Reference point mechanism - combined approach from neuroscience and economics

We’ve all seen—and fallen for—the optical illusions where an object’s size appears to change, when, really, the only change is in its surroundings. The same type of phenomenon influenced by external references occurs when we attach value to the goods we buy. While the effect is understood to a great extent regarding visual perception, in economics this is not the case. Traditional economic theories say that our valuation of an item should be based on its utility to us and should not change. Agnieszka Tymula, however, has confirmed that our value construction is not purely rational; it is inconsistent, influenced by motivations beyond pure utility and can affect where we put our money.
To investigate the mechanisms behind this, Dr. Tymula studied the way people assign value to consumer goods. Using a classic experimental test, she discovered that the amount subjects were willing to pay for an item depended heavily on the price presented as “likely” to be the real price. When this was higher than their original bid, people very frequently increased the amount they would pay. This flexible valuation happened even more strongly the more subjects desired the product in question. Dr. Tymula’s results help explain discrepancies in earlier studies, and may well prove important in marketing, decision-making and policies on the provision of public goods.