October 18, 2007
I just spent $8 on a cheese sandwich
Okay, £4, but pricey either way. I didn’t snap a photo, but this photographer went to the same place as I did. And it tasted… good.
The common-sense view would be that I was fooled into spending £4 on a grilled cheese sandwich because I was fooled into thinking I was buying quality. But behavioural economist Daniel Ariely goes one better. He thinks that a higher price tag actually makes some products better. For example, people given placebo painkillers report more relief of pain when they are told that the painkiller is more expensive. Here is that paper [pdf]. Ariely’s book is due out early next year and is strongly recommended.
I am a programmer in the US, but I worked for a Montreal-based company in the mid-to-late 1990s (when CDN $1 was consistently around USD $0.70) and spent quite a bit of time up there, and then for a US software company that sent me to the UK a lot between 2002 and 2005 (when GBP 1 was approx. USD $1.80). The thing I noticed is that in all three countries things like food, clothing, etc., cost approx. the same number of units, it was only the unit of measurement that changed. So using a lunch in the US of around $7 as average, I’d go to Montreal and have a great lunch for CDN $7 and walk out thinking “That was great, and cheap, too!” But after a while I stopped thinking about the exchange rate, and either in Canada or the US, just got used to “lunch costs around 7″. Then while spending a lot of time in England I noticed lunch there would be around (GBP) 7, too. At first, the idea of how much money I (well, our clients, actually) were spending outraged me, but pretty soon I just grew used to thinking “lunch costs around 7″ and stopped thinking about the exchange rate again.
It is an interesting phenomenon that if prices in terms of the number of units are around what your brain expects, sooner or later you start ignoring the exchange rate. I read your post and went “A sandwich for 4? Sounds about right.”
Posted by: Jim | October 18th, 2007 at 9:00 pm | Report this comment