The Logic of Individual Choice Joseph Gallo, the founder of the famous wine comp

Question

The Logic of Individual Choice

Joseph Gallo, the founder of the famous wine company that bears his name, said that when he first started selling wine right after Prohibition (laws outlawing the sale of alcohol), he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He allowed people test both and asked them which they wanted. Most wanted the 10-cent bottle, even though they were the same wine.

1.What does thus tell us about people?

2.Can you think of other areas where that may be the case?

3.What does this suggest about pricing?

4.Is the rational choice theory still applicable in this case?

please give me all answer ,specially question # 4 with explanation.

Explanation / Answer

1. People wish complement more for an item that is overly priced. This they do in order to prove that they are using a higher end product by establishing their status quo and their social status.

2. Whenever we want to buy a product we will be thinking of few products that our friends and family members suggested because of their utility value. But when we actually go to the store the sales person will show us similar products of various brands. We will finally choose a higher price product thinking that what we chose is the best product because of its price. The sales man actually tricked us into believing that it has more value.

3. Companies when they complete establishing their brand in the market fix a higher price for a normal product and people buy the not out of its utility but because they raise their status in the society.

4. Rational Choice Theory suggests that people choose the best option available after reasoning all the products for their price, utility etc. logically. This theory is not applicable here because people were irrational and they just set a better judgement for the higher priced wine, although both the glass of wine were from the same bottle. People again wanted to show that they made a right decision because they have already paid the money. This perceived quality of the product is irrational and illogical.

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