The Price Placebo

The Pseudo Drug

We all know what a placebo is. We’ve all heard a story about an ‘amazing breakthrough drug’ that turned out to be some kind of sugar pill. For the most part, we associate placebos with the treatment of patients, sneaky parents (maybe that’s just me), mind-body medicine and those very sciencey-sounding ‘clinical trials’.

Amazingly, placebos (pills with zero active pharmaceutical ingredients) often produce comparative, if not superior, results to the actual drugs they’re being tested against. Well, to be more accurate, it’s the individual’s belief in the fake drug (not the placebo itself) which produces the therapeutic benefits. In other words, some people heal themselves (or improve their condition) without even knowing or understanding it.

Q. What’s the cheapest and most powerful drug in the world?
A. Belief.

The Belief Drug

Harness some of that unconditional belief to the amazing potential that lurks within your cells and almost anything can happen. Literally. Inexplicable healing has happened far too many times for the possibility of self-healing to be dismissed or ignored. Even for this scientist.  

The Price Placebo

But placebos don’t only exist in the realm of the physical and medical. No, they exist everywhere. Even in that part of our world where we spend our hard-earned money. And the money we haven’t earned, for that matter. Put simply, the ‘Price Placebo’ is a term referring to people’s willingness to over-pay for services and products based on their personal beliefs, perceptions and expectations of those items on their shopping list.


Some really cool research out of Cal-Tec demonstrated that the person who pays a hundred dollars for a twenty dollar bottle of wine (while believing it to be a hundred-dollar bottle) will enjoy his wine considerably more than if he had paid the correct price. Incredibly, his belief and expectation (that he is consuming an expensive wine) actually produces a more significant pleasure response (with accompanying biochemical changes) in his brain compared with the same person consuming the same wine believing it to be a twenty dollar product. In other words, both his mind and body have bought into the illusion (the Price Placebo) and subsequently created their own reality. The cheap wine magically became expensive.


People will happily pay thirty dollars for a bottle of extremely well-marketed shampoo when a comparable product with identical ingredients in a far-less-sexy container (with zero brand recognition in the market place), can be purchased for a third of the price. More amazing is the revelation that, even when people are made aware of the much cheaper option with the same ingredients (the same product wearing a different dress), many people will still buy the more expensive product because their existing belief in (and emotional attachment to) the brand will over-ride information, logic and evidence (the Price Placebo in action).

Marketers tell stories and in many cases, you and I buy the story, not the product.

Also interesting to note that many shampoos claim to make your hair healthier and give it more life when it is, in fact, dead. Yep, that’s right; the stuff you see on top of your scalp is dead protein (by definition). So, short of a miracle, “giving your hair more life” is biologically impossible. It might get shinier and smell better but it ain’t gonna get healthier because dead things don’t get healthy! But don’t let the facts get in the way of some clever marketing and a great story.

And that, my friends, is how companies sell you and I, stuff we don’t need, at prices we shouldn’t pay.

Now, where did I put my Rolex? :)

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{ 12 comments… read them below or add one }

Suu March 21, 2012 at 9:43 pm

So does it work the other way too?
If I buy a $2 bottle of shampoo my mindset is to use (waste) more by thinking I need to use more to get the same result as the dearer brand.
I shop at Millers for cheap clothes and wear them around the house but when I go out I wear my ‘good’ clothes (more expensive) which are probably made at the same sweat shop!
And as for that expensive wine? It’s made from grapes and sugar so I’ll stick to eating grapes LOL


Anonymous March 21, 2012 at 10:00 pm

On the other hand, there’s also Terry Pratchett’s “boots” theory, which is that you can either pay once (if you can afford it) for an expensive pair of boots that’ll last for years, or (if you can’t afford it) you buy a succession of cheap boots that quickly wear out and let the water in – and which overall end up being more expensive than the one-off payment for the expensive pair.


Nikki March 22, 2012 at 12:29 am

My son used to be obsessed with Harvey Fresh Milk. He was only about 4 at the time. One day I bought the home brand and poured it into the same bottle because I was sure that it was the picture of the cow that he liked and not the actual milk. Guess what? He knew. Wouldn’t drink it ‘coz it tasted ‘yuk’.

He’s not that fussy anymore…


Leanne March 22, 2012 at 8:03 am

$20 is not a cheap bottle of wine. $5 special at Coles this week. And about the shampoo. Is that why you shave? 


New York Steve March 22, 2012 at 8:18 am

So now I’m really creeped out Craig. I acknowledge that my hair is “dead” protein – and yet it grows!?! Placebo effect??


Melissa March 22, 2012 at 8:50 am

I see this all the time with my friends… I must say, I am too cheap and budget conscious to fall for that trap though ;) OK, maybe not budget conscious, but definately cheap :)


Georgie March 22, 2012 at 10:21 am

This message is 20 hours too late Craig. I literally spent $30 on shampoo yesterday. Show me the cheaper brand that makes my hair the same and I’ll buy it. So many shampoos make my hair unmanageable and that’s from day in day out experience. Not belief.


Garry March 22, 2012 at 10:44 am

Thanks CH for another reminder of how we do what we do.
We have the experience of having owned a small retail business in a ‘posh’ suburb of a capital city. Goods that we priced below what the big city stores priced on the same item, we could not sell. But, when we put the price up to be equal to or even above the big stores’ price, and displsyed the item in our busy street frontage window, demand was very high.
Everything that a person thinks about other persons or things, always derives from the first person’s perception.


Martin March 22, 2012 at 12:28 pm

I’ve always wondered about “Premium Unleaded” petrol.
I drive a new car but can’t seem to make that jump from the cheaper boring old unleaded unleaded to “Premium” (10-20 cents a litre more) because I’m convinced there is no difference.

PS: I agree with Leanne about the wine.


Tiff March 22, 2012 at 3:18 pm

Hi Martin,
I drive a 14 year old car and on the recent advice of my mechanic, have switched over to premium unleaded and the result is that the engine sounds quieter and I get more km’s per tank than before. But, who knows, each car may be different. Perhaps you should just try it and see.


Evan March 22, 2012 at 2:31 pm

I once had a reader of my blog tell me they’d never by my stuff because it was too cheap. (I am really not making that up!)


Anonymous February 4, 2013 at 4:38 pm


That is so great for you to include this in your arsenal of teachings…it gives me a healthier perspective on the value of things. Seems like the best things in life are more spiritual in nature.



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