How to Save $1 Billion Without Even Trying: A Freakonomics Radio Rebroadcast

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(photo: bark)

(photo: bark)

Our latest Freakonomics Radio episode is a rebroadcast called “How to Save $1 Billion Without Even Trying.” (You can subscribe to the podcast at iTunes or elsewhere, get the RSS feed, or listen via the media player above.)

The gist: Doctors, chefs, and other experts are much more likely than the rest of us to buy store-brand products. What do they know that we don’t? And if we all did like they do, how much fatter might our wallets be?

Below is a transcript of the episode, modified for your reading pleasure. For more information on the people and ideas in the episode, see the links at the bottom of this post. You’ll also find credits for the music in the episode noted within the transcript.

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Hey podcast listeners. You are about to hear an episode from our archives — one of the most popular episodes we’ve ever put out. It’s called “How to Save $1 Billion Without Even Trying.” I’m not sure why this episode was so popular. It may be that people just really, really liked it. Or, it may be, as my friend James Altucher often says, that any time you put anything on the interwebs with a dollar sign and the word billion in the title, everybody in the world immediately stops what they’re doing and looks at it, because everybody’s trying to get rich. If that’s the case — if you only came here for the title of the show — I hope you still enjoy it. Even if it doesn’t make you rich.

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We recently held a peanut-butter-and-jelly sandwich taste test here at WNYC, where we record our show.

DUBNER: So guys, this is for an episode about premium brands versus store brands, OK? And so what you see here are two rows of sandwiches, one on a plain white plate there, and one on the bordered plate there. OK? And the sandwiches were made with either the premium Skippy Creamy and the Smucker’s strawberry preserves. So any nut allergies or verbal waivers, if you die not our problem.

SUZIE LECHTENBERG: There’s a lawyer in the room.

DUBNER: Who is the lawyer, you?

JANNA FREED: It will be fine.

DUBNER: Good lawyering. And the store-brand sandwiches are ShopRite Peanut Butter Creamy — they put their adjective last, peanut butter creamy — and strawberry preserves, ShopRite. And the bread is identical. It’s Bimbo.

DUBNER: So really, all we want is for you to eat one of each and tell us which one you prefer and why.

LAURA MAYER: Patterned plate is the one.

STEVEN VALENTINO: Tastes nuttier.

JOHN DELORE: More honest stuff in this one.

MALISSA O’DONNELL: Yeah, less sugar.

MATT KIELTY: A little more texture.

DUBNER: More texture and therefore better or therefore worse?

KIELTY: I like a little texture so I’m going to say better.

VALENTINO: I liked the border, and I thought it was the premium brand.

ANDY MILLS: I liked the border one, for whatever reason. It just tasted slightly more delicious and it makes me think that that was the Skippy.

DUBNER: So how would you feel collectively if I told you that they were just all the same? And they were all the generic, and that there was no difference at all in the plate?

KIELTY: I would call you a liar.

DUBNER: And you’d be right.

We try not to lie too much around here but yes, in the interest of science, we did tell a lie about the peanut butter-and-jelly sandwiches. They were all made with the same store-brand ingredients; none were made with the Skippy peanut butter or Smucker’s preserves. And yet, as you could hear, most of our tasters were pretty sure the two sandwiches were quite different, and they knew which one they preferred. Which one was “better.” Even though neither of them was “better.” Now, why’d we do this? The idea was to get all of us thinking about the consumption choices we make – how meaningful they are for us as individuals and for the overall economy. We have a couple of economists to walk us through this.

JESSE SHAPIRO: I am Jesse Shapiro. I’m an applied microeconomist.

DUBNER: And that’s that, damn it, yeah. And where do you teach?

SHAPIRO: I’m a professor of economics at the University of Chicago Booth School of Business, and a visiting professor of economics at Brown University. [Note: Shapiro is now exclusively at Brown.]

DUBNER: Ah, very good. OK. Matt?

MATT GENTZKOW: Yeah, I’m Matt Gentzkow. I’m also a microeconomist. I’m a professor of economics at University of Chicago Booth School of Business. [Note: Gentzkow is now at Stanford.]

DUBNER: I want to talk to you today about a working paper called ‘Do Pharmacists Buy Bayer:’—Bayer as in the aspirin—‘Informed Shoppers and the Brand Premium.’ So in order to get that very dramatic question out of the way: Do pharmacists buy Bayer or are they more likely to buy the generic aspirin?

GENTZKOW: Pharmacists don’t buy Bayer.

DUBNER: That was easy. OK.

DUBNER: And what about going outside of the domain of pharmacists and headache medicine. What about other experts in their domains, do they tend to buy store brand versus premium brand?

SHAPIRO: Well, first of all, if you look at health experts outside of headache remedies, you see this pattern in a lot of products, especially medications — over-the-counter medications — you see that people who are informed about the products and who are occupational experts, they’re way more likely to buy store-brand across a lot of categories. Outside of the health domain, we took a look at pantry staples — things like table salt and sugar — and it turns out that chefs are considerably more likely than non-chefs to buy store brand salt, sugar, baking soda, things like that.

DUBNER: OK. So, this is the kind of research that I think is of great interest to most people, and yet would lead many of those most people to say, ‘Wow, really? This is what economists at the University of Chicago spend their time doing, is figuring out if pharmacists buy Bayer aspirin’? So, let’s assume that beyond that very narrow question there’s a great broad answer or a great, broad line of thought you’re trying to pursue. What are the questions you’re trying to answer really when you do a study like this?

GENTZKOW: Yeah, I think that’s a good way to introduce it, because this is a paper we think of as some really simple facts that speak to a big, old — and to us — important set of questions. The set of questions in the background is, what is advertising and branding and all this stuff that companies spend so much effort on really about? Is it fundamentally about trying to inform consumers, help them make good decisions, help them identify what are the best products so they can buy them? Or, at the other extreme, as a lot of people have speculated, is it really about trying to confuse people, cause them to make mistakes, convince them that stuff that really is not any better is, and get them to pay a lot of money for it? So that’s something people have argued about for a very long time. We have some quotes in the paper from 50-60-70 years ago, people speculating. You know, there’s this branded soap flakes that people seem to pay a lot for, instead of the simple, basic soap flakes, and both of them are just soap flakes and so you wonder, why are people paying for this? Is it because there’s something special about the expensive ones, or is it just that people are confused? And so having now these really large datasets where you can actually go look at lots and lots of peoples’ actual purchases, as well as their occupations and various other indicators of how sophisticated they are, it kind of gives you new traction on an old question.

DUBNER: OK, so let’s say you buy this argument for why this kind of question is meaningful. Assuming it is, how do you go about answering it?

SHAPIRO: So, I think, stepping back — I’ll tell you in a minute how we did it — but stepping back, I think what we want to do is, we want to follow somebody around the grocery store or the drugstore. And every time they make a decision, between say, a store brand (you know, CVS brand aspirin) or a national brand (say, Bayer aspirin), we want to ask: would that decision have been different if they knew more? That’s really the question we want to ask. And we want to know that for every aisle in every store and for every shopper. And that’s a very tough question to answer. We don’t have that hypothetical other more informed shopper standing next to them saying what they would do. So we need to go and find those counterparts in the data. So, we started with a data set called the Nielsen Homescan Panel. And this is a dataset where people basically have a bar-code scanner at home, and they record all of the purchases they make at supermarkets, at drugstores, at club stores, at mass merchandise stores, all the main kind of retailers. And that was great for getting a measure of the everyday person’s purchases. Then we needed to find a way to identify these kind of informed counterparts for everybody. And so the way we did that is we ran two custom surveys, in collaboration with Nielsen, of the Homescan panelists. So we basically went out to them and asked them some questions. We asked people what is their occupation. So what did they do for a living? And then we also gave people a quiz. We said, ‘What’s the active ingredient in Tylenol?’ ‘What’s the active ingredient in Advil?’ and we gave them a multiple choice test to see how they did. And so, what we try to do then is, we try to find people who have a similar age, homeownership, live in the same geographic area, shop at similar kinds of stores, but differ in how much they know about the products that they’re buying. And from that we can try to construct a kind of data-driven answer to the question, ‘How different would these choices be if people were better informed?’

GENTZKOW: A thing that’s really important is that that dataset is really, really big. So relative to a lot of surveys, the Nielsen Homescan Panel has tens of thousands of people in it. And that means that once you zero in on a particular occupation like pharmacists or chefs, you still have lots of those people in the data. So almost any other traditional sources one might’ve had, surveys that might’ve asked consumers what they buy, it would’ve been hard to use for this because at the end of the day, you might end up with three pharmacists and six chefs and then you couldn’t really figure it out.

DUBNER: I see. Let’s talk about the headache medicine — the aspirin —  for a little while. You said there’d be some questions asked multiple choice. How many questions were there? And can you recite them and let me and the listener play along and see if we have any idea what we’re talking about?

SHAPIRO: I think there were five questions. I can ask you the questions but I don’t think I’ll be able to remember all the multiple choices. Let me give it a try. What is the active ingredient in Tylenol? Is it A) acetylsalicylic acid? B) acetaminophen? C) naproxen sodium? Or D) ibuprofen?

DUBNER: Acetaminophen.

SHAPIRO: Congratulations! You nailed it.

DUBNER: Thank you very much.

SHAPIRO: You are a very informed shopper.

DUBNER: That would put me in the ‘informed’ realm already? Just one?

GENTZKOW: That’s one out of five.

DUBNER: Give us one more.

SHAPIRO: Ok, this time I’m not gonna give you multiple choices though. I’m just gonna ask you what’s the active ingredient in Advil?

DUBNER: Advil is ibuprofen.

SHAPIRO: OK, there you go.

DUBNER: I could even do Aleve. I could do Aleve if I had to.

SHAPIRO: Go for it.

GENTZKOW: You’d be five out of five.

DUBNER: That’s the naproxen something or other.

SHAPIRO: That’s right.

DUBNER: I know my pain medication, fellas.

GENTZKOW: The multiple choices had a couple of — sodium chloride or something was tossed in — there were a couple of not-so-headache-remedy kind of things tossed into the multiple choices to mix things up.

DUBNER: So those are the kind of questions you’re giving to separate out how expert someone is in their domain, correct? Not how they know something about the product, correct?

GENTZKOW: Yeah, we ask these questions of everybody. And so we think of them as separately from occupation. This is a separate measure of how much do people know about these products? How sophisticated are they? It’s gonna be, we think it’s gonna be correlated with lots of general knowledge and sophistication. Not only do you know these active ingredients per se, but somebody who knows these active ingredients, like you, is also a pretty smart, talented, sophisticated person who knows lots about lots of different kinds of things.

DUBNER: And the idea being if you know the active ingredient in the name brand thing and then you look at the store brand thing and you say, ‘Oh, active ingredient is identical,’ then you think, ‘Well, I should buy the one that’s a third the price.’ Right? That’s the connection we’re trying to make here, right?

GENTZKOW: Basically, yeah. I think there’s sort of a simple version of this and then a slightly more subtle version. The simple version is: you know, Tylenol and CVS brand are both acetaminophen. If you realize that, you would know they’re the same thing, so you should buy the cheaper one. That’s the simple story. The more subtle story is even if you know that they’re the same active ingredient, you might still be kinda worried about a variety of things. You might wonder, do they have different coatings? You might think, I heard that these store brands are manufactured in India, and maybe these plants in India are not so good? I heard that there was a recall of these products, once upon a time when something went wrong with the manufacturing and they weren’t safe. So you could come up with a whole bunch of reasons why even if they’re the same active ingredient, you might still want to pay a little bit extra for the fancier thing — because maybe it’s safer, maybe it has a coating that makes it work better. And so above and beyond knowing they’re the same active ingredient, you need some knowledge and sophistication to be able to assess are all of those other differences things I should be worried about? Are they really different, first of all, and if they are different, should I care? And should I care to the tune of, you know, three dollars every time I buy a bottle of this stuff? So we think of these knowledge measures of picking up both ‘do you know the fact’ and also probably they’re correlated with ‘are you sophisticated enough to be able to make good judgments about those other characteristics’?

DUBNER: And what can you tell us about the reality of that? For all those factors that you just described. I know some people say that with generic pain relief medicine, they worry that the absorption rate, or maybe the breakdown rate, I don’t know what it’s called, in the body is different than the premium brands. So do you know much about — or what can you tell us about — the actual physical difference between a premium and a generic pain relief pill?

SHAPIRO: It’s hard to say completely for sure, but if you go to the FDA website, they’ll tell you that store brand and national brand over-the-counter medications have exactly the same strength and composition and safety and efficacy as one another.

GENTZKOW: But still, this is one of these topics that people get very worked up about. In going around and talking about this paper, we’ve met many smart academics, people whose judgment we respect, who have a different view of it. Who think ‘I buy Advil and there really is a good reason for that.’ And so I think it’s fair to say there’s at least enough controversy that people can read the evidence different ways. There are certainly studies of prescription medications, for example, where it was shown that these absorption rates would differ or different coatings actually affected efficacy. There certainly have been recalls and examples of safety problems. It’s not at all clear whether those are any different for the — Tylenol has had recalls, the brand — so it’s not clear how different they are. But I think from my sense at least talking to people, there’s enough murkiness — just enough murkiness in the facts — that people could come to different conclusions. In a way that’s where the study kind of comes from. We could’ve just had this debate based on direct evidence and first principles and what about the absorption rates? We think of this as a way to sidestep all of that and say, ‘Well, whatever all that stuff is, let’s see what the smart people do when they make purchases for themselves.’

SHAPIRO: We’re sort of assuming whatever differences do or do not exist, doctors and pharmacists know more about them than people who are not doctors and pharmacists. So we can learn, from their choices when they’re shopping on their own dime, what they think.

DUBNER: Ok. So what do the smart people do? In the case of aspirin or headache medicine or something like that, do the pharmacists buy the name brand or do they buy and take the generic?

SHAPIRO: They by and large take the store brand. So in the context of headache remedies, about 92 percent of the headache remedies pharmacists buy are store brand. And we see that very consistently across other healthcare occupations — nurses, doctors, and so on — they’re all buying way more store brand than the rest of us.

As for the rest of us? About 74 percent of non-pharmacists buy store-brand headache remedies compared to 92 percent for the pharmacists, so a big difference.

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Let’s go back to our peanut-butter and jelly sandwiches. We took a taste test out on the streets of New York City. But, instead of offering two identical PB&J sandwiches, we offered two very different versions of … radio — number one: commercial radio:

COMMERCIAL RADIO VOICES: SHOUTING, ARGUING AND GENERAL GOBBLEDYGOOK

And number two: public radio:

PUBLIC RADIO VOICES: INTERESTING, CLEAR-HEADED DISCUSSION

… and we asked people which one they preferred.

VOICES ON THE STREET:

Number two, number two.

The second one, for sure.

The second one is informative.

Oh, I would definitely prefer public radio.

It’s going at a pace where I can actually process the information.

Number one was people screaming at each other — screaming at the woman, he was screaming at her.

The guy on the commercial one was so inflammatory and such a jerk.

It was just screaming and screaming and screaming.

The content in the public radio one, I’m like, oh, I’m interested.

I think you would learn more from — what is it? Public radio?

We were shocked — shocked! — to learn that public radio won, almost unanimously, believe it or not. And, unlike other, fancy brands, public-radio projects like Freakonomics Radio are free. But — and you know where I’m going next, don’t you? — making them is not free. Freakonomics Radio is produced by WNYC, a public-radio station in New York, and public-radio stations are funded by listener donations. So, we need you to help us by making a donation to WNYC. For what it’s worth, you’ll be automatically entered to win a trip to New York to spend the day here at our studios and have lunch with me and the Freakonomics Radio crew. You don’t even have to donate to be entered in the contest, but of course we hope you will. Just click here. You can also donate by texting the word “Freak” to 69866 and a simple form will pop up. This contest is only running for a couple more weeks, so don’t miss your chance to enter our contest to come to have lunch with us in New York. I believe peanut butter and jelly will be on the menu.

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Today we are talking with two economists about how experts tend to favor cheaper, store-brand items like aspirin or kitchen staples. Why is that? Presumably because they know enough to know that the store-brand items are just as good as the more expensive name brands. So you might think that economists behave the same way. Economists like Steve Levitt, my Freakonomics friend and co-author:

DUBNER: So Levitt, what about you? Are you a slave to name brands? What are some products that you only buy a name brand of?

STEVEN LEVITT: It is funny. I’m a little bit into the magic. So, when I am at the store and I’m looking at branded or unbranded I honestly, each time I look at it and I ask myself for a particular application: do I think there could be magic in the brand? And sometimes I do and sometimes I don’t, but it doesn’t follow any logic. But you know, I’m not very price sensitive anyway, so if I think there’s even a little chance that there’s some special magic built into it, I’ll pay double for just even the whiff of magic, I’ll pay double.

DUBNER: So I’m guessing the realm in which you suspect this magic may apply would be golf balls for instance? We always buy the premium brand golf ball?

LEVITT: Oh yeah, I’ll always buy the most expensive golf ball, because if there’s even the tiniest chance that there’s a little magic in there, then I want that magic.

Matt Gentzkow and Jesse Shapiro, meanwhile, argue that a lot of that brand-name magic is – well, an illusion. Which means that a lot of people are spend a lot of money that they probably don’t need to. So what does that add up to? Here again is Jesse Shapiro.

SHAPIRO: We look at six different headache medicines: aspirin, ibuprofen, acetaminophen and so on. And I think we estimate people are spending $8 billion on those alone, every year. And there are other headache remedies out there. And I think we find that in those categories, if everyone were to act like a pharmacist, people would spend between $1 and $2 billion less every year.

DUBNER: And how should we, the populace, think of that $1 or $2 billion. That’s $1 or $2 billion that would not be going from individuals’ pockets into corporate pockets, and then distributed to their friends, families and shareholders, et cetera. Is that OK for the economy, that people are overspending on premium brands because it’s something that they want and they’re just revealing their preferences — even if it’s a placebo effect, hey, placebo effect is not nothing. Or, is that, in your view as economists, a waste of time and money?

SHAPIRO: It really depends on whether you accept that people would like to act like doctors and pharmacists act and they just don’t know enough to do it. If you take that premise then, yeah, people are making a $1- to $2-billion dollar mistake. If you want to say that believing that branded medicines are better allows them to work better, reduces headaches more and so on, then I think it’s much harder to make that case.

DUBNER: And this proves, your paper proves or argues more broadly what? That we are susceptible to marketing and advertising to a degree that we shouldn’t be? That we are ‘informed’ by things that aren’t really very informative? That we are just gullible generally? What does it argue?

GENTZKOW: I think to answer that question, it’s good to take account of this full set of products that we look at. So, we start with this case study of headache remedies, where we find these very big effects. We look at other over-the-counter medications, where we see similarly big effects. And we look at these pantry staples like sugar and salt, where looking at chefs’ purchases, we see similarly big effects. So for all those categories of products, the takeaway conclusion is, yeah, this seems to be a mistake and people are misled either by advertising or by just absence of knowledge that it would take to make good decisions. But we also go look across a much broader set of products in the supermarket — everything from soft drinks to frozen entrees to all kinds of different products you’d buy in the supermarket — and what we see in that really big set is there are actually lots of product categories where the experts don’t differ systematically in their purchases, and even a couple of categories where experts like chefs seem to be more willing to pay for brands. And so across all those categories, it looks like maybe there are many where the brands really are better. And so the big picture, I would say, is we know that if we look at the products where we would’ve been the most worried that there aren’t any differences. Like, headache remedies are really chosen to be — if there’s any product category where you would’ve thought that these things can’t possibly be that different, it would’ve been that. So when we look at those places we see, yeah, there are some big mistakes. But we’re also very far from the situation where all brands are a mistake, or all brands are about misinformation. And so one way to think about it is, on average, in the decisions consumers face, brands typically are better, or there are differences across products and differences across brands. And the heuristic that, yeah, I should probably pay a little extra to go with a brand that I trust, isn’t so bad. That’s a pretty good way to make decisions, on average. The problem is, it’s a good heuristic in some places, it’s not a good heuristic in other places. And like a lot of things, people apply the same rule too broadly and end up making mistakes as a result.

DUBNER: I’m curious what you’ve heard from advertisers or marketers about your research. On the one hand, your research is this massive compliment to them. You’re saying to them that ‘you could take two identical objects and make one three times more valuable by designing a nice package and writing great jingles.’ On the other hand, you’re saying ‘Ooh, everybody who responds to your fantastic work is kind of an idiot.’

GENTZKOW: Well, we’re fortunate enough to have two marketers as co-authors on this paper. One of our colleagues at Chicago, J.P. Dubé and Bart Bronnenberg, who’s the marketing professor in the Netherlands. So we get their input on this. They don’t seem to be walking around incredibly depressed, at least as far as we can tell.

DUBNER: Yeah but they’re professors of marketing. They’re not making their money by selling products, right?

GENTZKOW: Fair enough.

SHAPIRO: No, but they’re teaching their students how to market products. And I think they think — and I think the data are supportive of this — that there are a lot of categories where marketing effort really is helping people. And I don’t think there’s anything in the paper that really disputes that. It’s just that there’s a subset of categories where it looks like people are overpaying for brands. The other thing you have to remember is — take pharmacists and doctors buying headache medicine — in the case of aspirin, the national brand costs maybe five times per pill what the store brand costs. So at a 5x price, the experts are generally buying store brand. Maybe at a 2x price or a 1.5x price, you’d get some of those doctors and pharmacists buying the national brand. We don’t know for sure.

GENTZKOW: I like to think about the thought experiment: Imagine that you walked into a supermarket or Walmart or you walked into CVS, and instead of all these fancy, brightly colored, branded packages, everything was just in white boxes with black labels stating what it was. And you had no brands in the store and you tried to walk around and figure out what to buy. I think that would be a pretty hard situation for most of us, and you would spend a lot of time trying to get your groceries. I think the brands are serving first as a marker of quality, second as a way to just make all these decisions we have to make every day easier, and deploy a little psychology to help us be able to quickly identify and get what we want. I think there’s clearly a lot of value being produced there. The question is just, where is it more? Where is it less? Are firms exploiting the same mechanism that’s sort of useful in many places to drive up their profits in a small number of categories?

DUBNER: I’m curious how this has changed your guys’ consumption habits, especially if you have kids, especially when it comes to cold and flu or baby, allergy medicine, or anything you might give your kids or yourselves.

SHAPIRO: I don’t know. I buy a lot of store-brand stuff. I think I probably buy a little more now than before we wrote the study. Not so much because of anything I learned from the study, but more because I think I would just feel hypocritical buying the branded good after writing this paper. I’m more afraid of that than any risks of store-brand medication.

GENTZKOW: I also pretty much buy just store-brand, over-the-counter things and generic prescription things, even for my kids. I think that was true before this paper. I don’t think it’s really changed much. My experience, I guess, was kind of growing up in a milieu where this message that you’re kind of a sucker if you pay extra to buy brands was pretty pervasive. And so, something you see a little bit in our data, I think there’s a kind of generational thing where 20, 30 years ago generics actually weren’t very good for a lot of things, and so maybe you carry that forward. But this seems like, for my own personal habits, it’s something that hasn’t made a huge difference.

DUBNER: That’s a great point and I guess it’d be nice to know from you guys — and not that this is your realm — but how is a shopper to tell the difference between a store brand generic and just a piece of junk? I mean, sometimes the line is pretty thin, right?

GENTZKOW: All they need to do is to go get access to a Nielsen Homescan Panel and do a survey of a bunch of experts and just run some regressions and then it’s like, it’s pretty easy to figure out.

SHAPIRO: Easiest thing in the world.

DUBNER: Bunch of lazy civilians out there. Why aren’t they doing that?

SHAPIRO: As you say, this isn’t our area of expertise, but my sense is that store brands have gotten a lot better and that major retailers now invest a lot in the supply chain for their store brands and trying to make sure that they’re as comparable as possible to the national brands that are side-by-side with them on the shelf. You look at data on trends, you know store brand as a share of purchases has just been going up tremendously. It started in the 1990s really taking off and has continued to do that. So, I think for most categories, at least these kind of supermarket and drugstore kinds of products, I think it’s pretty safe to buy a store brand. And then there are going to be cases where maybe it’s just a matter of personal taste. Like, maybe you don’t like the taste of the store brand cola or something. Then I don’t think you need an economist to tell you you probably shouldn’t buy that kind.

DUBNER: Alright, so trying a store-brand cola and seeing how your taste buds like it compared to Coke is pretty simple, and cheap, and there’s not much commitment to it. What about something way bigger — choosing a college, maybe? How is someone supposed to assess the premium brand versus — let’s not call it the generic college, but — the less-premium brand of college?

SHAPIRO: I think that’s a great question. We should do a survey and see where professors at fancy name-brand colleges are sending their kids.

GENTZKOW: I was going to say, I think the same methodology would deliver a very convincing answer in the opposite direction. If you took the somewhat controversial view that college professors are sophisticated and know what they’re doing — which could be debated at some length — definitely college professors at fancy universities also pay extra to send their kids to fancy universities, for sure.

DUBNER: Although that’s a little bit of a self-reinforcing pat on the back, right? Because, you know, if I’m a professor at a fancy university, especially, plainly that type of university only is deserving of my offspring.

SHAPIRO: There’s an element of that in all these products, though. Because, it could be that a chef doesn’t want to have store-brand baking soda on their shelf. They want to have some fancy baking soda from Italy or something like that, so they can tell a story about how sophisticated their tastes are for baking soda. You might’ve seen the same thing there. And maybe there is a little bit of that going on.

GENTZKOW: It would be interesting to look at college professors more generally. I bet it’s the case that faculty at state universities are more likely to pay extra to send their kids to Ivy League universities than the average person.

DUBNER: So is that your next study that we should be looking for, then? Because, man, people would read that.

GENTZKOW: This was your idea. Maybe we should work on this together.

Thanks to Jesse Shapiro and Matt Gentzkow for their fine knowledge today. And thanks to everyone who took part in our peanut-butter-and-jelly taste test – which, you’ll recall, was really a taste trick: all the PB & J was store-brand, and it seemed like everybody liked it just fine. We should say that not everyone was fooled:

JANNA FREED: Dude, they taste exactly the same.

GREG ROSALSKY: They taste exactly the same to me.

FREED: Thank you.

DUBNER: Really?

After the sandwiches, we chatted a bit.

DUBNER: For those of you who buy anything, which is everybody, what makes you buy a premium brand when there’s a store brand equivalent, and when you buy a store brand and when you wouldn’t.

STEVEN VALENTINO: If it’s a party and I’m feeling cheap, sure, you know. But if it’s going to be on display, then I would probably bring something that was premium.

MATT ABRAMOVITZ: I would, in a heartbeat, buy generic medicine, because I can’t taste it.

DUBNER: And as a new father when you get sent out to buy cold medicine for your screaming six-month-old, you’re going to say, ‘I want to save the five bucks and buy the cheap one?’

ABRAMOVITZ: There’s a lawyer in the room, but I am going to say yes on that one. And that’s because I feel like most of these products — and probably the peanut butter, too — is mostly made in the same place. My perception of these things is like one big extruder that puts it in this jar, in that jar and they just label them differently. And so I’ll save the five bucks, even on my toddler.

DUBNER: Name one thing, if any, that you would never buy a store brand, generic brand, non-premium brand for.

VALENTINO: Orange juice.

LAURA MAYER: I never get the store brand of this very basic facial moisturizer that I pay like three times as much for.

SUZIE LECHTENBERG: Condoms.

JOHN DELORE: Anything that touches genitals is totally top shelf.

DUBNER: What else that touches your genitals would you not buy?

DELORE: I refuse to give you the end of your episode.

Oh yeah, John? That’s what you think.

*     *     *

Coming up next time on Freakonomics Radio: Boredom.

MONTAGE OF LISTENER CALLS:

I really feel like I never really have time to bored.

I’m bored because I’m lazy.

The older you get the less bored you are because time just goes away.

I really just want to be OK with being bored again.

Is boredom somehow an economic concept? Is there perhaps an upside to boredom? And if I ask you to just sit there and think, will you get bored? And what will you do to alleviate the boredom?

DAN GILBERT, HARVARD PSYCHOLOGIST: It turns out that an astounding percentage of people hate sitting there thinking so much that they’ll start shocking themselves.

That’s next time on Freakonomics Radio.

*     *     *

FREAKONOMICS RADIO is produced by WNYC and Dubner Productions. Today’s episode, pulled from our archive, was produced by David Herman, Greg Rosalsky, Bourree Lam, Greta Cohn, Suzie Lechtenberg and Chris Bannon, with help from Simon Adler, Jay CowitMerritt JacobArwa Gunja and Caroline English. And now you can hear Freakonomics Radio on public-radio stations across the country — make sure your station will be carrying it. And if you want more Freakonomics you can also find us on Twitter, Facebook and don’t forget, subscribe to this podcast on iTunes or wherever else you get your free, weekly podcasts.

Here’s where you can learn more about the people and ideas behind this episode:


PLEASE ME

Churchill once said, history is kind to me as I intended to write it. Can you discuss: who writes history and how it effect our everyday life in economy

Kimberly

A difference between generics and name brand pain reliever that determines my purchasing decision - generics have a shorter shelf life. I look at expiration dates of the packages when I purchase and the time between expiration for name brand to generics can be up to 3 years. So then I am faced with replacing generic 2 times vs my 1 time purchase for name brand.

James

Except that since it's chemically the same stuff, the actual expiration - not what marketing/legal has decided to print on the package - is going to be the same. Besides, why buy more than you'll likely use before the expiration date, anyway?

Jeff Severts

Very interesting podcast. As a professional marketer and an amateur economist, I have a couple of thoughts:

1) There's a big difference between pain reliever and peanut butter. For pain relievers, the branded buyer has to believe the product is better. For peanut butter, the branded buyer just has to believe the product is peculiar.
2) Brands historically have provided reassurance of quality to consumers. This is less valuable today because buyers can quickly find better information about quality on the Internet (from impartial purchasers)
3) Brands are often used by consumers as a means of signaling to others something about the buyer's status or values. Luxury brands send obvious, Veblenesque signals. But increasingly, other brands are being used to communicate more complicated messages (e.g. Tesla, Patagonia, Chipotle, etc.) Therefore, we observe and will continue to see a difference in the power of brands that are worn/consumed/utilized in public versus those used in the privacy of one's home.
4) As a marketer, I would love to confirm the hypothesis that marketing is a social good that helps consumers make smarter decisions. But that would be disingenuous. Marketers (and the companies that employ them) are trying to create the perception (sometimes based on reality) of differentiation, because differentiation provides insulation against competition. Over time, the marketing discipline has stumbled upon methods for creating the perception of differentiation that exploit the idiosyncrasies of the human brain. This is not part of some evil plot, but a natural outcome of the same competitive forces that drive companies to find efficiencies in their operations. Unfortunately, while the societal benefits of the pursuit of efficiencies are clear (increased productivity that translates into greater wealth for all), the dividends from marketing differentiation are not.

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Dummy

" And, unlike other, fancy brands, public-radio projects like Freakonomics Radio are free. But — and you know where I’m going next, don’t you? — making them is not free. Freakonomics Radio is produced by WNYC, a public-radio station in New York, and public-radio stations are funded by listener donations. "

that's very confusing logic.

Brad

Was that Joe Rogan in the example of commercial radio? If so, like Freakonomics, he often provides insightful information. He is not an economist, and some of his theories are untested and perhaps come with risk. However, he sometimes cites scientific studies to backup the information he presents. I enjoy listening to him as well as Freakonomics. I don't know if he listens to this podcast, but I bet he would like it.

John James

That example used for commercial radio was from a video outside a theater where a feminist got on Joe Rogan's face, you guys can even check it out the video on YouTube.
I was shocked when I listen to this podcast to see that they used that exchange as an "commercial" radio knowingly full well that it was a video taken using a cellphone of an argument on the street.

Ken Berv

Just heard you on Brian Lehrer. Interesting comments on "boredom." However, the significance of the term goes back to the Greek "akedia," listlessness, which in Latin became "acedie," in medieval Frnech," accedie", and in Middle English "accedie." Later in French, "ennui." It was a not uncommon affliction of medieval monks, and is clearly a precursor of modern day "boredom." I should think some research into it's usage, symptoms, and etiology would be useful to your own work.

David Palmer

About the study showing that "more informed" consumers tend to buy generics:

I am fine with the conclusion based on doctors and pharmacists tend to buy generics.

However, a study that asks "what is the active ingredient in X", and correlates the accuracy of the answer with how likely someone is to buy the generic notX is fundamentally flawed. Many people only learn what the active ingredient is in X because they intend to buy the generic version. It is not surprising that people who chose electric cars tend to be better informed about battery technologies.

To do the study properly, you would have to ask questions such as "what is the active ingredient in Y", where Y is something that they have never bought in brand-name or generic form.

Asking men where Premarin comes from* and then seeing if they buy generic ibuprofen would be a better test.

*An estrogen drug used to treat 'women's issues', extracted from PREgnant MARe urINe. And now you know. You're welcome.

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Chris

I just realised that pattern for both - selecting your uni and your pack of crisp is exactly the same.
Trick with uni is that we will be showing the "packaging" to someone else (e.g. employer). If we know that someone will see the brand we are choosing (e.g. we are going to display crisps at the party in its original packaging) - then we buy expensive brand. We just don't want to look cheap. On the other hand - recently I wanted to learn programming and I went for a free course online from uni I never heard of before, because I know that I will put on my CV only that I know this programming language, not where I learned it.

Frederick

How do market annalists and economist deal with purely psychological effects to meet supply and demand, when the price of the product itself fudges with the value? Is the altering of data due to personal bias or beliefs such as the use of price or shelf life significantly change data that can be used? Or is it just completely random and unusable?

DartVaderest

Hello, I'm from portugal but none of your podcasts works for me. Do I Need to do some kind of configuration? I think it should be quite straight forward. what is happening is that the player just stays spinning forever

Eric Wang

So if everyone, becomes free of bias to "magic" and purchases only store goods (assuming store branded goods across all categories are cheaper than the branded good that contain about the same quality of the same good). Would this have a significant enough of an impact to lower the CPI in the long term due to the companies with branded goods need to drop their prices to remain competitive in their respective markets.

When this demand for branded goods drop, prices must drop with it in the long term right, lowering the CPI as a whole, since the price of all goods across all categories are as cheap as the generic brand good.

Or is this simply something to complex to have a straight-forward answer due to CPI?

Michael Mueller

Absolutely fantastic podcast! It would however been even greater if you had provided some more insights regarding the current state of economics related to vertical and horizontal product differentiation as well as information assymetries

Stan

Great podcast! Towards the end of the podcast you were asking about the benefits of a college education from a "higher tier" institution vs. a "lower tier" institution. Coincidentally, as I was listening to this podcast today there was an interesting article in the Wall Street Journal titled, "Do Elite Colleges Lead to Higher Salaries - Only for Some Professions". I think it would be a good follow up for you guys for a future podcast!