Interview: William Poundstone, author of Priceless, on anchoring, fairness, and the myth of “fair value”

In this episode, we talk with William Poundstone, author of Priceless, about how pricing psychology shapes behavior. From anchoring and fairness to flat-rate bias, we explore how marketers can use behavioral science to influence value perception and drive smarter pricing decisions.

Transcript

was for a salary of $160,000 a year, but it's a company that is known to pay
certain MBAs as much as $200,000 a year.
Overwhelmingly, the students said they, they preferred the first offer, which
actually had $10,000 less money because it seemed more fair. They didn't like
the idea that they were being told, we're gonna pay you $160,000. But of course
there are some people over here we're paying more. That didn't seem fair.
And they were willing to accept less money for what they saw as being a, a
more fair offer. So, and you have to [00:27:00] figure, MBA students are much
more hardheaded than the average person. They're less emotional about this, but
even for them they were emotions kind of trumped the actual numbers. So it's a
really powerful influence and first game, Kahneman realize that this is
something we really have to first acknowledge and then maybe look at how we
can harness.
Richard Shotton: And when it comes to harnessing, have you, have you seen
any examples you think of businesses or brands applying this very well?
William Poundstone: Well I think a lot of things do I mean, when you have
things like even a, a, a, you know, a streaming service that has a flat rate that
seems very e egalitarian, it's the same for everyone.
You're not being charged more because you watch you watch more TV or
something. So I think it's part of the appeal of, of a lot of things really.
Richard Shotton: Have you ever speculated or does Besam speculate on why
this this fairness bias occurs?
William Poundstone: Well, that's a good question. I [00:28:00] think we are
very much social creatures.
We kind of know you have to get along with people. And it's just easier to do
that when you have something that you can spin as fair. And it doesn't
necessarily mean it has to absolutely be fair in any particular ethical or moral
sense, but it's really the perceptions that are very important here.
MichaelAaron Flicker: I was, I was, I was thinking about a question around.
Do we think that there's difference between claimed research like this study that
Kaman was just talking about, an actual behavior, like when if they were
actually being made an offer, would they still choose one 50 over one 60 when
they had two offers next to each other? Is, is there any discu, have you, have

you thought through that or is there any, any, any reference points that you have
Bill, about actual behavior changes rather than just claimed actions?
William Poundstone: I'm not aware with that. [00:29:00] Particular study by
Beman. But yeah, with a lot of these studies, they do try to get real world data
as well, because that's the best sort of experiment. So it, it is definitely
something they, they look into. In the case of Kaman Anderski they said that
their modus operandi was that they would first take an A phenomenon that they
seemed to.
See happening in real life and then figure, this has not been published. Let's see
if we can devise an experiment that captures this. And they usually tried to get
something where the effect was so overwhelming that you didn't even need to,
to, you know, use statistics to show that this is compelling evidence for this.
And for the most part, that's, that's what their research was.
Richard Shotton: I mean, it's quite hard to do the 150, 160,000 study in real
life 'cause it, it's such large scale. But I know that Beman and Sally Blount did
something with students with real money. So they [00:30:00] asked some
students back in the late nineties you know, to come take part in a psychology
experiment.
And they said they'd pay them $7 and other students were told we'll pay $8 and
then the little white lie comes in. But we did pay people previously. $10 and
they found that it was the group who were offered $7 who were more likely to
come in. So it went from something like three quarters of students accepting.
$7 down to about 55% accepting $8 when they were told others got, got, got 10.
So certainly on a small scale like that amongst a student audience that, that the
fairness point hold holds. So I think it is a, as you say, it's one of these
fascinating biases that I think you can see in claimed and, and observed data.
William Poundstone: It's interesting because in economic experiments like
that, they, they actually have been kind of, there has been inflation in the
amount of money they offer. They used to be incredibly cheap. They would say,
would you [00:31:00] rather have $1 or $2, something like that. But I've seen
experiments now where they're actually paying like $700 or something and
somehow they raise the money from from, you know, grant making
organizations and do that.
So it's not always as cheap or as trivial as you might think.

Richard Shotton: And then the other one I've seen, where they're both smaller
sums of money, but they loom large is taking a small grant and then going to
Malawi or Sudan or Papua New Guinea and running an experiment there where
the money can be up to, you know, a month salary.
Yet you still some see some fairness beha behaviors occurring. So I do love it
when you see the creativity of an academic to turn a small budget into, into
something meaningful. Yeah. One of the things I absolutely loved about
Priceless is it's a lot of small chapters packed with insight, information and all
the chapters.
William Poundstone: I, I, I can actually credit my father with [00:32:00] that.
Oh. Because he said when he reads a book, he likes for them to, to have short
chapters 'cause he doesn't know how long you'll have to read. So short chapters
are good and I've, I've tended to do that where at least in, in, you know, books
where it will fit that format.
Richard Shotton: Yeah. Yeah. Well, it certainly, certainly work, work works
on me. Of all those chapters, the one that I absolutely loved and it wasn't just
'cause there was pictures in the chapter, but was the one around menus, because
that seems to be like a microcosm for all the, these techniques. Could, could you
take us through a couple of your favorite techniques that menu designers use in
terms of pricing?
William Poundstone: Well, of course I fell into a rabbit hole with these price
consultants, but I found that there's a. Specialty in among the price consultants,
which are menu consultants because they're, you know, restaurants are one of
the most common small businesses and they can use this, this advice as much as
anyone.
So there are experts at designing menus and they've found [00:33:00] that, you
know, when you are scanning a menu. You're basically multitasking. You're
trying to make witty conversation. You're thinking about work, you're thinking
about home. So you're very easily distracted, and that means you're susceptible
to all these psychological tricks.
So the goal of menu design is to pack as many of these tricks as you possibly
can into a menu. So one of the things you'll see is that in some menus,
particularly old fashioned ones you'll see all the prices in a vertical column. And
they know that thrifty diners will sometimes scan down that column to see
what's cheapest, and then they'll sort of order from the few cheapest things.

Well, obviously they don't want you to do that. They want you to order, you
know what you want, which is hopefully more expensive. So menu designers
tell them to, to use a center justified arrangement for the menu, which means
that the prices [00:34:00] aren't in a column. They're all kind of in ragged order.
Now, the result of this is that it makes it just a little harder to go down the line
and compare prices. So instead you look at the the items themselves and you
choose probably the few things that look the best, and then check to see that
they aren't too expensive, but that as a result that you generally end up paying a
little more than you would've.
Another thing they do is that they tell you you should not use dollar signs, not
use decimal points, not use sense figures. So you just see 35 rather than $35 and
95 cents. By minimizing the price you actually cause the diner to pay less
attention to it, which is what you wanna do. Another thing is anchoring very
much applies to menus.
You'll see something like a seafood tower or a Wagyu steak that will be like a
hundred [00:35:00] dollars and very few diners may would want to even
consider paying that much money. But you look at that and then you realize that
that. $65 T-bone isn't such a bad price and you're more likely to, to buy it that
way.
Another thing you they do is use what's known as bundling. This is having a
number of items for a fixed price. So it could be a prefixed meal it could be a
combo meal in a fast food place whether it's an upscale restaurant or a cheap
one. It's the same psychology really. And the whole point of these bundles is
that it makes hard, it makes it hard to compare prices.
You don't really know what you should be paying. I mean, you know what a
hamburger might cost, but if it's a five course meal, it's harder to say. As
Richard Thaler, a famous behavioral economist said, the point of bundling is so
that you don't know [00:36:00] that you're paying $20 for two scallops. And of
course if you don't know that it's easier to do.
And they even use typography on menus. You'll sometimes see the certain
items are in boldface print or they might be in. Side of a box. They might be
located on the upper right can corner, which is usually the first place people
look. What this means basically is that these are the items that are likely to be
most profitable for the restaurant.
So that's why they're emphasizing them. Unfortunately, it doesn't necessarily
mean these are the best tasting things or the things that are the best deal. So, as I

say, having learned all this now, I can't look at menu without, you know, seeing
all these tricks. But probably like Donald Lichtenstein, I'm still gonna fall for
them just like anyone else.
Richard Shotton: Well, the one that. I, I really resonates with me from a
personal perspective is [00:37:00] the the anchoring. Like so many times I've sat
down a, a, a dinner, like seen as you say, the filet steak or the Chateau Brion or
the Lobster had a, a, a small moment of panic thinking, God, am I gonna come
out of this, you know, 200 pounds lighter?
And then I find myself looking at the, the rib eye or the rump and thinking few,
it's only $50. Which is a, a bizarre feelings have. So, yeah, I, I. I do love, I love
that menu chapter. I thought it was, and I thought it was amazing.
William Poundstone: Mm-hmm.
Richard Shotton: The, the other chapter I thought was, was, was brilliant and I
think both from a professional level, but also a, a personal one was the, the, the
final chapter.
And you talk about this amazing study around chocolate that people are given
an offer of a large cockroach shaped chocolate or a small heart shaped
chocolate. Could you, could you talk about that experiment, like what the
results were, but also why you chose to, to end the book on that?
William Poundstone: Well this was [00:38:00] an experiment advised by
Christopher shee at the University of Chicago. His name is spelled HSEE if you
wanna look this up. And he has made what I would call an art form out of doing
economics, experiments with chocolate rather than money. So, as you said in
this one, he just asked people, which would you rather have the big cockroach
shaped chocolate or the small heart shaped chocolate?
And you're told it's, it's stipulated that these are both the same fine chocolate.
And she has found that the vast majority of people say, yeah, I, I take the ch, the
cockroach shaped chocolate. They have a logical reason. You know, you're told
it's the exact same chocolate, you're just going to eat it. So it doesn't matter what
the shape is.
But the twist is that she then asks these people but which chocolate do you
think you would enjoy more? And without missing a beat, people immediately
admit, yeah, it's, it's this small chocolate [00:39:00] shaped like a heart. That's
what I did enjoy. So it's, it's, it's basically, you know, they're admitting that
they're choosing the option that actually is less enjoyable.

I thought this was a great way to end the, the book on because it really, I mean,
has so many implications in life. People, you know, in our consumer economy
feel that there is this, this, you know, prime directive that you have to, to make
as much money as possible, save as much money as possible. But maybe in this
case wisdom consists of realizing that money is a path to happiness, but it isn't
happiness itself.
So I thought that was a good thing to end on.
Richard Shotton: Yeah. I, I, I, I, I loved it as ending 'cause it feel almost a
slightly kind of tragedy about human nature, that we've got some insight into
what could make us happy, but we don't act on it. Yeah. What, why do you
think there is that [00:40:00] discrepancy? Do you think it, were you alluding to
it being social, social pressure, or, or what do you think accounts for it?
William Poundstone: Well, I think I, I mean, in talking, I've sort of asked this
to Daniel Kahneman when I interviewed him. He said that all these things
basically presumably have, have some survival value, some context in evolution
because we've had to, you know, our ancestors didn't always have enough food.
I mean, so you really did have to maximize that.
But they also were social creatures and they had to get along with. The people
who are around them. So somehow, I mean, these do all help us function in
society, but it's also important that sometimes you can take a, a general principle
and particularly with money, which is something that didn't exist for much of
human society we can make it just totally an end in itself.
And, and something that you want more and more of, which isn't really the case
with food. I [00:41:00] mean, with food, you, you, if after you eat enough, you
realize you don't want anymore. But we don't really have that effect with
money. So sometimes money we do take that maximizing too far.
Richard Shotton: I think, I think that's a, a, a really interesting one, this idea
that we've got neolithic brains, but we're operating in a completely modern
society.
And some of the, the supposedly irrationalities come from applying ideas that
were once super brilliant for. Survival, but now have unintended negative
consequences.
William Poundstone: Yes. I mean, Kahneman said that much of the, the
research he was doing on so-called economics really would've applied in the
Stone Age.

MichaelAaron Flicker: Yeah. And maybe, and, and maybe an an application
or extrapolation of this for brand leaders and for marketers is do you really need
to maximize all the profit and drive as much growth as you can? Or is there
benefits to [00:42:00] not having unbounded growth, maximum profits, and
could there be other benefits that you're not considering?
So you bill, you talked beautifully about how that may affect how we look at
our relationship to money versus food where, you know, there's enough food.
But how can brand leaders and business owners say maybe Unbounding growth.
Comes with other challenges that aren't worth the benefit of just focusing on
healthy growth or healthy profits.
Not extreme profits may. Maybe there's a connection there for folks to think
about as they're bringing back to their businesses.
William Poundstone: Yeah, definitely. And as I say, fairness, just the concept
of fairness is something that you're not necessarily taught to think about in
business school, but you know, they can show that.
It does make a big difference in deciding, you know, who do I wanna spend my
money with?
Richard Shotton: Well, one of the. Businesses we talk about in our, in our
book is Dyson and they, with all their pr, their advertising, they're always
emphasizing how much [00:43:00] effort they went to. So they have this line,
we went through 5,127 prototypes to get to the Bagless vacuum.
And I think. You know, we, you could explain why that's so powerful with
regards to, to fairness because people's conception about what's a fair price to
pay is often how much effort I think went into this product. Not what value will
this bring. So businesses, reminding people of behind the scenes effort that
might not be visible, I think is a way to apply that, that that fairness principle.
William Poundstone: Yeah, definitely. And I mean that's that's a factor even in
menus. One of the things that restaurants have to deal with is that the prices of
the food they, they're selling are constantly changing. And the consultants will
say, if you do have something that's more expensive, like eggs right now.
It's perfectly okay to say on the menu or just in the sign that, you know, eggs are
more expensive, so we're having to charge a little more for them. But we expect
to, you know reduce the [00:44:00] price when, when the price of eggs goes
down. So, I mean, people are reasonable about that as long as you convince

them that it's not price gouging, that it's just, you know, you are being affected
by this and you have to pass on the price.
People are much more accommodating.
MichaelAaron Flicker: Such a great message, at least, you know, depending
on when our listeners are hearing this. Tariffs are very much in the news right
now in America. And you know, some of the most recent news reports in early
August are late July, early August, 2025. That it's not affect, it's not only
affecting American prices at the shelf, but all the countries where these products
come from are having so much more cost levied on them.
And there has been a real discussion in the business community of how much
do you have transparency with your buyers that prices costs are going up
because of tariffs. And that's a politically charged issue here in America. But I
think that sense of fairness, that there's [00:45:00] not price gouging has been
very much at the forefront of lots of CEO's minds.
William Poundstone: Yeah. And it's definitely something you want to
communicate to your your customers.
MichaelAaron Flicker: So Bill, we have one final question for you before our
conversation comes to a close. And it comes back to you kind of thinking more
broadly about everything that you've worked on in Priceless. If you could have a
marketer remember only one pricing principle from the book, what should it be
and why?
What's the biggest takeaway you want folks to remember about pricing and how
it affects consumers?
William Poundstone: Well, one that I, I think is very important actually has
Richard Thaler called it The Principle Don't Wrap Up All the Christmas
presents in One Box. And it's, it's the idea that when you're selling something,
anything it's important to, to give people [00:46:00] multiple reasons.
To, to perceive value. So if you want to to sell a particular product, don't just
say it does this one thing. Say it does this other thing, it does this third thing so
that you have many reasons to contemplate it and. Contemplate how much it's
worth to you. This is applied by price consultants, basically on everything from,
you know, restaurants to to consumer products to business, to business products.
But it's a very important principle. The person is buying, not, not. What they
think the product is, but what your, you can convince them the product is. So it's

very important to, to have this idea that, you know, it's a multifaceted product
and you want to, to make sure they know that. And many people have a
different perspective being in business.
They think, oh yeah, I know what that product is, but your customer doesn't. So
you [00:47:00] really want to convey that to them because that's one of the big
determinants of value.
MichaelAaron Flicker: What a lovely way to end. Bill, thank you very, very
much for joining us today. Like every week we will take the conversations we
had with Bill, the studies that we mentioned.
All will go in the show notes. Of course, there'll be a link to Bill's book,
priceless in the show notes and we're very excited to, excited to share with
everyone that one of Bill's, other's books. Fortune's formula is having its 20th
anniversary reprint, and much expanded content and new information coming
out this November.
We'll obviously put a link to that in the show notes and recommend everybody
who has interest. Bill, you wanna give the the, a little bit, it's a little different
than priceless, but fascinating material. What is Fortune formula about?
William Poundstone: Well, it's about the Kelly [00:48:00] criterion, which is
essentially a scientific gambling formula that actually works, and I show how it
was used in Las Vegas on Wall Street, in organized crime, and a lot of other
places.
MichaelAaron Flicker: The applications on Wall Street. It was a hedge fund
that you focused on in the original book. A fascinating material for everybody
to, to, to, to, to learn from. Thank you again for being with us. Bill, if if folks
liked what you've heard today, please please give us a comment on our show.
Share this show with anyone else who loves marketing as much as you do.
And until next time, I'm Michael Aaron Flicker.
Richard Shotton: And I'm Richard Shotton.
MichaelAaron Flicker: Happy listening.
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