
- “Negotiation at the time was relatively moribund”: Neale interview, June 3, 2008.
- “The argument that we were making”: Ibid.
- “Maggie and I used to have lunch”: Northcraft interview, May 30, 2008.
- “We both had the experience”: Ibid.
- “There’s really two ways of looking at this”: Ibid.
- “Science is often portrayed”: Northcraft, personal e-mail, May 28, 2008.
- “I think there are a lot of areas”: Northcraft interview, May 30, 2008.
- “For these judgments”: Northcraft and Neale 1987, 96.
- “It remains an open question”: Ibid., 95.
- “zone of credibility”: Ibid., 84.
- “obviously deviant”: Ibid., 88.
- “At issue here is just how malleable”: Ibid., 95.
- “Back in those days”: Neale interview, June 3, 2008.
- over two hundred citations: Google Scholar listed 233 citations as of June 6, 2008.
- “they absolutely rejected the findings”: Neale interview, June 3, 2008.
- “I guess I would say there’s no shame”: Northcraft e-mail, May 30, 2008.
- “One of the things we’ve worked on since”: Neale interview, June 3, 2008.
- “The adage ‘You can always come down’ ”: Bailey 2008.
37. Selling Warhol’s Beach House
- Paid $225,000 for 22 acres in 1971: Cotsalas 2006.
- Warhol property turned nature preserve: Drumm 2007.
- “hobbit huts”: Ibid.
- “satin sheets and ice makers”: Ibid.
- “If he would sell it for $25 million”: Ibid.
- The sale price was $27.5 million: Cotsalas 2008.
- “He seems to be a great guy”: Drumm 2007.
- “This past summer”: Lichtenstein 2005, 358.
- “ARPs work”: Ibid.
- even when the reference price is . . . 2.86 times . . . market value: Urbany, Bearden, and Weilbaker 1988.
- “your idea of what an item should cost”: Lichtenstein 2005, 357.
- Worms in hamburgers rumor: Ibid., 359.
38. Groundhog Day
39. Anchoring for Dummies
- “A bat and a ball together”: Frederick 2005 and Oechssler, Roider, and Schmitz 2008.
40. Attention Deficit
- “When I build something for somebody”: Blair 2005, 262.
- Experiment with two groups of responders, preference reversal: Bazerman, White, Loewenstein 1995, 42.
- “Automatic processes”: Camerer, Loewenstein, and Prelec 2005, 18 and 38.
- The amygdala “sees” objects in peripheral vision: Ibid. 43.
- “a big move covers a small move”: Macknik, King, Randi, et al. 2008.
- Experiment with $400-$400 and $500-$700 payments: Bazerman, White, and Loewenstein 1995, 41.
- “Job A: The offer is from Company 4”: Ibid.
- “Together, our studies suggest”: Ibid., 42.
41. Drinking and Deal Making
- 12 percent of the retail alcohol market: Mosher 1983. Mosher says that businesses will spend “over $10 billion” on alcoholic beverages in 1982. Adjusted for inflation, this would be about $20 billion in 2008.
- “ordinary and necessary”: quoted in Mosher 1983.
- “A little bourbon”: Haughney 2008.
- British team’s experiment: George, Rogers, and Duka 2005.
- “How ’bout it, pal”: Southern 1960, 13.
- alcohol myopia: The term is coined in Steele and Josephs 1990. See also George, Rogers, and Duka 2005, 168.
42. An Octillion Doesn’t Buy What It Used To
- Zimbabwe inflation: Associated Press, Jan. 18, 2009; Dixon 2008; Shaw 2008; Erwin 2009. Z $100 trillion bill: See blogs.usatoday.com/ondeadline/2009/01/zimbabwe-releas.html.
- Pioneer of behavioral economics: Thaler 1997.
- “The foisting of Psychology on Economics”: Fisher 1925, vi–vii.
- “shaking out of the lunatic fringe”: “Irving Fisher,” Wikipedia, en.wikipedia.org/wiki/Irving_Fisher.
- “Stock prices have reached”: Ibid.
- (“Press stopper I and raise III”): Fisher 1892, 46.
- “Fearing to be thought a profiteer”: Fisher 1928, 7; see also commentary in Thaler 1997.
- Wine cost survey: Thaler 1999, 191.
- “Which of the following best captures your feeling”: Shafir, Diamond, and Tversky 1997, 362, quoting a then unpublished article by Shafir and Thaler.
- Wine cost survey responses: Thaler 1999, 191.
- “Common discourse and newspaper reports”: Shafir, Diamond, and Tversky 1997, 344.
- When prompted by the phrase “in economic terms”: Ibid., 352.
- “California’s run-up in housing prices”: Connell, Smith, and Watanabe 2008.
43. Selling the Money Illusion
- “My dog is worried”: The joke is found widely on Internet quote sites, including www.quotationspage.com/quote/1076.html.
- Contract A: You agree to sell: Shafir, Diamond, and Tversky 1997, 358.
- “could have significant consequences”: Shafir, Diamond, and Tversky 1997, 358.
- You agree to sell (version 2): Ibid., 357.
- You agree to sell (version 3): Ibid.
- people “naturally” look at things: Ibid., 358.
- Jensen’s tactic: Jensen 2003, 36–37.
44. Neutron Jane
- “the most expensive tryst in history”: DePaulo 2002, quoting an unnamed publication in Dublin.
- Differing estimates; offer: Murray, Silverman, and Hymowitz 2002; Jones 2002. Jack was said to be offering assets valued at “$130 million over the course of Mrs. Welch’s life.”
- Kozlowski likened to Welch: BusinessWeek Jan. 14, 2002.
- $4 million salary, $8 million pension: http://en.wikipedia.org/wiki/Jack_Welch.
- Perks: Murray, Silverman, and Hymowitz 2002.
- Jack, furious . . . compared to Kozlowksi: Ibid.
- “They critiqued the existing models”: Solnick interview, March 17, 2008.
- Solnick’s background and study: Ibid.
- “I want at least one of us to get something”: Solnick 2001, 193.
- “women may end up with a smaller share”: Ibid., 189.
- “If women take our first offer”: Solnick interview, March 17, 2008.
- “If you really want to be fair”: Ibid.
45. The Beauty Premium
- “There are no productivity issues”: Solnick and Schweitzer 1999, 203.
46. Search for Suckers
- “Salesmen . . . categorize people”: Quoted in Ayres and Siegelman 1995, 317 (note 29).
- “lay-down”: Ayres 1991, 854 (note 109).
- instructed on how to dress: Ibid., 825.
- “honey,” “cutie,” “You are a pretty girl”: Ibid., 846 (note).
- “studying how sellers negotiate car sales”: Ayres and Siegelman 1995, 307 (note 11).
- “who then proceeded to give them the worst deals”: Ayres 1991, 841.
- “search for suckers”: Ibid., 854.
- “Earlier this year, I asked a car dealer”: Ibid., 872.
- paid an average of $319 less: Ibid. 848.
47. Pricing Gender
- South African lender experiment: Bertrand, Karlan, Mullainathan, et al. 2005.
48. It’s All About Testosterone
- Burnham experiment: Burnham 2007.
- Soccer fans’ testosterone levels: Reported in Mazur and Booth 1998, 358.
- London traders’ testosterone levels: Coates and Herbert 2008.
- Aggressive responses to provocation: Mazur and Booth 1998, 355.
- Swedish study: Cited in Mazur and Booth 1998, 355.
- “We essentially create alpha males”: Kuchinskas 2007.
- Button-pushing game: Kouri, Lukas, Pope, and Oliva 1995.
- Married men have lower testosterone: See Khamsi 2007, which suggests the wedding ring tactic.
- Ring finger and ultimatum game: Van den Bergh and Dewitte 2006.
- Ring finger study: Coates, Gurnell, and Rustichini 2009.
49. Liquid Trust
50. The Million Dollar Club
- $5 million offer to Seinfeld: CNN, Dec. 26, 1997.
- TV star salary demands: Entertainment Weekly (no byline) 2006; Silverman 2003.
- “Wage earners, we suspect”: Ariely, Loewenstein, and Prelec 2003, 99.
- U.S. v. U.K., Japanese CEO pay: www.stateofworkingamerica.org/swa08-exec_pay.pdf.
- “In the hall of fame of unintended consequences”: Nocera 2006.
- “I absolutely thought [pay] would go down”: Ibid.
- Steve Jobs compensation: DeCarlo 2007.
- “Lone Ranger theory”: Reinhardt 2009.
- “What’s a CEO worth”: townhall.com/columnists/WalterEWilliams/2008/01/02/greed,_need_and_money?page=full&comments=true.
- Immelt as good a manager as Welch: Reinhardt 2009.
- “Should there be a ratio”: Hardball with Chris Matthews, transcript for July 12, 2006.
51. The Mischievous Mr. Market
- Graham’s stock valuation formula: Graham and Dodd 1934. See also Lowe 1996.
- Arrow connected Tversky and Kahneman’s work to stock market: Arrow 1982.
- “Does the Stock Market Rationally Reflect”: Summers 1986.
- “They’d say, sure I knew”: Camerer 1997, 18.
- “If they’ve lived through an inflationary experience”: Ibid., 19.
52. For the Love of God
- “The skull is extraordinary”: Sandler 2007.
- That sum was intended as publicity gimmick: Thompson 2008, 2.
- 50,000 FOR FISH WITHOUT CHIPS: Ibid., 2.
- “We wanted to put them everywhere”: BBC News, June 1, 2007, news.bbc.co.uk/2/hi/entertainment/6712015.stm.
- “Is it beautiful?”: Riding 2007.
- “As a trope for human folly”: Lacayo 2008.
- “almost sold . . . someone is very interested”: Sandler 2007.
- The two-day sale total: Reyburn and Kazakina 2008.
- “the price of it now would be double”: Lacayo 2008.
53. Antidote for Anchoring
- Car value study: Mussweiler, Strack, and Pfeiffer 2000.
- “consider the opposite”: Ibid., 1144.
- “A friend of mine mentioned yesterday”: Ibid., 1145.
- “I beseech ye,” “written over the portals”: quoted in Lord, Lepper, and Preston 1984, 1231.
54. Buddy System
- Seventy-four percent gave the wrong answer: Only 13 of 50 subjects made no errors, with the other 37 making at least one error. See Asch 1963, 181.
- “You’re probably right, but you may be wrong”: Ibid., 182.
55. The Outrage Theory
- “generally effective,” “deeply traumatized by pills”: Kahneman, Schkade, and Sunstein 1998, 83.
- “outrage theory”: Kahneman, Schkade, and Sunstein 1998; see also Kahneman, Ritov, and Schkade 1999.
- “The unpredictability of raw dollar awards”: Kahneman, Schkade, and Sunstein 1998, 67.
- “The unpredictability and characteristic skewness,” “Under these circumstances”: Ibid., 69, 75.
- “which will make her more susceptible”: Ibid., 82–83.
- “rest on a bedrock of moral intuitions”: Ibid., 61.
- “conversion function”: Ibid., 76.
- “Many new possibilities”: Ibid.
56. Honesty Box
- “I said it was a very cute idea”: Johnson interview, Sept. 9, 2008.
- “It is important to note”: Mandel and Johnson 2002.
- “These are pretty big effects”: “Even the Furniture Can Affect Business Attitudes,” Stanford Graduate School of Business press release, Oct. 2004.
- “I was surprised how big the effect was”: “ ‘Big Brother’ Eyes Encourage Honesty, Study Shows,” Newcastle University Press Office, June 28, 2006.
- “When people are made to be self-aware”: Angier 2008.
57. Money, Chocolate, Happiness
- History of Monopoly: See Wikipedia entry, “Monopoly (game),” en.wikipedia.org/wiki/Monopoly_(game).
- Money priming study (Monopoly, screen saver): Vohs, Mead, and Goode 2006 and 2008.
- donated only 58 percent as much: Vohs, Mead, and Goode 2008, 210. This is computed from the statement that the money-primed group donated 39 percent of their $2 payment, versus 67 percent for the control group.
- “distrusting of others”: Ibid., 211.
- “Priming effects may provide one of the mechanisms”: Transcript of 2008 Edge Master Class, www.edge.org/documents/archive/edge253.html.
- “a microcosm of life”: Hsee and Zhang 2004.
- Cockroach chocolate experiment: Hsee 1999.