Priceless: The Myth of Fair Value (and How to Take Advantage of It) (41 page)

 
13
“a number in people’s heads”: Wilson, Houston, et al. 1996, 397.

 
14
“We suggest that because anchoring effects”: Ibid., 398.

 
14
“Cheap seats don’t sell”:
www.talkinbroadway.com/rialto/past/1999/8_5_99.html
.

 
14
$480 tickets for
The Producers
: Finn 2003.

 
15
“I now scale all the Orchestra”:
www.talkinbroadway.com/rialto/past/1999/8_5_99.html
.

 
15
“advertisers and used-car salesmen”: Stanford University News Service 1996.

 
16
“old hat to marketing experts”: Cox 2005, 375.

 
16
“Many people like myself”: Johnson, interview Sept. 9, 2008.

3. The Myth of the Boomerang

 
17
This discussion of the legal ramifications of anchoring is indebted to Orr and Guthrie 2006.

 
17
Damage awards: Malouff and Schutte 1989, 495.

 
17
“boomerang effect”: Malouff and Schutte 2001, 492.

 
18
Results of Chapman and Bornstein study: In the paper, the awards are expressed as natural logarithms of the award amounts. I have converted them to dollar amounts.

 
18
“almost constantly in pain”: Chapman and Bornstein 1996, 540.

 
19
“How likely is it”: Ibid., 524.

 
19
increased modestly with the size of the award: This was significant only at the
p
<0.09 level (meaning, there’s a 9 percent chance this result could have been the result of chance alone).

 
19
“entrepreneurs”: Marinello 1995.

 
19
“The More You Ask For”: Chapman and Bornstein 1996.

 
19
Jurors should not directly set damage awards: Kahneman, Schkade, and Sunstein 1998; see also Kahneman, Ritov, and Schkade 1999.

 
20
Birds dying in oil pools: Desvousges, Johnson, Dunford, et al. 1992; see also Kahneman, Ritov, and Schkade 1999.

4. Body and Soul

 
25
Description of optometrist experiment: Glanz and Lipton 2003, 138–41.

 
25
“Would you please come over here”: Ibid., 138–40.

 
26
“So I began to think”: Benson 2003.

 
27
Fake optometrist office credited with saving lives: Ibid.

 
28
S. S. Stevens biography: Miller 1975.

 
29
“I was directed to Dr. Stevens’s office”: Ibid., 429.

 
29
“Psychophysics is an exact doctrine”: Fechner 1966, 8.

 
30
“Carving Meat and Setting the Table”: Heidelberger 2004, 43.

 
30
“But then I ruined my eyesight”: Fechner’s autobiographical note is translated in ibid., 322.

 
30
“People called Fechner a fool”: quoted in ibid., 323.

 
30
Little Book on Life After Death
: See ibid., 44.

 
31
“How much stronger or weaker”: quoted in Stevens 1975, 59.

 
31
Plateau biography: Ibid., 7; en.wikipedia.org/wiki/Joseph_Plateau.

 
33
power curve rule can be stated in seven words: Stevens 1975, 16.

 
33
“As an experimental fact”: Ekman and Sjöberg 1965, quoted in Stevens 1975, 266.

5. Black Is White

 
34
“tell us how matters stand out there”: Stevens 1975, 18.

 
34
“For example, is it the differences”: Ibid., 18.

 
35
“The print in this book looks black”: Ibid., 79.

 
35
Category and magnitude scales: There is a concise, nontechnical discussion of response scales in Kahneman, Schkade, and Sunstein 1998, 53–55. See also Stevens 1975.

 
35
suggested that he try dispensing with the modulus: Stevens 1975, 26–27.

 
36
“I liked the idea”: Stevens 1975, 28.

 
37
“Black is white”: Ibid., 79. See also the description of this demonstration in Stevens 1961, 85–86.

6. Helson’s Cigarette

 
38
“amateurish experiments”: Guildford 1979, 628.

 
38
“he did have several experiences”: Bevan 1979, 155.

 
39
Experiments with weights: Helson 1947.

 
39
Fechner and Holbein Madonna: Stevens 1975, 228.

 
39
“Instead of asking students”: quoted in ibid.

 
39
“The fact is that common principles exist”: Hunt 1941, 395.

 
40
Contrast and assimilation: Ibid., 401.

 
40
“recency, frequency, intensity”: Avant and Helson 1973, 440.

7. The Price Scale

 
42
“Smitty was a close man with a dollar”: Miller 1975, 431.

 
43
“Suppose I were to tell you”: Stevens 1975, 6.

 
43
$35 to $50: Ibid.

 
44
Indow study: Ibid., 235–37.

 
44
Social status: Ibid., 244–45.

 
44
Seriousness of theft: Ibid., 258–59.

8. Input to Output

 
49
Mob types: See Tuohy 2001. Goffstein took over the Riviera after his boss, Gus Greenbaum, was murdered by the Chicago mob (apparently).

 
49
Murphy biography: See Wikipedia entry, “Charles B. G. Murphy,” en.wikipedia.org/wiki/Charles_B._G._Murphy. Murphy’s Wood Kalb Foundation also supported psychiatry at Yale.

 
49
He came up with Ward Edwards: Paul Slovic interview, July 1, 2008.

 
49
Murphy asked to use the Four Queens for experiments: Phillips and von Winterfeldt 2006.

 
51
“revealed preference”: See Samuelson 1947.

 
51
“impossible for the behavior”: Simon 1945, 79.

 
51
“How any grown-up”: quoted in Mirowski 2002, 454.

 
52
“Do you think the ratio”: Phillips and von Winterfeldt 2006.

 
53
“was nutty”: Barbara Tversky interview, July 8, 2008.

 
53
“occasional colorful and forthright behavior”: Phillips and von Winterfeldt 2006.

 
53
“Ruth’s excellent, if often exotic cooking”: Ibid.

 
53
Paper titled “Behavioral Decision Theory”: Edwards 1961.

 
53
(“a marvelous person”): Lichtenstein interview, July 28, 2008.

 
53
“was actually interested in the economic theories”: Ibid.

 
53
“comparing incomparables”: cited in Goldstein and Einhorn 1987, 250.

 
53
“Always choose the bet”: Edwards 1961, describing “A Study of Decision Making Under Risk” by C. H. Coombs and D. G. Pruitt, published 1960 as Report No. 2900-33-T of the Willow Run Laboratories, University of Michigan, Ann Arbor.

 
54
1954
Psychological Bulletin
article: Edwards 1954.

 
54
“The method of those theorists”: Ibid., 381.

 
55
“a pale wraith of a creature”: Heilbroner 1999, 37.

 
55
“Von Neumann and Morgenstern”: Edwards 1961, 474.

9. Lunch with Maurice

 
59
Econometrica
article: Allais 1953. For another influential challenge to Savage’s axioms, see Ellsberg 1961.

 
59
Zeckhauser conceived Russian roulette as example of certainty effect: Kahneman and Tversky 1979, 283.

 
60
“His paradox was great”: Anonymous interview and e-mail.

 
60
(“As a matter of fact”): Allais 1995, 252, 254.

 
61
Mark Machina’s website: econ.ucsd.edu/~mmachina/.

 
61
“We choose between descriptions of options”: Tversky 1996, 7.

10. Money Pump

 
62
“When we had written it up”: Lichtenstein interview, July 28, 2008.

 
62
Article with Slovic’s name first: Slovic, Lichtenstein, and Edwards 1965.

 
62
“I sort of followed hubby around”: Lichtenstein interview, July 28, 2008.

 
62
“It was a terrific inducement”: Ibid.

 
63
“I remember we were in Paul’s office”: Ibid.

 
65
127 subjects always reversed: Lichtenstein and Slovic (eds.) 2006, 54.

 
65
“These reversals clearly constitute”: Ibid., 63.

 
66
endowment effect
: The term was coined in Thaler 1980.

 
66
A 10/12 chance of winning $9: Lichtenstein and Slovic (eds.) 2006, 71.

 
66
“If the odds were . . . heavier”: Ibid., 48.

 
67
“The strain of amalgamating different types of information”: Ibid., 76.

 
68
Audio recording on the Web: The audio is on the Decision Research website at
www.decisionresearch.org/mp3/PreferenceReversalInterview.mp3
.

 
68
“I see. Well, how about the bid for Bet A?”: Lichtenstein and Slovic (eds.) 2006, 65.

 
69
“Well, now let me suggest”: Ibid., 67.

 
70
“just to make myself look rational”: Ibid., 68.

11. The Best Odds in Vegas

 
71
“Roulette Bet,” “designed by scientists,” “A 25-cent bet”: Purcell 1969.

 
71
“one of the few decision-making experiments”: Ibid.

 
71
“angel” . . . “perfect for Vegas”: Lichtenstein interview, July 28, 2008. Other experiments done at the Four Queens include Goodman, Saltzman, Edwards, Krantz (1979) and unpublished work by Slovic and Lichtenstein (Paul Slovic, e-mail Jan. 28, 2009).

 
72
Pearson . . . had read Edwards’s work: Phillips and von Winterfeldt 2006.

 
72
occupied a balcony: Purcell 1969.

 
72
Profits to go to a home for unwed mothers: Ibid. Paul Slovic (e-mail, Jan. 28, 2009) is unsure whose idea this was. He doubts there were any profits after expenses.

 
73
Game unpopular, Ponticello wanted to improve: Slovic interview, July 1, 2008.

 
74
“The results of this experiment”: Lichtenstein and Slovic 2006, 75.

 
74
“There is a natural concern”: Ibid.

 
76
“I call them as I see them”: Tversky and Thaler 1990, 210.

 
76
“It would be an overstatement”: Lichtenstein and Slovic 2006, xvi.

 
76
“Each of the blind men was partly right”: See Wikipedia entry, “Blind Men and an Elephant,” en.wikipedia.org/wiki/Blind_Men_and_an_Elephant.

12. Cult of Rationality

 
77
“If you can’t talk about a preference”: Lichtenstein interview, July 29, 2008.