Friday, January 13, 2006
For chocolate lovers
Normal Friday gym workout this morning but no breakfast just a cuppa of tea for special reason. Talked about the horrendous deaths in Mecca. How could so many die in a stampede? Visited 2 persons at SGH.
Now to something more interesting.
From Today's FT:
A few weeks ago an interesting experiment was undertaken at the Brussels
food fair, a yearly affair where food lovers wander around among the many
stalls stuffed with all imaginable delicacies. A shop was put up selling
boxes of Belgian chocolates. The first day the price was set at $9 for each
box. Sales went well. The next day the price was raised to $15 per box.
Steeped in economic theory, you might think that demand now declined.
Wrong. Demand doubled. On the third day the price was lowered to $2 for
each box. Demand for chocolates collapsed. What went wrong with the law of
demand?
The explanation is given by psychologists. It is very difficult, if not
impossible, for the consumer to find out the quality of chocolates by just
looking at their appearance in the shop. When confronted with such
uncertainty about the intrinsic value of things, consumers use simple rules
of thumb that they understand. Psychologists call these "heuristics". In
this case, the price of the chocolates provides the rule of thumb.
Most consumers have some experience that allows them to associate high
price with high quality. It is not always like that, but on average it
probably is. Thus when looking at the $15 box the consumers infer that the
high price reflects high quality and they buy the chocolates. Consumers who
see the boxes priced at $2 infer that the quality of these chocolates is
not to be trusted, and they do not buy them. The law of demand is turned
upside down.
Ha ha, would u respond the same way?
Now to something more interesting.
From Today's FT:
A few weeks ago an interesting experiment was undertaken at the Brussels
food fair, a yearly affair where food lovers wander around among the many
stalls stuffed with all imaginable delicacies. A shop was put up selling
boxes of Belgian chocolates. The first day the price was set at $9 for each
box. Sales went well. The next day the price was raised to $15 per box.
Steeped in economic theory, you might think that demand now declined.
Wrong. Demand doubled. On the third day the price was lowered to $2 for
each box. Demand for chocolates collapsed. What went wrong with the law of
demand?
The explanation is given by psychologists. It is very difficult, if not
impossible, for the consumer to find out the quality of chocolates by just
looking at their appearance in the shop. When confronted with such
uncertainty about the intrinsic value of things, consumers use simple rules
of thumb that they understand. Psychologists call these "heuristics". In
this case, the price of the chocolates provides the rule of thumb.
Most consumers have some experience that allows them to associate high
price with high quality. It is not always like that, but on average it
probably is. Thus when looking at the $15 box the consumers infer that the
high price reflects high quality and they buy the chocolates. Consumers who
see the boxes priced at $2 infer that the quality of these chocolates is
not to be trusted, and they do not buy them. The law of demand is turned
upside down.
Ha ha, would u respond the same way?
// posted by sleepless wherever @ 6:22 PM 
