Wednesday, December 01, 2021

The Terry Pratchett theory of being poor

I see this quote being shared regularly:

"No economist will ever come up with a better description of why being poor is so expensive than Terry Pratchett. Such a great quote.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."

Of course, real life is more complicated than this cute story.

For example, more than one study has found that expensive cars are less reliable than cheaper ones. This could be because more expensive ones have more complex electronics which means more things to break down.

In a similar vein, one study found that price is not a good predictor of how durable clothes will be, especially when the price of the garments is low, and another found that cheap clothes last as long as - or longer than - designer ones.

Luxury clothes brands in China also were found to perform poorly in quality control (though this being China, maybe something else was goind on).

More broadly, price is often a poor indicator of product quality, like with wine and store-brand food and beverage products, cheaper running shoes are actually better-rated than more expensive ones and price not making a difference for audio cables.

Addendum:

Most damningly,

Perceptions of product longevity: will it keep going and going...?

"'You get what you pay for' is an adage that suffers under scrutiny. Past research on the relationship between price and quality has largely found little or no correlation across products on the market... The conclusion is that consumers are poorly calibrated when it comes to recognising the true relationship between price and longevity. Their faith in the notion that they get what they pay for is little supported by market data...

Previous research has suggested that consumers are not well informed about the true relationship between price and overall product quality (e.g. Lichtenstein and Burton 1989)...

Over the years, past research examining the relationship between price and objective product quality (often designated price-objective quality) has reported the correlation between price and quality to be around .25 (e.g. Oxenfeldt 1950, Sproles 1977), but some reports have been much lower (e.g. Gerstner 1985). Tellingly, Riesz (1978) noted that more than 20 percent of the products examined had a negative correlation between price and quality, a clear indication that consumers don’t always ‘get what they pay for’. Replications in other countries have reported similar results (e.g. Faulds and Lonial 2001; Finlay, Hackmann and Schwarz 1996)...

To calculate the actual correlation between price and product reliability, we first determined the average price for the brands reported in the 24 issues of Consumer Reports from June 2005 to May 2007. We then matched those average prices with the observed repair incidences (figures adjusted so that a 5 percent repair rate was coded as a 95 percent ‘reliability’ figure). Our rationale for using aggregated brandlevel price data is that the repair incidence figures are also aggregated within brands. The correlations by category are reported in Table 1 (column 4). Then, using the technique described by Dunlap, Jones and Bittner (1983), we calculated the overall mean correlation between price and reliability. It was –.282, the negative sign indicating that as price increases, reliability of products tends to decrease. In other words, higher priced products are more likely to have lower levels of reliability, and by extension, less longevity...

Overall, higher quality was believed to be associated with higher prices by 64.2 percent of respondents across the 8 product categories...

Respondents tend to expect longevity to increase along with price in precisely the kinds of products where it’s least likely to be true...

Today, paying a higher price is less likely to ensure a long-lived product than in the past... What has changed since then? Part of the explanation no doubt resides in the fact that new products have entered the market since then, such as high end ‘professional’ appliances. In many cases the ‘commercial’ version of products are priced much higher than the regular ‘consumer’ versions, but perform no better (sometimes worse) and suffer from more reliability issues...

The reality is that across product categories the average correlation between price and quality is modestly positive (‘you sort of get what you pay for’), but the average correlation between price and longevity is negative (higher priced durable goods are less reliable). The conclusion is that consumers are modestly knowledgeable about the true relationship between price and quality, but poorly calibrated when it comes to recognising the true relationship between price and longevity. The fact that the actual range of correlations between price and longevity is wider than it is for price-quality correlations means that it is even more crucial for consumers to be well calibrated in their perceptions. Given the poor calibration of consumers in this regard, they tend to expect a strong positive price-longevity relationship in exactly the product categories where it is least likely to be true. In fact, their perceptions appear to more closely match with the actual relationship in the past when the relationship between price and reliability was rather stronger than it is today. The increasing complexity of products and the trend to differentiate models by additional features has made near-term prospects for an enhanced price-reliability association unlikely. Consequently, given the perfidious perceptions of consumers, when selecting products that they expect to be long lasting, many will suffer to learn their choices do not live up to their expectations."

blog comments powered by Disqus