Most of us would suck at 'The Price is Right'

Nam Y. Huh / AP

How much would you pay to see Lady Gaga perform in concert? And how much do you think the average person would spend?

By Linda Carroll , msnbc.com contributor

Those hot concert tickets you need to resell might not be worth as much as you think.

A new study shows that we tend to overestimate what others will pay for things, whether it?s concert tickets, DVDs, toys or even a fancy box of chocolates. What?s particularly interesting is that we often believe that others will pay more for goods than we would pay ourselves, according to the study published in the Journal of Consumer Research.?

?I think in part it?s because of our exposure to people who are willing to pay a lot,? said the study?s author Shane Frederick, an associate professor of marketing at the Yale School of Management. ?You walk by a Starbucks and you see all this willingness to spend $4 for a little piece of chocolate.??

Frederick ran a series of experiments to discover how good people were at figuring out what others might pay for various products.?It?s a skill that might not be crucial for the average person, but is an absolute pre-requisite for someone starting up a new business, he said.?

In one experiment, Frederick asked 57 undergraduates what they would be willing to pay for a series of products, including a Teddy Bear, a music CD and a pound of Jelly Bellies. The students were then asked to go back and estimate what their fellow study volunteers might pay, on average.?

The difference between what the students said they?d be willing to pay and what they thought others might shell out was stunning. In the case of the Jelly Bellies, for example, students, on average, said they?d be willing to fork over $4. In contrast, they estimated that other students would be willing to pay $7.30.?

In another experiment, Frederick randomly paired students up and had them bid on items and also estimate their partner?s bids. Out of 21 students, 17 predicted that their partner would bid more than they would.

People?s overestimation of what others will pay extended even to intangible or imaginary goods, such as a trip to the moon or a magic pill that would immediately enable one to speak French.

People did a better job at assessing what others might be willing to shell out when the price was in labor rather than dollars and cents, such as the number of pencils a person was willing to sharpen in order to acquire the good.

When the price is manual labor, we can?t assume that it?s so much easier for the other guy to spend more.

So, how do we figure out a realistic price when we find we can?t attend that concert and must resell the tickets?

?The typical bias is about 40 percent,? Frederick said. ?So, it may sound like crazy advice, but you should go with your intuition and then divide by 1.4.?

Source: http://bottomline.msnbc.msn.com/_news/2012/01/06/10010357-most-of-us-would-really-suck-at-the-price-is-right

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