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Tess Vigeland: People will do just about anything to save a buck, right? You'd think so, but researchers at the California Institute of Technology recently found that if you can see and feel a product, you'll actually pay more for it. A lot more.
Which prompts us to ask -- what were you thinking? Our occasional look at why we do what we do with our money.
So here was my tough assignment to illustrate the Cal Tech findings: have lunch, and more importantly, dessert, with the lead researcher neuro-economist Dr. Antonio Rangel. He hails originally from Spain, so tune your ear for the accent. Rangel studies why some of us have more self control than others in both eating and spending.
After a quick lunch at Cal Tech's Athenaeum restaurant, we got to the sweet part.
Waiter: Hi, would you like any dessert today?
Vigeland: Yeah, so what do you have here?
Waiter: We have a lemon goat cheese cheesecake with blueberries, warm maracaibo cake with vanilla bean ice cream, and a stone fruit crisp with cherry ice cream.
Vigeland: I think I'd actually go with the lemon cheesecake.
Waiter: Very good.
Antonio Rangel: I never say no to chocolate, especially when it's in front of me. And I really hope my wife is not listening.
Vigeland: Thank you very much. [To Dr. Antonio Rangel] Tell us why we're here for the dessert tray.
Rangel: Well we're trying to illustrate the practical implications of our study that we recently did. We tried to investigate if the way goods are presented to the consumer changes the value, the willingness to pay for those goods. We did a very simple experiment first, which is we brought hungry Cal Tech undergraduates to the laboratory. We gave them some money that they could either keep or use to purchase foods to eat from us. Or we actually put a tray in front of them that looked just like the picture but it was in front of them. And what we found was very surprising to us: that people were willing to pay the same amount for the text and the picture condition, but they were willing to pay about 50 percent more when the real food was in front of them.
Vigeland: Fifty percent?
Rangel: Fifty percent more. Which if you are trying to sell food to people, and you know how tight profit margins are, it's not a trivial number.
Vigeland: So then, by that logic, I would be willing pay more for this lemon cheesecake because it's put in front of me, than I would if I just ordered it off the menu?
Rangel: That's what our experiment suggests, yes.
Vigeland: So when he brought the tray around, my reaction was, I'm actually not that hungry and probably if I were reading off a menu, I don't know that I would have ordered dessert. But boy, you bring it around and I get a good look at it, I want that!
Rangel: There is a very well-documented phenomenon. Basically when these very repetitive things are in front of us, we tend to send a higher value to them, and that leaves to higher consumption of desserts, perhaps of purchases on brick and mortar stores, etc.
Vigeland: But is it possible to make a connection between this willingness to pay more for something that I can see and touch here, in a retail environment?
Rangel: I think if I had to draw a general lesson personal for me from these things, culturally we tend to think that we know what we like, and we go to the store and we decide whether it's worth the price or not, end of story. But all that these experiments show is that there are a lot of variables going on at the time of decision. Some controlled by the store, some just incidental, that affect at the time of that decision how much value you'll assign to those things and whether or not you purchase the thing. And if those things go in a particular way, you may find yourself purchasing something that then you never enjoy or consume as much as you thought.
Vigeland: Or you pay too much for it.
Rangel: Or you pay too much for it. Or if you go to a store, you go to Tiffany's or a fancy jewelry store, and the stuff that they're selling is behind a counter versus not, that may matter. As I said, we haven't done the study at those levels of pricing, but that's what the study's pointing to.
Vigeland: Yeah and I don't think that Tiffany's is going to put any of its product out from behind the counter.
Rangel: Not that I shop there, but my impression is that when you go to many high-end stores where they are concerned about theft, you do have someone who, when you show an interest, put the things in front of you. They bring them out.
Vigeland: That is true.
Rangel: And of course part of that is to get you to try them, but I'm saying, to what extent have they learned by trial and error, even if they never knew about the study, that that enhances the probability of sell.
Vigeland: Wow. So what do you take away from this as a consumer? Is it possible to change your habits based on this kind of knowledge?
Rangel: One of the most beautiful experiments in psychology that I know about were done by a professor named Walter Mischel, about 20 years ago. They brought young children and they put candy in front of them, and they told them, 'I'm going to leave the room for 15 minutes. If you're able not to eat the candy, when I come back, I will give you twice as much.' And then they measure how long the kids were able to stop from eating it. And what they found is that the kids that were successful in waiting, did not look at the candy. They distracted themselves. So there's your answer.
Vigeland: We have now been sitting here and you have not touched your lava cake, so I'm going to end this interview. Dr. Rangel, thanks so much for joining us here at the Cal Tech Athenaeum. It's been delicious and fun.
Rangel: Thank you very much. Bye.
Vigeland: Dr. Antonio Rangel is a neuro-economist at the California Institute of Technology. His study was published in the American Economic Review journal (pdf).