Price has a signaling effect on the perceived value and quality of something. It seems that we inherently perceive more expensive things to be better than cheaper items even though the quality is the same. So a designer label will charge an exobitant price for items you could easily find in a discount store downtown.
Stanford Professor Baba Shiv conducted an experiment in which he measured participants’ brain activity in an fMRI machine as he fed them droplets of wine. He told them that some bottles of wine cost $90 per bottle, and others only $10. The scans showed that the pleasure centers in people’s brains lit up much more when they were drinking the wine that they were told was more expensive. However, as you might have guessed, all the samples were exactly the same. Just believing that the wine was more expensive made them derive more enjoyment from it.
This concept also applies to investments. A highly priced piece of property may appear to be more valuable and may entice many naive buyers.
So before spending your hard earned cash on very expensive stuff consider if you are not falling for this old marketing psychological trick of price signaling.