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The Price of Everything

Solving the Mystery of Why We Pay What We Do

By Eduardo Porter

Back in the 18th century, Adam Smith believed that products had an unshakable value equal to the cost of the labor put into them. Porter has a different idea. Prices - how they are set, how people react to them - can tell us who people really are.

Porter marshals an impressive array of research to show all the ways consumers can be shortsighted, self-indulgent, oblivious and inconsistent - not to mention hugely vulnerable to profit-eyed marketers. The information age has further scrambled the relationship between labor and value. How would Smith explain the existence of an iPhone app called "I Am Rich," which did nothing but flash a red gem on the screen and retailed for $999? Or the computer users who routinely buy new cartridges rather than refills for their printers, effectively laying out $4,731 per gallon of ink?

Most of Porter's evidence is culled from sources like the National Bureau of Economic Research and The Journal of Economic Perspectives - outlets that routinely publish fascinating research cloaked in jargon. His main feat lies in scouring, translating and synthesizing the latest findings of social science into something that the curious layperson would actually enjoy reading.

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Study of young children offered choice of chocolate or broccoli were more than twice as likely to take vegetable if it had a sticker of Elmo on it.

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90% Americans think polygamy is morally wrong - more than those against human cloning, abortion or the death penalty. Yet it has been popular, and taken for granted, for most of human history. Polygamy gives women more options: they can marry above their station. "Which woman wdn't rather be John Kennedy's third wife than Bozo the Clown's first?"

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By the 1980's men and women discovered that the things the family had been designed to provide - dinner, laundry, sex and kids - cd be had without it.

Radiohead's 2007 expt with putting album online and asking downloaders to pay what they thought it was worth.They made abt $2.26 a download, which wasn't bad because they didn't have to share any of it with a record company. And then when the album was released as CD, sold 3 million copies (twice sales of previous 2 albums).

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M.I.T expt where offered students a choice of a $10 Amazon gift card for $1 or a $20 card for $8. Almost everyone made rational choice and took the $20 card because it offered more profit. But when they reduced the price of each item by $1, a funny thing happened - everyone switched to the free $10 card, even tho the alternative wd have netted them $13.

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Some autors have found the same. Paulo Coelho, the best selling author of The Alchemist claimed file-sharing boosted sales of hard copies of his book in Russia by several orders of magnitude.

'Bookaneering'. In 1790 US Congress passed first American copyright law, protecting American books for 14 years after publication. So American printers cd copy everyone else's work. Even when changed the law in 1891 (because American authors were being pirated in Europe, they only protected foreign works if they were typeset in US. This lasted until 1986, leading many European authors to complain abt 'bookaneering' American piracy.

Members of Congress claimed that it provided cheap books for an increasingly literate society.

Copyright is probably becoming obsolete - hackers have always managed to get around digital defences. So content providers have to rethink their revenue model. Think of a CD as a promo for the concert and Tshirt sales. The point is to get the consumers to sort themselves into different groups according to their willingness to pay.

Europeans are more likely to believe that wealth is due to unearned luck, rather than the result of your efforts. Believers in the unfairness of the world, they prefer high taxes and aggressive income redistribution to impose justice on an unjust society. 90% Americans say hard work will lead to a better life; less than 50% of Europeans do.

Our morality is irrational. We don't eat horses, and in America it is illegal. It's ok to kill them to export to other countries where they do eat them, or feed them to the lions in the zoo, or turn them into pet food, but not to serve them to humans.

Our morality changes. Indentured servitude was once a common way for Europeans to pay for their passage across the Atlantic; today it is banned across the world. Usury used to be a sin; today it is called credit.

Wide variation in laws abt donating kidneys, for example. In Israel, people with Donor cards get to jump the queue if they need transplant. Iran authorised direct payments in 1988. But in most of world illegal to pay donor. Fear that poor people wd sell for money. Yet they let poor people enlist in the army, where they vastly increase the chance of violent death in exchange for a wage.

Pascal's Wager indicated a new way of looking at religion - a service for which we shd be willing to pay a price. And it turns out that people choose their religion on a cost-benefit basis. You can 'pay'for yr afterlife benefits with either yr money or yr time. The rich donate more and spend less time at church. They have more opportunities in the secular world, and more choices, and they tend to choose less demanding faiths as they have more to lose from strict moral codes.

By contrast the most fervent and strict religions tend to be most popular among the least educated, which have fewer options elsewhere and are thus more willing to invest the time, energy and commitment. Evangelicals, Mormons and Baptists, the Christian denominations with highest church attendance in US, are also those whose congregations are the least educated and so the most likely to believe in heaven and the devil.

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When faith is assaulted by secular temptation, churches' first reaction is to raise high the walls, demanding that believers sacrifice more to prove the purity of their faith. Some might leave as faith becomes more costly, but for those who stay the rewards will be correspondingly higher. This pattern is apparent in the paradoxical emergence of Ultra-Conservative Judaism in eighteenth century, just as the Enlightenment swept through Europe and gave more economic opportunity to European Jews. Most Jews responded in way you'd expect: they took advantage of the opportunities to prosper, and as the value of their time rose, they cut back on religious participation, giving rise to more relaxed forms of Judaism. But the Ultra-orthodox sects went in the other direction, demanding more sacrifice from members. They froze clothes, eating habits and lifestyle in ways prevailing in eighteenth century Central Europe.

The Catholic Church went the other way - tried to accommodate an increasingly secular world. Instead of tightening up the rules they tried to keep them flexible, possibly fearing loss of members. But many have decamped to stricter and more fervent denominations.

Porter's basic thesis is that religion is tied to income. His explanation for the number of active religious in the US is that economic progress has left many pockets of (comparative) poverty, and those are the ones embracing religion.

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