Posted by Lending Club :: June 13, 2008 @ 8:55 am

The value we associate with products and services comes from conflicting sources. While we may strive to get the most possible value for our money, on another level we think less of products we pay less for.

I’ve been reading Dan Ariely’s interesting book on behavioral economics titled Predictably Irrational. If anyone is interested, I’ll be giving away my copy when I’m finished with it. One of the chapters discusses the power of price on enjoyment. He discusses how the perception of quality in higher priced products leads to more enjoyment, if only through a placebo effect. This trend isn’t only evident when comparing name brands to generics, but also when comparing a product at regular price versus a discounted one. This means that while we might be delighted to get a great deal on a product or service, our enjoyment of using it may be less than if we had paid full price.

This conclusion, like most of those in his book, is backed by scientific and experimental research and is highly counter-intuitive. From medicine to energy drinks, the author’s studies consistently found higher priced products to be more effective. For someone with a personal finance obsession like me, I would like to think that I get more pleasure when I spend less, but I fear that may not always be the case.

The pleasure we derive from a product or service is a complicated mix of many factors. Whether cost or perceived value weighs more heavily in the equation likely depends on your mindset. Being cognizant of a price’s potential to influence perceived enjoyment may help to lessen the effect. From a purely financial perspective, I would certainly hope that I could convince myself to enjoy a product the most when I had paid the least to obtain it.