What would it take for you to stand in front of a crowd of people and belt out Rick James’ 1981 hit song, “Super Freak?” A lot of cash. But most of us expect others would be induced to embarrass themselves this way for a lot less.
That’s the conclusion of two academics who studied how people perceive value. The research is cited as part of a larger study, published in the Journal of Consumer Research in December, examining how people analyze others’ choices.
Authors Didem Kurt and J. Jeffrey Inman examined important consumer decisions, for example the purchase of real estate, and how social predictions cloud the way we assess the value of things we’re buying and selling.
According to Kurt and Inman, people “are not generally well-calibrated in predicting others’ feelings and thoughts.” In real estate, that means people underestimate how much feelings and thoughts influence something that’s supposedly a hard science, in this case determining a home price.
People tend to place higher values on objects simply because they own them. I know I feel this way about my home; we are raising our kids there, we picked out the blue exterior with white trim, and the house and yard are full of wonderful memories. Plus, I’ve worked hard in the garden. To me at least, the house stands out as a perfect place for a family, and it’s hard to imagine anyone disagreeing.
I’m undoubtedly overvaluing my home.
Which brings us to Rick James. In the study cited by Kurt and Inman, participants required an average of $53 to dance to “Super Freak” in front of a full auditorium. Interestingly, the same participants predicted that the average performance price required by others would be only $19. People think their threshold of embarrassment is higher than that of everyone else.
Conversations with real estate agents show this dissonance is borne out in the real world.
John Poole, a sales agent with Atova real estate, told me homeowners often have an emotional attachment that goes beyond true market value.
“They have a number in their mind, and my experience tells me sometimes that number is going to be higher than what the real market value is,” Poole said.
Poole reconciles that by showing the home seller comparisons similar properties in the market. That usually helps the seller come up with a more realistic price, he said.
Kurt and Inman recommend something similar. They say better understanding of others will help sellers and buyers alike have a more satisfying sales experience.
But that’s not an answer to the problem. In fact, the central thesis of the Journal research is that even if I spend time in the shoes of prospective buyers, I still won’t accurately predict what they’ll be willing to pay for my home.
This signals to me that if you want the buyer and seller to walk away with more satisfaction and less surprise, they need to be brought closer together. Not only in real estate, but in any financial transaction.
Maybe this is where Rick James can come in handy after all. Interrupting negotiations to dance to “Super Freak” might be just the thing for breaking down some of those emotional and cognitive barriers.
Anne Wallace Allen is managing editor of the Idaho Business Review.