Priceless

Stevens noted with satisfaction that his power curve rule can be stated in seven words: Equal stimulus ratios produce equal subjective ratios. This is often called Stevens’s law, or the psychophysical law. Within a generation, Stevens and contemporaries established that the power law is a very general one, applying not just to brightness of lights but also to perceptions of warmth, cold, taste, smell, vibration, and electric shock. (Location 558)

Put this way, our ratio-based senses are eminently reasonable. There is an Achilles’ heel. The price of being so acutely sensitive to ratios and contrasts is a relative insensitivity to the absolute. (Location 578)

Subjectively, there are no absolutes, only contrasts. (Location 631)

Helson spent a lot of effort trying to understand what qualifies an experience as an anchor, capable of influencing a judgment. His answers were “recency, frequency, intensity, area, duration, and higher-order attributes such as meaningfulness, familiarity and ego-involvement.” (Location 683)

As mad as our culture is about money, we’re actually less sensitive to it than to a lot of things. There are many sensations that increase faster than the stimulus itself. It takes only 1.6 times the weight to double the perception of heaviness (all weightlifters understand this). Only 1.2 times the electric current doubles the sensation of shock (this is why it’s an effective torture). With money, it always takes more than twice the cash to double the thrill. Relatively speaking, there’s not much bang for the buck. (Location 745)

MIT economist Paul Samuelson developed this notion into his doctrine of “revealed preference.” This appealingly sensible thesis says that the only way to learn about utility is to look at the choices people make. Choices reveal all that we can know of utility, and utility in turn determines the prices that consumers are willing to pay. (Location 790)

A similar phenomenon pertains to losing bets. How much would you pay to get out of a situation in which you have a 1 in 12 chance of losing $63? People were typically willing to pay more than the average loss. The dollar amount of the penalty loomed more important than the probability in their decision making. This suggests an explanation for why people buy insurance. They are willing to pay “too much” for coverage because they worry more about the dollar value of catastrophes than the remoteness of the odds. (Location 988)