Placebo effect and Value effect

Discounting for the obvious biological variations, it has been found that similar patients respond differently to the same treatment, depending on the context. My mother would find a prescription by our family doctor much more effective than the same prescription delivered by another doctor! Some patients tend to respond better to treatments involving expensive diagnostic tests and drugs, even though the tests and drugs have been found to be (substantively) no different from their cheaper versions. These and other similar phenomenon have been the subject of extensive experimentation by researchers in recent years.

A medical treatment is said to have placebo effects if patients who are optimistic about the treatment respond better to the treatment. Using clinical trials of anti-ulcer and cholesterol-lowering drugs, Anup Malani found conclusive proof that clinical trials manipulate patient expectations. He suggests that instead of comparing the treatment and control arms of a single trial, one should compare the treatment arms of two trials with different probabilities of assignment to treatment. If there are placebo effects, patients in the higher probability trial will experience better outcomes simply because they believe there is a greater chance of receiving treatment.

Now, Dan Ariely and a group of researchers have conducted studies to prove that just as a placebo pill can reduce pain, a higher price can create the impression of higher value.

The subjects were given an initial series of electric shocks and asked to rate the pain they felt after each shock. The subjects were then allowed to take a placebo pill that they were told was similar to codeine. In fact, the pill had no direct medical benefit at all. While half of the patients were told that their (false) treatment cost $2.50 per pill, the other half were told that their pill had been discounted to $0.10 per pill. They were then given a second series of electric shocks, and once again, asked about how much it hurt.

While 85% of the patients taking the $2.50 pill reported that the second set of shocks were less painful, only 61% of those taking the (identical!) $0.10 pill reported the shocks to be less painful. So the more expensive the pill, it seems, the larger its perceived effect — even when the pill actually has no medical effect!

Previous studies have shown that pill size and color also affect people’s perceptions of effectiveness. In one, people rated black and red capsules as "strongest" and white ones as "weakest". Other information like the country where the drugs were manufactured can also affect perceptions.

(HT: Freakonomics)

Update 1 (20/3/2011)

Dan Ariely and Co conduct experiments and find that brand name products are more effective, if not in quality atleast in the way they generate response in its users.
They write, "Study participants facing a glaring light were asked to read printed words as accurately and as quickly as they could, receiving compensation proportional to their performance. Those wearing sunglasses tagged Ray-Ban made fewer errors, yet read more quickly, than those wearing the identical pair of sunglasses when tagged Mango (a less prestigious brand). Similarly, ear-muffs blocked noise more effectively, and chamomile tea improved mental focus more, when otherwise identical target products carried more reputable names."