'People tend to pay more when offered something quite cheaply'

And this behaviour stems from people's effort to keep a good image of themselves, according to the researchers who tested how people responded to "pay what you want" scenarios.

The researchers from the Rady School of Management at University of California, San Diego, found consumers feel bad when they pay less than the appropriate price, causing them to pass on the opportunity to purchase the product altogether.

If a person doesn't want to pay the "appropriate" price, then he may not buy at all, they said. They also found that when eating at a "pay what you want" restaurant, people tended to spend more when paying anonymously than when others could see what they were paying, LiveScience reported.

That's because, they speculated, the psychological effect of being monitored may crowd out the self-image boost, because the person believes he or she "had to" pay the fair price.

The study tested three scenarios: In one, visitors to an amusement park were offered to buy a photo taken of them. One group could pay what they wanted and another could pay what they wanted knowing that half of the revenue would go to a charity for ill children. People paid on average five times more when money went to the charity, but they bought the photo less frequently.

"When someone is willing to pay little but cares about maintaining a positive self-image, the best option is not to buy at all," the team, led by Ayelet Gneezy, wrote in a paper in the Proceedings of the National Academy of Sciences.

This result was reinforced in the second scenario, when passengers returning from a boat tour were given the chance to buy a photo taken of them for USD 5, USD 15, or whatever they wanted, depending on the tour. Not surprisingly, sales went up for the USD 5 photo versus the USD 15 photo. But they dropped when passengers could pay whatever they wanted.

"When the company sets the price at USD 5, there is no ambiguity about fairness, self-image concerns disappear, and people are happy to pay," the researchers said. (More) PTI SKP AKJ