The Veblen Effect

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In 2008¹, researchers in California conducted brain scans on wine drinkers.

They measured the area of the brain responsible for encoding pleasure.

All participants were given an identical glass of wine.

However, some were told the wine cost $10.

Others were told the wine costs $90.

When the participants believed they were drinking an expensive wine, they experienced more pleasure.

But no one actually drinks wine in a brain scanner. So, let's examine a real-world experiment.

In 2007², diners at a restaurant in Illinois were given a free glass of wine with their meal.

In each case, the actual wine used was the same (inexpensive) wine.

However, different bottles were used.

One came from an expensive region (Burgundy), the other from a cheap region.

Those who believed they drank wine from an expensive region:

Rated the wine 85% higher
And rated the food 50% higher

This is known as the Veblen Effect:

A phenomenon where demand for certain goods increases as their price rises, rather than decreasing as the law of demand suggests.

And this effect can be seen everywhere.

In Jan 2025, Rolex raised prices, and sales increased by 18.2%.
Louis Vuitton increased prices due to Covid, but didn't see sales decline.
Between 2010-23, the price of the Chanel Classic Flap bag tripled. Despite this significant increase, demand remained the same.

Want someone to value your gift, tell them it cost an awful lot — Phill

P.S. I spend £922.12 a year on email software to send you these emails.

¹Plassmann, H., O' Doherty, J., Shiv, B., & Rangel, A. (2008) Marketing actions can modulate neural representations of experienced pleasantness, Proceedings of the National Academy of Sciences, 105(3).

²Graves, P. (2010). Consumer.ology: The market research myth, the truth about consumers and the psychology of shopping. Nicholas Brealey Publishing.

As a behavioural science practitioner, I believe in the peak-end rule.

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