In Dan Ariely’s book Predictably Irrational, the famous Veladone RX experiments conducted on a college campus vividly exposes our bias to the power of price when participants of the experiment were able to withstand more pain from electric shocks taking the full-priced painkiller than those that took the discounted cheap painkiller pill.
Although we later learn that both painkillers were placebos (vitamin C), we wanted to dive into the power of price and how that affects our social decisions when making purchases that have to do with health.
In Ghana, it is not uncommon that a member of my family has malaria from time to time. A friend of mine,
Basha the pharmacist, tells me there’s an alternative to the more expensive anti-malarial Coartem 3-day course by Novartis which generally costs anywhere from Ghc35 – Ghc39 equiv. $8-$9. The alternative referred to as ACT Artefan is subsidized and costs roughly $1 or Ghc5.
My understanding from Bendi, another pharmacist friend, is that pharmacies only pay the shipping of the product and Bill Gates pays the rest. Regardless what the truth behind the subsidizing authority or body, there’s an 8x price difference.
The BIG Question is: Which anti-malarial will you buy for your sick daughter or son or spouse? Not only are they weak in bed shivering from fever with sweat dripping from their forehead, but also too weak to move or eat or drink.
Will you go for the discounted ACT or will you ask for the original fully-priced 3-day course and more expensive drug? Even though we know they’re the same, many of us go for the expensive option.
The Dan Ariely series are inspired by:
John Mihaljevic of the Manual of Ideas. John Mihaljevic, CFA, is author of The Manual of Ideas, the bestselling book on value investing.Manual of Ideas.John is also founder of MOI Global, an invitation-only membership community of intelligent investors. It publishes the Manual of Ideas, “the very best investing newsletter” (Pabrai). John is also a managing director of ValueConferences, the series of fully online investment conferences for sophisticated investors. He has also served as managing partner of investment firm Mihaljevic Capital Management LLC since 2005. He is a member of Value Investors Club, an exclusive community of top money managers, and has won the club’s prize for best investment idea. John is a trained capital allocator, having studied under Yale University chief investment officer David Swensen, and served as research assistant to Nobel Laureate James Tobin. John holds a BA in economics, summa cum laude, from Yale and is a CFA charterholder.
Dan Ariely of Duke University. Dan is the James B. Duke Professor of Psychology and Behavioral Economics at Duke and a founding member of the Center for Advanced Hindsight. Dan’s books, Predictably Irrational, The Upside of Irrationality, The Honest Truth About Dishonesty, are NY Times best sellers. Dan also has a podcast “Arming the Donkeys”. A new book by Dan and Jeff Kreisler is expected to go on sale November 11 2017 titled Dollars and Sense.