RENEE MONTAGNE, HOST:
Now, here's something to think about, a situation that happens every day. A store will stock two items identical in almost every way often right next to each other, except one costs twice as much as the other. And surprisingly often, people buy the more expensive one. David Kestenbaum of our Planet Money team talked to two economists trying to find out why we do this?
DAVID KESTENBAUM, BYLINE: So where are you right now?
JESSE SHAPIRO: I am at Walgreens in Hyde Park. I am in the pain relief aisle.
KESTENBAUM: This is Jesse Shapiro. When he's not doing silly stunts like this for a radio reporter, he's an economist at the University of Chicago Booth School of Business.
SHAPIRO: I'm looking at Bayer aspirin for $7.29.
KESTENBAUM: If you don't want to spend that much, right next to it is the store brand aspirin.
SHAPIRO: Walgreen's brand for $3.49.
KESTENBAUM: Same number of pills?
SHAPIRO: A hundred pills in each.
KESTENBAUM: Same ingredient?
SHAPIRO: Aspirin and aspirin.
KESTENBAUM: And half the price.
SHAPIRO: Less than half.
KESTENBAUM: So here is the question. Why does anyone buy Bayer? Actually, let's not pick on Bayer. Why do we buy Advil brand - or Tylenol or Aleve - when there are cheaper store-brand versions sitting right next to them? Sometimes, there's a sign pointing out they have the same active ingredient and breaking down the price per pill to show you just how much money you can save, and yet, people still buy Bayer and Tylenol and Advil, et cetera.
MATTHEW GENTZKOW: This particular fact about headache remedies has seemed incredibly curious for a long time.
KESTENBAUM: This is Jesse Shapiro' colleague Matthew Gentzkow. They wanted to figure out what was going on here. Was it just ignorance? Do people just not know that generic and brand versions are basically the same? Along with a couple colleagues, they decided to test this idea.
GENTZKOW: We came up with what is probably the simplest idea you've ever heard of, which is let's just look and see whether people who are well-informed about these things still pay extra to buy brands.
KESTENBAUM: People who are well-informed, that means doctors, nurses and pharmacists. Do they fork over extra cash for Bayer, Tylenol, et cetera? The researchers looked at a huge dataset from over 66 million shopping trips, and we can cut to the chase here. The answer...
GENTZKOW: Lo and behold, nurses, doctors and pharmacists are much less likely to buy brands than average consumers. Pharmacists, for example, buy generics about 90 percent of the time.
KESTENBAUM: The answer to the mystery of who buys Bayer and Tylenol, it is the rest of us. We bought generics only 70 percent of the time, which means 30 percent of the time, we paid extra to get the brand name.
GENTZKOW: As far as we can tell in a world where everybody was as well-informed as a pharmacist or a nurse, the market share of the brands would be much, much, much smaller than it is today.
KESTENBAUM: Gentzkow says people with more education tended to buy branded painkillers less often. But even fancy degrees were no guarantee.
GENTZKOW: Lawyers look just like everybody else. They buy the brand a bunch of the times.
IAN REXROAD: It is genuine Bayer, the wonder drug.
KESTENBAUM: Can you shake it so I can hear the sound?
(SOUNDBITE OF SHAKING)
KESTENBAUM: I called an actual lawyer - his name is Ian Rexroad - to try to answer a question that this study doesn't directly measure. What exactly is going on in our heads when we decide to pay twice as much as we need to for aspirin? Ian Rexroad says that he bought the brand name for two reasons. One, when he bought it, he was in law school and reading a lot about product liability. And somewhere in the back of his head he wondered, do generics really have the same quality controls? And then there was this warning on the bottle about something called Reye's syndrome.
REXROAD: And I have no idea what that is, and it says it's incredibly rare, but it's right there on the package and makes me think that it's the kind of drug not to mess with.
KESTENBAUM: Kind of drug not to mess with.
REXROAD: Yeah. I don't have time to make the decision, so I'm just going to, you know, pay an extra buck or two and buy the brand name.
KESTENBAUM: For the record, generic drugs have to meet the same Food and Drug Administration safety and efficacy standards as brand-name drugs. I asked several people who had a bottle of Bayer or Tylenol or Advil at home, why they bought the brand name. One guy said he liked the shape of the bottle. Another said he didn't want his wife to think he was cheap. One woman told me Bayer reminded her of her grandmother. But it seems like we also buy brands when we lack information, like Ian the lawyer did. Jesse Shapiro, the economist, says we all do this. No one, he says, is an expert in everything. David Kestenbaum, NPR News.
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