Prof. Baba Shiv, one of our advisors, just published a fascinating paper on the power of our beliefs to influence brain activation, and on how marketing can influence those beliefs:

Price Tag Can Change The Way People Experience Wine, Study Shows (Science Daily)

- According to researchers at the Stanford Graduate School of Business and the California Institute of Technology, if a person is told he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage.

- “What we document is that price is not just about inferences of quality, but it can actually affect real quality,” said Baba Shiv, a professor of marketing who co-authored a paper titled “Marketing Actions Can Modulate Neural Representations of Experienced Pleasantness,” published online Jan. 14 in the Proceedings of the National Academy of Sciences. (Note: link here)

This Stanford article provides an overview of his research: click Here.

- “The belief in the academic field is that emotions are essential to decision making, otherwise you’ll end up making bad decisions,” Shiv says. “But,” he adds, explaining his huge contrarian streak, “I can show the opposite as well, that brain-damaged patients can make better decisions than normal individuals.”

- So what’s going on—are emotions beneficial or detrimental to good decision making? There’s no simple answer except, “It depends.” But on what? In making choices, when is it better to think things through and when should you go with your gut? And given that we have both modes of decision making at our disposal, why do we sometimes give in to our impulses even when we know better, while other times we show more self-control?

- “For example, Shiv worked with Ariely (and Ziv Carmon of INSEAD) on a series of studies that found a strange price-placebo effect: When participants bought an energy drink at a discount, they actually performed worse on a puzzle-solving task than participants who had paid full price for the same drink.”

Implication: perhaps we have to learn how to “placebo” ourselves at will, as part of effective emotional self-regulation. And not to let marketeers control our beliefs.

We asked Prof Shiv today for a practical suggestion to increase happiness among drinkers of cheap wine: “Have retailers who sell lower priced wines to have tasting ratings of experts so as to divert attention away from price to the ratings”, he suggests.

Feel free to experiment around this surprising effect. In moderation, please.