Subconscious Values

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The economic principle I’m exploring is “Because of scarcity, people choose” and "People gain when they grade voluntarily."

My research question to help me study the economic principle is “Why are people willing to pay 2 or 3 times the original price of the original item? (Does the trade mutually benefit the buyer)”

The article published in The Harvard Business Review titled “Customers Will Pay More for Less” demonstrates this economic principle because it shows that how much people believe they benefit/gain from a trade is based on what types of items are grouped together and how they subjectively value each item. 

First, I found in research done by Aaron Brough and Alexander Chernev that “bundling expensive and inexpensive products changed what people thought those items were worth. Even when they found both items in a bundle attractive, they were willing to pay less for the bundle than for the more expensive product alone.” People subconsciously associate values with items, and when they deem one item as cheap the price of the whole bundle goes down. Other factors might come into play when we put a value on an item, like the rarity of an item and if someone famous is using that item. 

Second, Why are we putting values on items that are almost identical? There’s not a big difference in quality between a Supreme shirt and one from Walmart, but the prices are so far apart. Alexander Chernev states that “An underlying process that we call categorical reasoning. People naturally tend to classify products as either expensive or inexpensive, and this categorization influences how they judge products.” The majority of people have decided that Supreme is expensive and Walmart isn’t, even though the material and quality are almost identical.

Chernev’s research shows that categorical reasoning happens in other markets, and with more than just price. Chernev states that “adding a healthful item, such as a side salad, to an indulgent one, such as a cheeseburger, tends to lower the perceived calorie count of the entire meal. This belief that a meal containing a cheeseburger and a side salad has fewer calories than the cheeseburger alone is a function of people’s tendency to categorize meals into vices and virtues.” I found this interesting because I myself have lumped items together like this convincing myself that it is healthier for me.

In my next blog post I will research: How has the choice for Supreme to have limited supply of items and only a few store locations contributed to the public demand for the products? How and why? Why has Supreme deliberately limited the supply of its goods despite consumers willing to pay such a price?