Priceless: The Myth of Fair Value (and How to Take Advantage of It) by Poundstone William

Author:Poundstone, William [Poundstone, William]
Language: eng
Format: mobi, epub
ISBN: 9780809094691
Publisher: Hill and Wang
Published: 2010-01-04T16:00:00+00:00

This says something about why rebate programs appeal to the companies that offer them. The tougher question is, Why are rebates so entrancing to consumers? Both experiments and practice confirm that rebates cast a magic spell. People are more inclined to buy a $200 printer with a $25 rebate than a similar printer for $175.

Richard Thaler explains rebates as psychophysical arbitrage. The $200 does not seem that much higher than $175, first of all. But there’s a big psychological difference between getting a rebate and not getting a rebate. Most prefer the rebate. Thaler calls this the “silver lining” principle. He demonstrated it with this survey question:

Mr. A’s car was damaged in a parking lot. He had to spend $200 to repair the damage. The same day the car was damaged, he won $25 in the office football pool.

Mr. B’s car was damaged in a parking lot. He had to spend $175 to repair the damage. Who was more upset?

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