Monday, June 7, 2010

Half a year

Brightcape is 6 months old.  Actually, it was 6 months old on June 1st but I missed the date.  This is par for the course for me since managing to remember special days of the year is something I am wretched at; largely because I really don't care about them.  You can all feel free to imagine a graphic of a birthday cake with a half candle on it, even to the point that the flame is cut neatly in half.  I am also starting up a new post type:  Economics.  I intend to make this more of a focus of the blog over the next while.

Wendy got a new book for me from the library recently:  Priceless:  The Myth of Fair Value (and How to Take Advantage of It)

The idea behind the book is that people really have no idea what prices should be for most things and the ways that we make decisions regarding price and money are really not good for maximizing our return.  If you have interest in the topic of how people make decisions and how they view value and cost this is a great book to read.

The author gives many great examples of people making really terrible decisions regarding prices and shows how easy it is to manipulate people into making bad economic choices.  One of the biggest issues he talks about is anchors.  For example, if you ask people how many doctors are listed in the phone book they will give a variety of answers but the average and median of those answers will be quite predictable.  However, if you ask them to think of a completely arbitrary number prior to giving their answer that number (the anchor) will have a drastic effect on their replies.  Even asking "Is the number of Doctors in the phone book greater than 1 million?" prior to asking "What is the number of Doctors listed in the phone book?" raises the guesses about the number of doctors by massive percentages, 50% to 100% is normal.  The number 1 million being in people's minds (despite the fact that *no one* thinks there are 1 million Doctors listed) completely changes their answers to an entirely different question.

I find the ideas presented here extremely intriguing particularly in light of my past jobs in sales.  People who walk in the door of a store usually want the prices to be fixed and have the idea that objects are worth certain amounts of money.  The salespeople who regularly sell an item for $500 and then 20 minutes later for $1100 have a very different viewpoint - items have a base material cost you cannot go below, but 'fair market value' is an utterly ridiculous idea.

I am often a little puzzled about how I should feel about my time in sales ethically.  I was very proud to not be a sleazy salesman but nearly every salesperson says and thinks the same.  My distinction was that I was willing to be very flexible on truth regarding price but I would be honest about product and service.  I am sure that many of the things I did would horrify people who don't really grasp the idea that prices are a collective hallucination of ours and fair value isn't real but I do think that once those ideas are fully grasped my sales antics would be considered fairly ethical.  My mindset was elitist, but accurate:  I know better than the customers how this industry works.  Even if they got exactly what they think they want (which they can't) it wouldn't be what is best for them.  What is best for them is something I can deliver but only if I am dishonest about price.  Therefore I must be dishonest about price to achieve the greatest good for the customer, not to mention for myself.

Murky waters indeed.


  1. I noticed this a lot in Colombia. The same stuff from China/Taiwan cost a lot less there. Certainly part of that was wages of warehouse workers, sales staff etc but I think that a significant part of the higher price in Canada is people being willing (and able) to pay more.

  2. The price of a thing has very little to do with how much it cost to produce and everything to do with how much people want it. Pop costs 5 cents a cup to pour for McDonalds but they charge $1.50 for it because people will pay it. Fashionable clothes, same deal.