Chapter 2 of Predictability Irrational

In chapter two of Predictability Irrational, Dan Ariely explains pricing and how consumers pay for these prices through an example of pearls. He first brings up this idea of anchoring, anchoring to humans is like imprinting to animals. What anchoring means for pricing is that it is the set amount we are willing to pay, the initial price that we see for an item is what stays in our minds. Another point that he brings up is the idea of behavior and self herding. Behavior herding is when we assume something is good or bad on the based on other peoples experiences with it and self herding is our own previous experience that can determine how we buy an item. The last concept that was brought up were "illogical forces". Illogical forces are what attribute to our emotions and what could skew our buying at overly high prices. Continuing throughout the chapter Ariely provides examples of how not to get influenced by these illogical forces and thus eliminating irrational decision making.

Anchoring is the first price we see on a new item, and we "anchor" that price in our heads so we can compare it to other prices. While arbitrary coherence is when we see a price it is arbitrary and we will use it compare present and future prices. If a college student saved $3000 to buy a used car they would have that price in their head and they would acknowledge don't have the money to spend on extras like electronics and clothes. They would recognize that the money they saved up for a car is worth a lot and was difficult to accumulate, so they wouldn't spend a lot of money on a quick fix like a new electronic or a shopping spree. Retailers and businesses are very aware of anchoring. This is how they get consumers to pay higher prices for products that seem different. One example of this is Starbucks vs. Dunkin' Donuts. Starbucks creates an environment for the consumers to come there over DD because they offer more choices, with special names, and a cool poetic environment. All of these lead to consumers feeling like they are getting extra so they willing to pay for the "extra incentives." Lastly the fallacy that falls behind supply and demand is that they aren't the true driving factors behind market prices. In reality anchoring and arbitrary coherence are what drive market prices up and down.

Elbow- The Believing Game

In Peter Elbow's essay, "The Believing Game- Methodological Believing", he discusses how important it is question certain beliefs. He does this by explaining two ideas, one called the "believing game" and the other called "doubting game." The "believing game" is when we belief every idea brought up to us and the "doubt game" is when we are more skeptical of other ideas and question it. He states that it good to follow the believing game and to accept ideas rather than just to reject them, but to do this with a doubting game lens. This way we acknowledge the new idea as well as analyzing it through critical thinking. He concludes by saying that the methods together create the best way to analyze ideas and beliefs.

Class Activity: IC Book Store

On your blog, provide an example of how a vendor groups products on the shelves, counters, or wall space to get consumers to NOT price match (e.g., during the Oscars, you’ll see popcorn buckets, popcorn kernels, and seasoning salt placed near the cash register at inflated prices). Describe the grouped items, list their prices, and locate the equivalent products elsewhere in the store at the lowest price available. How are the concepts of price sensitivity and price-targeting deliberately used by these vendors to increase sales? What are possible leaks? Include photos of the items and their prices.


At the IC bookstore I observed the store's sweatshirts. In the center of the store they had the name brands, like nike and under armor on sweatshirts with the Ithaca College logo. These brands are a lot more expensive and attract customers. In the back of the store stacked on the racks there was hoodies with the same Ithaca College logo but no name brand on the top of it. The sweatshirt with the name brand cost $64.99 and the other shirt cost only $34.99. The store preciously put the more expensive hoodie in the middle of the store where everybody has to walk by. While the cheaper sweatshirt was placed on the side of the store towards the back. Since the price sensitive buyer has to walk past the more expensive hoodie they may be more likely to buy the more expensive one because its in a more convenient spot and the brand is kind of like an insurance policy for good quality. One possible leak is that there is a store in downtown Ithaca that sells Cornell and Ithaca apparel for a lot cheaper than the book store. The only thing is its out of the way and inconvenient for the customer to go down town when they are already on campus and can get the product right away but for more money.





Professor Silva I tried uploading my photographs many times but they kept freezing my computer, in the end it didn't work.

Harford The Undercover Economist CHapter 2

Summary
In chapter two of The Undercover Economist, Harford discusses the scarcity power that industries have  to make customers pay more.  One example that he uses is Costa Coffee. The Costa Coffee shop is conveniently located near the London Eye, one of England's most popular tourist spots. The owners of the shop overcharge their coffee because consumers are willing to pay it. Tourist especially are more susceptible to pay overpriced items so the company has the convince factor and perfect location.  However consumers have the overall power not to go to Costa Coffee, thus it doesn't give the company all of the scarcity power. Now they have to look at more strategies. The first strategy that Harford addresses is "unique target strategy" which is done when a company observes the individuals. The second, and more efficient strategy, is "group target strategy". Here the company will offer prices to different groups of people. The third and final strategy is called, self-incrimination, this is where companies sell products in different ways and locations. Super markets are using these strategies all time. They sell similar products with different brands, locations and prices and this allows the consumer to have control of some part of their shopping experience. Supermarkets also use tactic called price targeting to see if consumers will pay higher prices, they do this most often with organic foods.

Questions

Harford explains in the chapter supply and demand isn't the only reason why people pay high prices, some other reasons are for convenience and quality. Retailers are very aware of the factors of pricing. I personally have seen prices get marked up do to location. For example my family and I live in a middle class neighborhood and town so when we go to the local grocery store prices are a bit more than they are a town over that is know as less well off. So retailers know the location of where they can overprice customers. Some of the strategies that retailers used to determine who is or isn't price sensitive are unique target, group target and self incrimination. Unique targeting is when its altered to the individual, group targeting is when the group is focused on and self incrimination is when companies sell products that are similar but for different prices. According to Harford grocery basket from stores like Whole Foods or Wegmans are cheaper than stores like Aldo's and Tops because they have more options so more opportunity for cheaper products. Some strategies retailers are using to get consumers to shop at one store over others is by having sales, coupons, and location availability.

Harford Undercover Economist, Chapter 1

Summary In chapter one of Tim Harford's book, The Undercover Economist, he discusses how scarcity and bargaining power impact the economy. He uses an example of farmland to create a connection to one of today most popular resources, coffee. The farmer has to choose between the meadowland where its more expensive but where rich crops could grow or the scrubland where its hard to cultivate but its less expensive.Then there is also another term Harford uses, it called marginal land. The marginal land is place in between being cultivated and no being cultivated. Ultimately the landlord has the power to determine the price of rent for these regions. This concepts correlate directly with coffee shops, coffee shops that are put in the most convenient location and timing will have the most success. So landlords will charge rent more for coffee shops in areas where there will be more product productivity. Even though price is a factor that consumers tend to skew their spending, when individuals are in a rush to work in major cities they tend to become "price blind." Later in the chapter Harford is able to see how scarcity directly creates a bargaining power. This change in balance is the reason why there are sudden rises and falls in prices, its all about supply and demand and who has the power to budge. 

Questions
Scarcity power is when there is a shift in scarcity it follows with a shift in bargaining power. What this means is the more scare a product is the company owner has the power to charge the consumers more, but this role can also switch. When there is more supply and not enough demand the owner will decrease the price to appeal more to the consumers. The way store owners or retailers try to take advantage of their scarcity power is by having prime location and by increasing the prices or having the consumers bargain until the owner settles and gets the highest price. This is what famers do and what coffee shops do. They compete for the meadowlands so they can have the most productivity, but the cost is in the expense the landlord charges for rent.The significance of marginal lands in determine prices of rented property is that it creates competition, so rather than paying high rental prices, consumers will be likely to pay less for a worse location. The downfall to having marginal land rather than a meadowland is that since the location isn't prime they aren't going to make as much productivity as someone who rents out the meadowland for more money. Some external factors that can drive up prices are location, rent, competition and marginal lands. The location specifically can drive up prices because if a store is located in a place where the owner can raise prices and consumers won't care as long as they get the product they demand. This why Starbucks can manage to have such high coffee prices, because they are located in the most convenient locations. In todays job market having a college degree of a (BA or BS) will help to an extent, but since they don't hold much scarcity power because it is more scarce to continue ones degree for a masters or doctorate.