You want that $145,000 car, don’t you. You want it real bad. Or that $275 bottle of wine. And we want these things more than if the same items were priced at $24,000 and $7.99 respectively. But this flies in the face of basic economics: Traditionally, lower prices create more demand, not less (this is why all the sale bread is gone by the time you get to the grocery store after work). Good thing for Lotus and Château Margaux we’re susceptible to the Veblen effect: We want more expensive products because these products imply status.
The mind is its own place, and in itself
Can make a Heaven of Hell, a Hell of Heaven.
—John Milton, Paradise Lost
But is this so irrational? Are some things actually worth paying more for when we could pay less?
Researchers at Stanford explored our feelings about $5 and $45 wine. Only they changed the price tag on exactly the same bottle. As you might expect, people expected and thus found more quality in the $45 bottle.
But here’s the thing: It wasn’t just people being snooty. To the brain, these were different wines. This is true to the point of increased activity in the brain’s pleasure center (medial orbitofrontal cortex) while tasting the higher-priced bottle. Again: A higher price actually makes people experience a different wine.
And how we perceive an item increases not only our opinion of it, but also its effectiveness. For example, people who paid full price for Red Bull and expected the drink to increase their attention were able to solve more brainteasers than people who paid less for the same drink. (Similar is true of painkillers.)