Pricing, Ego and Emotion

Why do people sometimes set prices that are too high, and then stubbornly stick with them despite evidence from the marketplace that the price is indeed wrong?

Neuroeconomics research tells us that financial decisions are often evaluated in a way that lets our emotions overrule rational financial analysis, and setting prices turns out to be one more area in which this is true. Business pricing decisions are usually rational, simply because they are often hammered out by groups of managers who use market data to come up with price points. Still, it’s all too easy for business leaders to “fall in love” with their product and assign a higher value to it than justified. It’s also possible for a manager to adopt a risk averse attitude and assign too LOW of a value to an innovative product. Setting a high price point could greatly increase profits, but might also result in low sales - a lower price point might be less profitable, but would produce satisfactory revenues and reduce the risk of failure. And neuroeconomics research tells us that avoiding risk, sometimes to the point of forgoing probable benefits, is highly typical behavior.

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