What science can teach us about our subconscious biases about money
“How do you convert a simple saline solution into a useful treatment for people with Parkinson’s disease? Tell them it’s a drug that costs $100 per dose. And if you want to make it even more effective, tell them it costs $1,500 instead.”
—“‘Expensive’ placebos work better than ‘cheap’ ones, study finds,” Los Angeles Times
It turns out our biases around money can have a major impact on our behavior—and even our health.
I’ve written about personal finance and behavioral economics for three decades, and I like to think that I’m pretty savvy when it comes to marketing gimmicks—whether that means tasteful jazz in a luxury soap shop (yes, fancy music makes you more likely to spend money) or inflating prices store-wide to make a sale feel like a bargain. But just when we think we’ve got a grip on our irrational behavior, it turns out our subconscious biases are still firmly in control.
In this fascinating study, volunteers with Parkinson’s disease were assured by scientists that two drugs worked equally well. The only differentiating factor was the cost—one was much pricier then the other. Despite having that information, and despite the fact that both drugs were the same placebo medication, people taking the more “expensive” pill experienced a 9% greater improvement in motor function than those taking the “cheap” pill—meaning the belief that more expensive things are better is so ingrained in our psyche that it actually has an effect on our health. (This reminds me of what we used to call the “Crown Royal Effect” back in the ’80s. When the whisky successfully rebranded solely by raising its price, people bought more of it because they assumed it had to be of higher quality.)
As America wheezes through a particularly virulent cold and flu season, this is something to keep in mind if you find yourself deciding between a cheaper generic cold medicine and a more expensive brand-name one. (Hint: Don’t let your bias fool you. They’re the exact same thing.)