Brands, placebos & tuition fees

Expensive brands are better than cheap ones, even if there’s no objective difference between them. This is the paradoxical finding of a new paper (pdf) by Dan Ariely. He and his colleagues got subjects to read out a list of 84 unrelated words whilst looking into a bright light wearing sunglasses. Everyone got the same pair of glasses, except that half of subjects got a pair labelled Ray-Ban and half got a pair labelled with a cheap brand (Mango). Subjects wearing the “Ray-Bans” made almost half as many errors as those wearing “Mangos”, and completed the task much faster. This suggests that sunglasses with a prestigious brand label are more effective than ones with a cheaper label, even if there is no other difference between them.This is not merely a quirk of sunglasses. Ariely and his colleagues also found that earmuffs with a big-name label worked better than identical muffs with a cheap label, and that chamomile tea with a good brand name worked better in raising concentration than the same tea with a lesser brand.This suggests that brand names have a placebo effect. They fool people (pdf)  into believing they are superior, and this belief proves self-fulfilling. And like placebos, expensive ones work better than cheap ones.Herein, perhaps, lies a justification for so many universities trying to charge the maximum £9000pa tuition fee. Doing this signals that the university is a top brand, and the brand placebo effect should then cause students to do better. Add to this the post-purchase rationalization effect - people convince themselves that they made a good buy - and such high fees might justify themselves, regardless of the intrinsic quality of the education offered. Demand curves needn't slope downwards.