Crisis Week: Price the Placebo Appropriately

Reuters, the global english news service, reports on this months Ig Nobel Prize awards:

the medicine prize was awarded to a team at Duke University in North Carolina who showed that high-priced placebos work better than cheap fake medicine.

It sounds stupid but it is worth remembering in this time of crisis when con-men will be selling lots of placebos: the more expensive ones are more likely to work. Since the economic collapse is currently about confidence, placebos are as likely to work as anything else.
There’s probably a relationship with the intensity of the drama and staging in receiving the medication. If I give you advice while in a mechanic’s jumpsuit, it is not as good as giving it to you in an expensive suit wearing $1,000 shoes. That’s why doctors have the whole white uniform, waiting room, diplomas on the wall, lots of “scientific” equipment, etc., as Goffman described.

You should keep the concept in mind when pricing your services and wares during this crisis. Sometimes discounting is not what you should do. Especially when you are trying to save the world. The market, it should be noted, does not always differentiate things based on some real value or utility, but on perception. You have to increase the perception that your services actually worth more.

You can also see how perception is changing as people perceive that the US economy is not worth what it used to be. As Warren Buffet says, it’s the same economy, same massively productive workers, same factories, same everything. Perception of its worth changed.

The entire work can be read at:

Rebecca L. Waber; Baba Shiv; Ziv Carmon; Dan Ariely. 2008. “Commercial Features of Placebo and Therapeutic Efficacy“. Journal of the American Medical Association [March 5, 2008] 299: 1016-1017.