Think of life as one long afternoon at the mall, shopping. I know, I know. Some of you will squeal that you hate shopping, indeed that you're appalled by the whole consumer culture. But protest all you want, there's no way around it. We all spend a good amount of time contemplating value. Is that mocha latte really worth four bucks? Will you finally write a $200 check to your chosen candidate? How about that $100,000 college education for your kid? Not a day goes by that we don't ask ourselves the question "So, what's it worth?"
Such questions have no absolute and universal answers, of course. That's what makes it so hard. Judgments of worth and value are a complex meld of attitudes and feelings about both money and thousands of commodities that defy comparison. How can you say if hiring a plumber is worth more than buying a radio or a pet cat? Or if any of those things is worth the money in your wallet? Yet we make these market choices every day, confidently exchanging one thing for another.
A lot of people are very interested in how we value stuff, including psychologists. If these are not rational decisions, what are they? How does the brain sort through the impossible confusion of life's marketplace and arrive at a choice? Two Princeton University scientists have been exploring this problem in the laboratory and may have some clues to the subtle and surprising nature of these everyday decisions.
Psychologists Daniel Oppenheimer and Adam Alter believe that many of the economic decisions we make have little to do with objective value. Market choices have much more to do with the brain's basic, internal perceptions of the world and the way those perceptions shape our feelings of comfort and ease. In this view, even currency has no clear and absolute value; regardless of those numbers on bills and coins, they derive their true value from the individual mind. In a series of experiments, these psychologists have been studying the marketplace cues that trigger psychological comfort or discomfort, and thus shape us as economic beings.
The basic idea is that it's human nature to get anxious and wary when the world is strange or challenging. We're more at ease around the familiar and comprehensible. But the cues that signal us to be on guard may not be obvious; indeed, they may be almost undetectable at times. It's these nuanced signals that the psychologists have been exploring in the lab.
Here's an example of their work. Oppenheimer and Alter asked a group of volunteers to estimate how much of various commodities they could buy with a dollar. They were given choices such as paper clips and gumballs and paper napkins. Some of the volunteers were given a regular old dollar bill with George Washington on it, while others were given less-familiar currency of the same value: a Susan B. Anthony $1 coin, for example, or a dollar bill that had been ever-so-slightly tinkered with. Invariably, the volunteers believed that the familiar dollar bill was worth more—that it had more buying power—than the stranger currency.
That doesn't make sense, of course. But it was not a fluke. They got the same result when they gave some people a rare $2 bill and others two singles. It's not as though people never see a $2 bill, and it does have Thomas Jefferson on it after all, but just the slight unfamiliarity of the denomination was enough to make people devalue it.
Why would this be? Oppenheimer and Alter believe this irrational behavior is rooted in our most fundamental mental processes: The world is full of stimuli of various kinds, some more familiar than others, and the brain is tuned to process the familiar ones rapidly, effortlessly and intuitively. More difficult or alien cues require more mental work, more plodding deliberation, and the brain switches to its more cautious and calculating style to be on the safe side.
This is humbling to know. But there's more. The psychologists wanted to see if the same cognitive bias shapes our perceptions and attitudes toward goods themselves, and they came up with a clever way to find out. In this experiment, they gave everyone the same currency—the familiar dollar bill—but they made the commodities more or less accessible in a very subtle way. Some of the "consumers" purchased the gumballs and paper clips from a form that was printed in a clear black font while others had to select from a form printed in a difficult-to-read grey italic font. The idea was to make the strangeness as subtle as possible, to reduce it to basic perception. Even at this most fundamental level, the differences shaped economic judgment: Volunteers consistently rated identical goods as less valuable when they came in an unfamiliar, cognitively challenging form.
These findings echo some earlier, provocative studies of the stock market. In those studies, Oppenheimer and Alter looked at new stock offerings and found that companies with easy-to-read names were valued more highly by investors, at least in the short run. That is, companies with names like Barnings Incorporated consistently outperformed companies with names like Aegeadux Incorporated, simply because the names are more cognitively palatable.
So what do all these odd findings add up to? Well, the cognitive biases are not a bad thing, even if they are a bit irrational. In fact, they are essential to our everyday economic decision-making. We'd be paralyzed if we tried to make every market choice logically and the economic world would grind to a halt. But they should raise a cautionary flag about the very subtle ways marketers might manipulate our choices. Something to think about as we head off to the mall, not just this holiday weekend, but every day.