Great expectations

It wasn't until I went to pay that I discovered my mistake. I'd found the place on the internet and booked by email. It sounded like bliss - two nights in a luxury boutique hotel on Waiheke Island, a gourmet dinner and a massage. And so it proved.

But when I fronted up with my credit card at the end of the weekend I realised I hadn't looked closely enough at the price. It wasn't for the two of us. It was per person. Whoops.

Sucking up the shock, I let the credit card take the full impact and walked in a daze back to the suddenly twice-as-expensive room to 'fess up to my husband. He wasn't concerned - he'd known the correct price all along.

"It doesn't matter," he said, trying to reassure me. "We can afford it."

"That's not the point," I said. "If I'd known it was costing that much I would have enjoyed it twice as much."

I couldn't help feeling ripped off and not just because I had to shell out unexpected extra money (which did hurt). I felt cheated because my husband had just had a half-share of an $1800 weekend while I'd split a mere $900 one.

Baba Shiv, a professor of marketing at Stanford University, laughs at this story. It's just the kind of illogic that he delves into every day in his studies into the complex relationship between our expectations of a product or service and the pleasure we get from it.

But one day last year he and several colleagues made a discovery that made even them reel - and may give you an indisputable excuse to go out right now and buy a Ferrari or, at the very least, a bottle of Bollinger.

Shiv and his colleagues were doing some testing for a paper that later came to be called "Marketing actions can modulate neural representations of experienced pleasantness". That's academic-speak for "you get what you pay for." Or, to be precise, "you get what you think you pay for".

With neuro-economist Antonio Rangel and psychologist John O'Doherty, both of Caltech, and Stanford researcher Hilke Plassman, Shiv recruited 20 occasional red wine drinkers for a wine tasting.

Firstly, they offered their subjects a cabernet sauvignon marked with a US$5 ($6) price tag. They also produced one with a US$45 ($56) price tag. And which do you think the drinkers said they preferred? Yep, the more expensive one.

What the volunteers didn't know was that the $45 label was a fake - both samples came from the same $5 bottle.

Similarly, the academics had the swillers taste a wine priced at US$90 and one priced at US$10. Again they claimed to prefer the one they thought was more expensive. And again both tastes were from the same $90 bottle.

So it seemed that people preferred wines they thought were more expensive. Sounds like mere superficial snobbery, doesn't it? Well, there's a little more to it than that. The scientists later discovered something that had them popping champagne corks themselves.

This isn't the first exploration of the relationship between our expectations of a product and our experience of it. Scientific journals are full of evidence of the power of the placebo effect - that our expectations, from price, brand, marketing, etc, affect a product's efficacy.

In one often-quoted study, participants who were given two cola drinks - one branded Coca-Cola, the other generic - said the branded drink tasted better, though the two drinks were in fact the same.

That's a fairly simple take on the way our preferences are coloured by our expectations. To take it a bit further, let's look at a study from North Carolina's Duke University and the Massachusetts Institute of Technology in which academics, including Shiv, enlisted 82 volunteers and gave them all electric shocks.

Half were given what they were told was a new painkiller that cost a hefty US$2.50 a dose. The other half were given one they were told was discounted to US10c. Both were actually sugar pills.

Almost all of those who took the supposedly more expensive pill said it eased the pain of the shocks, compared with 61 per cent of those who took the "discounted" pill.

Wow, so price can actually help us deal with pain - or at least think we're dealing with pain. Is there a difference?

Shiv decided to do a bit more experimentation with the placebo effect. He assembled two groups of students and gave each person an energy drink that claimed, on its packaging, to increase mental acuity. The members of one group were charged the regular price of US$1.89 for the drink, the others told they were getting a discount that made the drink US89c. Each student was then asked to solve a series of word puzzles. And what do you know? Those who paid more for the drink did significantly better at the task.

So when it came to the wine-tasting experiment, the logical step for Shiv and co was to take the research to a place no other placebo studies had explored - the brain.

I should explain that it wasn't your average wine tasting. Instead of drinking from glasses, the participants - all Caltech graduate students - were asked to lie down while a millilitre of each wine was fed to them through a tube and an fMRI (functional magnetic resonance imaging) scanner mapped the blood flow in their brains.

The researchers didn't expect anything interesting to show up in the scans. "I gave it one-in-100 odds because, if you think about it, the brain should only be influenced by the instrinsic properties of the wine, and maybe the context you are in and your mood and so on, but it should not be influenced by such things as price, which is much more of a cognitive kind of thing," says Shiv.

But when the results started coming in they got an inkling they were on to something big.

They found that the increasing price also increased the (stay with me now) "neural computations of experienced utility that are made in brain areas such as the medial orbitofrontal cortex".

What that means, is when the students drank what they thought were the more expensive wines, the part of the brain that reacts to pleasure (which is roughly between your eyes) became "coded" with activity. In other words, it fired up.

So the drinkers not only preferred the wines they thought were more expensive from a subjective and superficial assessment, but there was a measurable physical surge of pleasure.

"That was just phenomenal," says Shiv, who celebrated with a bottle of champagne (though he had to get his wife to buy it and remove the price tag).

But - and here's where it gets a bit mind-boggling - was the volunteers' pleasure real, or were their brains playing cheap tricks on them?

"It's real pleasure," says Shiv. "There's one true, real benchmark for assessing how much pleasure one is experiencing, and that is to look at how much pleasure the brain is experiencing. And that's what was surprising. We all know that price modulates people's perceptions of quality and so on. This is a study that shows it's not just perception, it is real in the sense that it does influence where the brain codes for this consumption experience."

So does this mean that more expensive things are more rewarding purely because they're more expensive? "I think so, I truly do think so," Shiv says.

Wine was an obvious medium for the experiment because of the logistics of measuring the immediate effects under the scanner, the huge variation in its price and the ability to disguise it, but it's possible that we get the same effect when we drive an expensive car or wear designer clothes. Shiv cites the example of a woman who buys an expensive dress at full price compared with a woman who buys the same dress for a discount - the woman who paid more is likely to use it more, keep it longer and wear it to more formal occasions than the woman with the cheaper one.

But wouldn't people also derive pleasure from getting an expensive item on sale? "Absolutely," says Shiv. "Pleasure's a multi-faceted process. You go to a store and you find an expensive wine that is on sale. That is going to give you a lot of pleasure - the fact of discovering a good deal gives you a lot of pleasure. The point is that the day after, when you get into the consumption phase, the same low price that you paid is going to come and hurt you because you're going to derive less pleasure from the thing."

Shiv says he'd love to do a placebo experiment on cosmetics - does the price of a face cream affect its potency on your skin?

"Women spend so much on cosmetics - some of the creams and lotions, oh my goodness, are more expensive weight for weight than gold."

So perhaps the market for luxury goods is not just about conspicuous consumption, or even about quality. Perhaps it's simply about our brains being fooled by our expectations - we get more pleasure at a subconscious level from spending more money. It puts a whole new slant on the term "retail therapy". Why shouldn't we buy expensive things with wild abandon if, as this experiment suggests, they can make us happy?

Perhaps canny retailers should artificially inflate their prices so we get more pleasure or a better result from the goods we purchase.

You could look at it two ways: firstly, that you're wasting your money buying expensive wine; or, secondly, that expensive wine is worth the money for the effect it creates. Either way, next time you're having a party, pour your Lindauer from a Moet bottle in front of your guests and not only will you save money but you'll make them happy.

If our brains are doing such a good job in fooling us, perhaps the answer - for the sake of our finances - is to fool them back.