Eliot Spitzer and the Price-Placebo Effect

In Eliot Spitzer‘s sex scandal and tragicomic downfall, the question that bugged many people did not have to do with ethics or politics, but whether Spitzer got a raw deal.

What does someone like Spitzer get when he pays a prostitute $5,000, as opposed to $500 or $50? Could sex with one prostitute really be 10 times better or 100 times better than sex with another? The revelation of the true identity of “Kristen” — the woman with whom the former New York Governor shared a $1,000-an-hour Mayflower Hotel tryst in February — only complicated matters. Now people could calculate what they would have done in Spitzer’s shoes.

Spitzer’s poor moral, political and legal judgment is beyond question, but on the delicate question of whether Kristen was “worth it,” a host of unusual studies suggest the governor probably got his money’s worth. The question, as it turns out, has little to do with either Kristen or prostitution, and nearly everything to do with Spitzer himself.

Specifically, an area of Spitzer’s brain known as the medial orbitofrontal cortex.

This part of the brain makes judgments about pleasure, and intriguing new research has found that the price people pay for something can subtly and unconsciously change how much pleasure they derive from it. The medial orbitofrontal cortex research suggests that, contrary to conventional wisdom, people who buy something at a discount may unconsciously derive less satisfaction than people who pay full price, or a premium, for the very same thing.

“I definitely think it is the same phenomenon with Spitzer,” said Baba Shiv, a Stanford University behavioral economist, who was part of a team of researchers who studied the medial orbitofrontal cortex. The study was published in the Proceedings of the National Academy of Sciences.

Shiv and his colleagues did not study prostitution, but another domain where the pleasure that people derive from their purchases is subjective and prone to personal expectations: Wine drinking.

Along with California Institute of Technology neuro-economist Antonio Rangel and others, Shiv had people evaluate two bottles of wine, priced at $10 and $90. What the volunteers did not realize was that the wine in the expensive and cheap bottles was the same.

A host of studies have previously shown that people’s judgments about quality are powerfully influenced by price. Because of a general assumption that expensive things have higher quality, people have been shown to value everything from clothing to food more highly when the price is marked up, compared with when the same items are cheap. Shiv and his colleagues expected the subjects would say the expensive wine was better — and this was exactly what they found.

What surprised the researchers, however, was that when they conducted a brain-imaging study of the wine tasters, they found that people who drank the more expensive wine had a larger activation in their medial orbitofrontal cortex.

In other words, the subjects were not reporting that the expensive wine was better merely because they figured it ought to be better. Rather, they were actually experiencing more pleasure when they drank a bottle of wine priced at $90, compared with when they drank the same wine from a $10 bottle.

Shiv called this phenomenon the price-placebo effect, because of its similarity with the placebo effect in medicine: When people think they are getting medication but actually get sugar pills, they sometimes experience the side effects and benefits of the real drug.

Nor is the phenomenon limited to questions of medicine or pleasure. In an earlier study published in the Journal of Marketing Research, Shiv and his colleagues presented volunteers with a series of word puzzles. All the volunteers were given an “energy drink” that was said to boost mental acuity. The catch was that some volunteers were asked to buy the drink at full price — $1.89 — while the others got the drink at a discount — 89 cents. The researchers made clear the drinks were identical; the people getting the discount were told the cheaper price was because of a bulk purchase.

When asked to unscramble words such as T-U-P-P-I-L (pulpit) and B-E-R-K-A-M (embark), people who paid full price were able to solve nearly twice as many puzzles as those who got the discount.

“The price-placebo effect comes from the fact that you form this global belief that low price equals low quality,” Shiv said.

Part of what changes when people pay more is their own psychological investment. A wine connoisseur who pays extra feels different from someone who pays less for the same bottle of wine, because the larger financial investment increases the motivation to be satisfied. Among word-puzzle solvers, the people who got the energy drink at a discount were more likely to throw in the towel when the going got tough. Those who paid full price hung in there — and their persistence paid off.

The research raises a philosophical question that is at least as interesting as the salacious Spitzer scandal: If you paid a premium for something, and as a result derived more pleasure and value from it, does this mean you were ripped off or that you actually got a better deal than the person who got a discount?

This mind-bending question prompted Shiv to make an important change in his own life: He now asks his wife to buy the wine.

Category : Eliot Spitzer