Managing my money
Managing my money

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Managing my money

3.2.5 Heuristics and spending

One reason why people sometimes pay higher prices for certain goods and services is that they think a higher price equates to higher quality. The price of a product is often used as a mental short cut to assess quality. Such short cuts are called heuristics and they’re used to help assess situations when there’s limited information available.

Download this video clip.Video player: ou_futurelearn_money_vid_1054.mp4
Skip transcript

Transcript

MARTIN UPTON
One reason why people sometimes pay higher prices for certain goods and services is that they think that a higher price equates to a higher quality. So price is used here as a mental short cut to assess quality. Such short cuts are called heuristics - mental short cuts that may or may not be accurate which lead to certain beliefs about the things we buy. They're used to assess situations when there's limited information available.
Marketing departments employ these market beliefs to influence peoples' spending. Of course, a link between price and quality may or may not be accurate; or at least the differences in price may not reflect differences in quality, especially when it comes to more expensive branded items.
Here's list of some common market heuristics. Think about what each heuristic is suggesting to you to do, and who wants you to believe it.
- Generic products are just brands sold under a different label at a lower price.
- Larger sized containers are cheaper per unit than smaller sizes.
- When in doubt, a national brand is always a safe bet.
- Items tied to 'give-aways' are not good value.
- Stores that have just opened usually charge attractive prices.
- Larger stores offer lower prices than smaller stores.
- Small shops give you better service than large stores.
- Higher prices indicate higher quality.
- When buying heavily advertised goods, you are paying for the label not quality.
- More recent products are likely to incorporate newer and better technology.
Some of these heuristics are suggesting that you should buy from large stores; some from small stores. Some are telling you that you should search out bargains; others that it's not worth it. Some suggest that buying named brands is a protection; others that they're a waste of money. In each case, there are some particular groups, producers or retailers, who would like you to believe in what is being said so that you spend your money on their products rather than their competitors'.
End transcript
 
Interactive feature not available in single page view (see it in standard view).
MMM_1

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371