There’s a notorious experiment in economics.
Basically some researchers (and they probably got some sort of government grant for this) went to a fair and sold chocolates. Over a number of days they experimented with the price. Sometimes they put it up, sometimes down.
What they found surprised them. Basic economic theory says that when the price goes down, you should expect to sell more. But that’s not what happened. When they lowered the price, they sold less. When they put it up, they sold more.
To the buyers, price became a signal of quality. If the price was higher, then it must have more value. It must be better chocolate. And I want some of that fancy chocolate.
Of course, this result wouldn’t surprise anyone in the advertising industry. They know that price is a fundamental part of the product’s image. And there’s a lot of jostling in the market for the premium buying price points – the second cheapest or the second most expensive.
You want to be cheap, but not seen to be the worst product on the market. Or you want to be seen as a premium product, but not over-priced.
It seems that humans just aren’t much good at distinguishing between price and value.
Let me say that again. I reckon it’s the most important thing you’ll read this week.
Humans aren’t much good at distinguishing between price and value.
I think this is one of the greatest traps and one of the greatest obstacles between us and happiness – and between us and our financial dreams and ambitions.
Because what happens to us if we can’t distinguish between price and value? The danger is that the value we place on ourselves – our sense of self-worth – becomes a function of our price in the market – our hourly rate or our annual base salary.
Now I can put that statement out there, and you can think, “Oh, I don’t do that.” But you’re not the “I” I’m talking to. I’m talking to the animal-instinct “I” – the part of the brain that does it’s best to deal with a complex world through a complex mix of heuristics, instincts and associations.
And if you think you’re immune to this, think again. Most people surveyed say that advertising has no affect on them. The advertising industry has $10 billion a year that says otherwise. Who do you think’s kidding themselves? Advertisers or us?
We just don’t have time to deal with all the information on our plate. And soe develop short-cuts, simple rules of thumb, just to get by. Conflating price and value is just one of them.
And the consequences can be dire if we don’t put a check on ourselves. It can be a brutal blow to your sense of self-worth if you tell yourself you’re only worth $25.20 an hour. Or that you’re only worth one 1/10,000th of a Paris Hilton.
And if we think that $60K a year is all we’re worth, then that is all we’ll allow ourselves to receive. We won’t be open to getting ahead financially in life, because, deep down, we don’t believe we are worth that much value.
We’ll erect a sub-conscious, perhaps even meta-physical barrier to real wealth.
Look, I don’t pretend to know how this works exactly. Perhaps there is even a ‘spiritual’ element to this. I’ve seen enough things in my time that make me question the power of pure coincidence.
But I do know that our attitudes shape who we are. They shape our abilities to grasp opportunities, to take important risks, to find peace with being rich.
If you don’t do the work here, then the financial road is a lot tougher. And all the financially successful people I know have liberated their sense of self-worth from simple dollars and cents.
So how can we do that?
Well, I’ve got two tricks for you. You can see what works for you. You could even try them together.
The first is to remind yourself that money is essentially meaningless. It’s just little bits of paper that hold a shared understanding. And money does a truly horrendous job of approximating value.
I mean, apparently Paris Hilton charges $150K just to show up at your party. Can she really be delivering $150K worth of real value? I’d want to see some pretty amazing balloon animals for that price tag.
No, the world is full of ridiculous things to waste money on – jewellery, boats, Paris Hilton. We can rest assured that price tags in the modern era have nothing to do with value.
The second (very powerful) technique is to focus on how much value you’re bringing to the world. Look beyond the things you get paid for. Make a list of all the ways that you bring value to the world – to the contributions you make to the lives of others
And keep it in perspective. If Paris Hilton gets $150K for a few hours of face-painting, how much do you reckon you should get for raising beautiful children, keeping the sports club ticking over, being a rock for your friends?
Maybe you get to a ballpark figure of half a million. And so you’re bringing half a million worth of value to the world every year, but you’re only getting paid $60K. That’s $440K a year the world owes you.
Hold on to that sense of outstanding balance. Focus on the value you bring to the world. If you don’t have a sense of outstanding balance, then you can always do more for the world – donate some time to charity. Spend more time with you’re kids. Mow your mates lawn.
The important thing here is to create the expectation and belief that the world is looking to settle the score. That it is looking for ways to send more money your way.
If you can do that, then you’ll be open to the flow of money that’s looking for you. You’ll see the opportunities when they arise. You’ll find yourself in the right place at the right time.
And maybe then you’re bank balance will finally reflect the value you bring to the world.
At the very least, we’ll do a much better job of valuing ourselves. And that can’t be a bad thing right?