Tom Sawyer and the construction of value-1

This paper challenges the common assumption that economic agents know their tastes. After reviewing previous research showing that valuation of ordinary products and experiences can be manipulated by non-normative cues, we present three studies showing that in some cases people do not have a pre-existing sense of whether an experience is good or bad—even when they have experienced a sample of it. Construction of value 3 In a famous passage of Mark Twain’s novel Tom Sawyer, Tom is faced with the unenviable job of whitewashing his aunt’s fence in full view of his friends who will pass by shortly and whose snickering promises to add insult to injury. When his friends do show up, Tom applies himself to the paintbrush with gusto, presenting the tedious chore as a rare opportunity. Tom’s friends wind up not only paying for the privilege of taking their turn at the fence, but deriving real pleasure from the task—a win–win outcome if there ever was one. In Twain’s words, Tom “had discovered a great law of human action, without knowing it—namely, that in order to make a man or a boy covet a thing, it is only necessary to make the thing difficult to attain. ” There are no mysteries in what painting a fence entails. Hence, Tom’s “law” challenges the intuition that whether a familiar activity or experience is pleasant or unpleasant is a self-evident matter, at least to the person participating in that activity. If true, Tom’s law would pose a fundamental challenge to economics. In a world where people don’t reliably know what they like, it cannot be assumed that voluntary trades will improve well being or that markets will increase welfare. Recent research by psychologists and behavioral economists suggests that Twain’s notions about human nature may be on the mark, at least in some situations (Frederick and Fischhoff, 1998; Hsee et al., 1999; Kahneman et al., 1999; Slovic, 1995; Sunstein et al., 2002). In a set of previous experiments that document a phenomenon we labeled “coherent arbitrariness,” we (Ariely et al., 2003) showed that valuations of goods and experiences have a large arbitrary component, yet, after one valuation has been made, people provide subsequent valuations that are coherent in the sense that they are scaled appropriately relative to the first. In one study that illustrates the concept, we sold consumer products ranging in value from US$ 10 to 100 (computer equipment, wine bottles, chocolate boxes, books) to postgraduate business students. Students were presented with one product at a time and were asked whether they would buy it for a price obtained by converting the last two digits of their social security number (an essentially random identification number) into a dollar figure—e.g., 34 became US$ 34. After this yes/no response, which we intended to serve as an “anchor” for their later responses (Chapman and Johnson, 1999; Johnson and Schkade, 1989), we elicited their maximum willingness to pay for the product using a standard incentive compatible procedure. Although students were reminded that the social security number is a random quantity conveying no information, those who happened to have high social security numbers were willing to pay much more for the products. For example, students with social security numbers in the bottom 20 percent of the social security number distribution priced on average a ‘98 Cotes du Rhone wine Construction of value 4 at US$ 8.64, while those with social security numbers in the top 20 percent of the distribution priced on average the same bottle at US$ 27.91. Because the assignment of social security numbers to students is random, we can regard the two groups as identical with respect to their underlying tastes and knowledge of wine. Evidently, the same person can value a given item at US$ 10 or at US$ 30, depending on historical accidents such as answering questions about randomly generated prices. If consumers’ valuations of goods are so malleable, then why does one observe stable demand curves in the marketplace? A second aspect of the study provides a clue. If one looks across the different goods that were sold, one can see that while absolute values were surprisingly malleable, subjects did seem to have a sensible idea of the relative values of the different goods. For example, because the information that was provided about the wine (based on the Wine Advocate Magazine) made it obvious which wine was superior, all students priced the relatively fancy bottle of wine (a ‘96 Hermitage Jaboulet “La Chapelle”) higher than the average bottle (a ‘98 Cote du Rhone). The students did not know how much they valued either bottle, as demonstrated by the impact of the arbitrary social security number, but they did know that the superior wine was worth more than the inferior wine, and they priced them accordingly. A researcher who looked at our data but did not know about the social security number manipulation would conclude that these consumers were behaving perfectly in line with economic theory—the more valuable products were indeed priced higher than the less valuable ones. But the impact of the social security number manipulation shows that valuations, in fact, incorporated a high degree of arbitrariness. Although the effect of the arbitrary social security number on valuations was dramatic, one could argue that the result crucially exploited subjects’ uncertainty about what the goods were worth, either to them or in the market (for resale perhaps). A stronger test required an experience that could not be traded but that could be experienced, and hence fully understood, before the valuation task. For this purpose, many of the experiments reported in the same paper elicited subjects’ willingness to accept compensation in exchange for listening to aversive sounds delivered to subjects through headphones. The benefit of using sounds is that subjects can be given a sample that provides full information about the experience. In an experiment representative of several reported in the paper, we told subjects that they were about to hear an unpleasant sound played over headphones and asked them to consider, hypothetically, whether they would be willing to listen to the sound for 300 s in exchange for an amount that they composed from the last three digits of their social security number (e.g., 287 = US$ 2.87). After hearing a sample of the sound and making this hypothetical choice, subjects then stated the smallest amount of money they would accept to actually hear the sound for 100, 300 and 600 s. After each response, they endured Construction of value 5 the sound and received payment if their stated minimum fell below a randomly drawn price for that duration. Even in this setting, we found that valuations followed the ‘coherently arbitrary’ pattern: subjects demanded about one and a half times as much to hear the 300 s sound as to hear the 100 s sound, and half again more to hear the 600 s sound. However, subjects with lower ending social security numbers demanded much less compensation than those with higher numbers. These results showed that individuals did not seem to have a pre-existing personal dollar value for ordinary products and experiences. Taking these findings as a starting point, the present paper asks a more basic question: Do people even have a pre-existing sense of whether an experience is good or bad? Tom’s “law” suggests that they do not—that the exact same experience can be desired or avoided, depending on context and presentation. The three experiments presented here show that individuals can be made to exogenously classify some experiences as either positive or negative, depending on whether the preceding question asked them if they would pay or needed to be paid for the experience in question. Experiment 1 demonstrates the basic effect of “Tom’s law. ” The results of Experiment 2 show, further, that after one such arbitrary response is given (as either positive or negative), other responses follow in a seemingly coherent fashion. Finally, to rule out two competing explanations (that the effect can be attributed to the demands of the situation or that subjects use the form of the initial anchoring question to infer the quality of the experience), Experiment 3 demonstrates that “Tom’s law” holds even when the random assignment of individuals to either the ‘pay’ or ‘be paid’ conditions is made transparent (the assignment is set by the last digit of their Social Security Number, and both possibilities are presented on the elicitation form).