Research Backs Rebates

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It's not just in medicine that this belief works, Shiv notes. A beer drinker who likes to trick wine-lover friends by telling them a cheap wine is an expensive vintage, Shiv recently gave test subjects the same wine but told some they were drinking a more expensive label than others. He tested the pleasure center of the brain and found more activity in those who thought they were sipping the costly wine. Again, merely the idea of having a more expensive product affected the neural response of the participants, which indicated that marketing can affect the experience of the consumer. This study was published in the Proceedings of the National Academy of Science (PNAS) in January.

Shiv says companies can learn a lot from the brain's response to prices, and therefore brands and products. "You can shape people's expectations in packaging, etc.," says Shiv. "It's thought to be secondary, but it sets expectations and affects the amount of pleasure consumers have."

Debt Knowledge Deficit

Two business professors recently discovered that most Americans don't understand how interest works and, therefore, how debt mounts up.

While academics rarely team up with market researchers, Annamaria Lusardi, professor of economics at Dartmouth College and a visiting scholar at Harvard Business School, and Peter Tufano, a professor of finance at Harvard, recently joined forces with the market research firm TNS to study the financial literacy of Americans.

The duo and TNS surveyed 1,000 people representative of the general U.S. population; among the questions asked was to calculate how much they would owe based on a certain interest rate.

The large majority of respondents did not understand interest compounding and other debt calculations and did poorly on the questions. For instance, more than half of respondents did not understand how minimum payments are calculated and applied to a principal balance, and almost none understood the financial difference between paying in installments or paying in one lump sum at the end of a time period.

The study confirmed the findings of other surveys that showed widespread financial illiteracy and lack of knowledge even among those with a relatively high income.

"It's almost an epidemic in the U.S. at a moment when people have to take more individual responsibility," says Lusardi. The survey also revealed that 30% of the population that is not yet retired feels their debt is too high. Tufano says feeling overextended and being financially illiterate go hand in hand.

Lusardi and Tufano plan to continue to study financial literacy. They say they hope policy changes and educational programs are created to address the issue. Tufano, in fact, founded the nonprofit Doorways to Dreams Fund in 2000 to help people save money and to create financial innovations for lower-income families.

Research Proposal Finalized

AACSB International, the major business school accreditation organization, finalized its recent report (BusinessWeek.com, 8/14/07) on business-school research. The report, in part, proposed to encourage business schools to produce work that is most immediately applicable to the practice of business.

The final version addresses concerns by educators about the new focus on practice. Judy Olian, dean of the UCLA Anderson School of Management and chair of the AACSB, said the final version clarifies that not every element of research has to be practice-oriented. Even some purely academic pursuits have an impact and influence on business, Olian said.

Next: A task force will create a pilot program to map out how the AACSB can actually carry out this plan to make business-school research more practical.

Di Meglio is a reporter for BusinessWeek.com in Fort Lee, N.J.