Book Review – The Price of Everything: Solving the Mystery of Why We Pay What We Do by Eduardo Porter
Looking for more novel pricing strategies for business, I picked up a copy of The Price of Everything by Eduardo Porter. Although I didn’t find much practical advice or directly applicable research in the book, some of the insights were quite fascinating. Porter examines the prices of things that we don’t normally associate with being for sale – women, votes, culture, and lives, for example.
What’s a Woman Worth?
Different cultures place very different values on women. In India and some other Asian nations, a daughter is a liability because the family will be obligated to pay a large dowry to secure a husband. Furthermore, daughters play no role in supporting their parents later in life, while sons stay home and do take on that responsibility. Porter reports that the average dowry in Goa hit 1 million rupees in 1981 after rising 15% per year for six decades. The high price of having daughters has created a gender imbalance. As a result of ultrasound technology and selective abortion, there are 24% more young boys than girls in some Indian provinces.
This gender disparity can create another price for woman: what an eligible bride is worth to a man. China’s “one child” policy created a somewhat similar imbalance in boy/girl ratios. Now, economists predict that by 2020, there will be 35% more men of marriage age than potential brides. This will make women costly. Chinese families have been saving at a prodigious rate, in part to enable their sons to compete in a tight marriage market. Former Fed chairman Alan Greenspan cites the Chinese gender imbalance and high savings rate as one cause of their being so much money available to inflate the worldwide housing bubble that was a key part of the global financial crisis.
The Price of Life
That lives have a price isn’t news, since regulatory agencies and insurance companies deal with that issue on a daily basis. Porter brings a variety of examples together to show the disparities in placing a value on a human life. One study by the Consumer Product Safety Commission used a value of $5 million per life saved in calculating the benefits of a change in mattress specifications. Looking at the costs and benefits of various regulations, one rule intended to protect workers from occupational exposure to formaldehyde was found to save only one life per hundred years, putting the price on that life at $72 billion. EPA regulators use a value of about $7.5 million per life. That’s the United States, of course. A World Bank study pegged the life of the average citizen of India to be worth less than $100,000.
In a chapter titled “The Price of Things” Porter touches on a variety of product pricing issues. Unfortunately for managers and marketers, the discussion is largely theoretical, starting with how prices were set throughout history and how their pricing fairness was evaluated by philosophers and economists. He discusses price discrimination (the legal kind) and its ability to extract more money from early adopters or customers who aren’t price sensitive. (For example, concerts that segmented the venue into sections with higher and lower prices were found to earn 5% more than those that used a single ticket price.)
Business readers will find slim pickings in this book, particularly Neuromarketing readers hoping for new research-based pricing insights. An important omission is the fascinating neuroeconomics research on the pain of paying by CMU’s George Loewenstein and others; clearly, our brain’s painful reaction to high priced items is one key in “solving the mystery of why we pay what we do.”
Overall, The Price of Everything is an engaging read that will show readers how just about everything has a price, implicit or explicit, and that our decisions are based on those prices whether we realize that or not.