Uber Helps Demonstrate The Odd Psychology of Pricing
Sunday, September 25th, 2016
When demand spikes on Uber, prices go up, sometimes as high as 8X and 9X normal. Sure, “surge pricing” lets Uber capture more money in times of peak demand, but it also incentivizes more Uber drivers to get on the streets to meet that demand. And as supply of cars goes up, the surge pricing comes back down.
One really interesting nugget shared on NPR’s Hidden Brain: people are more willing to hire an Uber when the price is 2.1X normal rates than when it’s 2X. The explanation is that the round 2X rate feels arbitrary, as if the company is just jacking up prices to gouge riders, whereas the 2.1X rate feels like there must be some complex algorithm at work that has calculated a “fair” price for a car during the demand peak.
“Precise” pricing doesn’t always work: on eBay, round-digit items ($50) sell quicker than off-digit ones ($49).
The human brain is sometimes hard to predict, which is why it’s always important to run controlled experiments to see what really works in market.