Author of ‘Cheap’ Answers (More of) Your Questions

BY busadmin  August 24, 2009 at 10:30 AM EDT

Ellen Ruppel Shell; courtesy of author

Editor’s note: Paul recently sat down with author and professor Ellen Ruppel Shell to discuss her new book, Cheap: The High Cost of Discount Culture. At the heart of Shell’s premise is the idea that our love of discount and low-price goods has hidden, and often nefarious, effects, including lower wages, environmental degradation, and all-around lower quality.

You can watch the segment here:

Ellen Ruppel Shell then answered a handful of wide-ranging questions from viewers the following week in an Insider Forum hosted by Paul. It was a fascinating conversation — covering the rise of discount airlines, how low-priced food affects obesity rates, and what small business owners can do in order to compete in a discount world.

But because we were only able to ask Shell a small fraction of the viewer questions that were submitted, we thought it might be worthwhile to feature answers to just a few more here. We chose a few that touched upon themes that recurred throughout many of the questions posed.

Ana: Where can consumers learn which companies abuse the environment and exploit human labor? How can consumers know if a company behaving ethically?

Ellen Ruppel Shell: This is a tremendously difficult question. Richard Locke, professor of Entrepreneurship and Political Science at the Sloan School of Management at MIT and an expert on economic development, has found that while companies such as Nike and Wal-Mart may claim to regularly audit their suppliers, such audits improve working conditions only marginally if at all. In 2006, the Fair Labor Association released a study based on unannounced audits of 88 factories in 18 countries and found an average of 18 violations in each — excessive hours, underpayment of wages, health and safety violations, and worker harassment. But the Fair Labor Association assumes that there were far more violations that factories were able to hide from the inspectors. The problem is, as retailers demand lower and lower prices from their suppliers, the suppliers have no choice but to cut corners — resulting in environmental and human costs.

My suggestion: Whenever possible, buy goods manufactured in countries in which the rule of law is enforced, and minimize your purchase of discretionary goods the provenance of which you do not know. You might also suggest your local retailer prominently label his/her goods with the country of origin. Finally, the technology exists to bar code individual items to allow them to be traced back to their place of manufacture — and that bar code could be made available to consumers, who could trace products on the web. Consumer pressure might help convince retailers to install these codes, and discourage their doing business with unsavory actors.

Sharon Smith: Is there is an hormone or brain chemical released when a ‘bargain’ is found?

Ellen Ruppel Shell: Brain studies show that the human brain “lights up” at the prospect of a bargain. Stanford neuroscientist Brian Knutson used fMRI to peer into the brains of subjects as they contemplated making a purchase and found distinct brain circuits anticipating gain and loss — when subjects were presented with prices they considered excessive, the insula, the region associated with guilt, humiliation, and pride, lit up. Confronted with discounts, nucleus acumbus — a brain region associated with pleasure — lit up like a Christmas tree.

People don’t like to spend money, they consider it a loss, but a discount “reframes” the spending as a gain. This might sound weird — after all, even when you get a discount you are spending money, but your brain doesn’t see it that way. This is why we so often overbuy in response to discounts, especially deep discounts.