Why we are such terrible judges of the relationship between price and quality

Past research has demonstrated that both experts and novices make notoriously poor judgments. A new study from the Journal of Consumer Research examines the mental processes behind our flawed assessments, a recurring issue in many areas of consumer research as well as in other areas of psychology and psychiatry. When it comes to the relationship between price and quality, Arul Mishra and Dhananjay Nayakankuppam (University of Iowa) argue that rather than an insensitivity to data – poor calibration – human judges are simply inconsistent.

"The results of this study clearly suggest that a lack of consistency is as much to blame for poor judgments as poor calibration (using the wrong model, wrong cues or wrong weights)," explain Mishra and Nayakankuppam. "There may not even be a method to the madness."

When predicting the quality of a product from its price, consumers tend to switch between two models. The first correlates higher prices to higher quality, accounting for more expensive raw materials or for a more rigorous development process. For example, we may justify the higher cost on a cashmere sweater because of an idea that cashmere yarn is more expensive than other yarn or pay more for organic products with the idea that they require more quality control.

However, higher prices can also indicate lower quality, with consumers focusing on price gouging and corporate greed. Mishra and Nayakankuppam propose and document a novel reason for poor judgment quality. They find that humans tend to utilize causal stories about how cues and qualities are related, rather than actual observable patterns. When there is little clarity about the causal mechanism and the absence of a relevant causal story, we turn to other factors to make judgments.

"The work has implications for managers as well as policy," write the authors. "Much of marketing relies upon inferences made by consumers – about creating associations in consumers' minds. So understanding these inferential processes can be crucial."

Arul Mishra and Dhananjay Nayakankuppam, "Consistency and Validity Issues in Consumer Judgments." Journal of Consumer Research: Dec. 2006.