Daniel Kahneman, the 2002 Noble laureate in economic sciences, proved that value is a relative concept1. Marketers of luxury goods are very successful at using Kahneman’s ideas. In the stores that cater for people with more money than sense, you will find at least one item that even the wealthiest won’t buy. Those highly overpriced items are there to establish the relative value, so that a $12,000 handbag, is a good deal in relation to the one placed ostentatiously in the center of the store, priced at $37,000. They make huge profits using that technique.
That’s until Oprah, believing she is the world’s wealthiest woman, wants to buy the $37,000 handbag. The store assistant has been told not to sell that bag – it makes the store a lot of money just sitting there – but she can’t tell Oprah that, so she says it’s not good value, and that Oprah can’t afford it.
Actually, the wealthiest woman in the world is the Queen of England, who is also a very astute businesswoman. It also helps that for most of her life she was not liable for tax. She only appeared on Forbes’ list of wealthiest people once in the 1990s, and immediately afterwards ‘arranged’ her affairs so that she never appeared on the list again. She certainly would not buy a handbag costing $37,000.
Perhaps that’s because she has more sense than money.
- Daniel Kahneman, Thinking Fast and Slow chapter 16 [↩]