How much you’d pay for something depends on what prices you’ve seen recently

The value of products we encounter will influence how much we’re willing to pay for subsequent items, a new study suggests.

Price Tag.

Image via Pixabay.

People are willing to pay more for products after coming across low-priced ones and would be more stringy after encountering or browsing high-priced items, new research reveals. The paper points to a previously undiscovered element that guides consumer behavior.

“How people value an item is not a simple function of that item alone,” explains Kenway Louie, a research assistant professor at New York University’s Center for Neural Science and paper co-author.

“The valuation process is inherently relative, with people valuing the same exact item more or less depending on the environment they recently inhabited. Our study shows that rewards cannot be evaluated in isolation, but instead must be viewed through the lens of the recent past.”

Our brains heavily rely on comparisons when processing information instead of drawing on absolute judgments. In sensory data processing, for example, our perception of the stimuli is highly dependent of context: a gray square will appear darker to someone coming in from a bright environment than to someone in a dark room.

Cost blindness

However, the influence of sensory processing on decision-making is less well understood. That’s what the team behind the paper, which also included co-authors Paul Glimcher, a professor of neuroscience at the New York University (NYU) and Mel Khaw, now a post-doctoral researcher at Columbia University, wanted to find out. So they set about studying the impact different environments had on how people valued food items.

Towards that end, they set up an experiment where participants were shown 30 different items of food on a computer screen, and would then report how much they’d be willing to pay for each. The researchers then pooled all the responses, ranking them from highest to lowest price based on the answers.

The team wanted to see if the price of encountered items would change how much the participants were willing to pay for subsequent items. As such, participants were asked to look at the items again, but this time they were only shown the 10 lowest-valued items (a low “adapt block”). Then, they were asked how much they would pay for each of the 30 items. The reported prices were lower across the board following this step, for all participants and all of the 30 items, compared to the baseline trial.

Next, the researchers repeated the adapt block, but this time kept it high and only showed the 10 highest-rated items. After viewing them, the participants were willing to pay less for all 30 items in the study than they reported during the baseline phase.

The findings showcase how fundamental comparisons are in our decision-making process, even in situations where we think we’re perfectly objective.

“Collectively, these findings provide the first evidence that adaptation extends to the economic value we place on products,” explains Louie.

“Moreover, they suggest that adaptation is a universal feature of cognitive information processing.”

The paper “Normalized value coding explains dynamic adaptation in the human valuation process” has been published in the journal PNAS.

Leave a Reply

Your email address will not be published. Required fields are marked *