Hi, welcome to Bookey. Today we will unlock the book Priceless: The Myth of Fair Value (and How to Take Advantage of It).
Before we start, let's talk about the story of a lawsuit against McDonald's in the 1990s. This case involved a compensation of 2.86 million US dollars just because of a cup of coffee.
In the late winter of 1992, Stella Liebeck, a 79-year-old lady in Albuquerque, New Mexico, bought a 49-cent cup of coffee at a local McDonald's Drive-through. Her grandson pulled over the car so that she could add sugar to the coffee. Mrs. Liebock steadied the cup between her legs and tried uncovering the lid towards the direction of her body. While doing this, the coffee spilled. Mrs Liebock's groin, buttocks, and thighs were confirmed by doctors to have burns ranging from Level I to III. The cost of skin grafting reached $11,000, plus treatment for the next two years. She initially demanded compensation of only $11,000 and then increased it to $20,000. McDonald’s, however, refused to pay that much and was only willing to pay $800. After being rejected, Liebock resorted to asking lawyer Reed Morgan for help. Morgan changed the idea behind the previous lawsuit. He argued that the temperature of McDonald's coffee, when delivered off the counter, was between 180-190 degrees Fahrenheit, which was higher than the temperature of coffee served in other restaurants, which would be about 135-140 degrees. He stated that McDonald’s coffee was therefore more likely to cause burns, and argued that this difference was a product defect and a result of being negligent of hidden dangers. On this basis, he asserted that McDonald’s should be punished. After a lengthy lawsuit, the final jury decided that McDonald's should pay Lieberk $160,000 in compensation for damages, plus $2.7 million in punitive damages. The amount was later reduced to $640,000 by the presiding judge. (In the end, the two parties reached an out-of-court settlement on the premise of keeping the amount of compensation confidential.)
Hearing the details of this case raises countless questions. Aside from the legal norms, what psychological basis did the jury have for deciding on this staggering amount of 2.86 million dollars? In other words, what were the mysterious hidden psychological factors behind this price? Today, this book, Priceless, will bring you to a new level of understanding, so that you may no longer be confused by the price of things. The author William Poundstone was nominated twice for the Pulitzer Prize. He is also a contributor to the Harvard Business Review and the New York Times, and is the writer and co-producer of two featured shows on ABC Television. Priceless was even praised by the Nobel Laureate in Economics Daniel Kahneman, who called it "an instructive and entertaining romp".
So, what is unique about this book? This book reveals the secrets behind the prices and tricks businesses play. For example, why is it that in many restaurants, you only need to pay 30 dollars for a buffet? Why does the price of the same bottle of beer differ so much between a grocery store and a fancy hotel? Why do stores place a pair of 100 dollar shoes next to another pair of shoes priced at 500 dollars? Why not just call this book The Secret of Prices, instead of Priceless? This is because the author believes that there is nothing such as an “original price” in this world, but only the psychological battles that take place in our minds. He reveals not only the secret behind the price of things, but also the psychological mysteries of the human mind.
Next, we will unscramble the psychological concepts behind prices in three parts and deconstruct how businesses take advantage of these psychological concepts to trick consumers and increase profit. We will also learn how we, as ordinary people, can make these concepts work in our favor.
Part I: Comparative Psychology
Part II: Preference Reversal Effect
Part III: Anchoring Effect