Price gouging in a second language

Research on differences between decisions made in a person’s native tongue and decisions made in a second language reminded me of an unexplored idea in the social dynamics surrounding price gouging.

I’ve devoted a few posts to the question of whether or not price gouging laws get applied in a discriminatory fashion against “outsiders,” primarily thinking of immigrants or cultural minorities. My evidence is slim, mostly the casual reading of a handful of news stories, but consider these prior posts and possible examples from Mississippi, New Jersey, and West Virginia.

In the New Jersey article I speculated it was possible that “outsiders” were more likely to engage in price gouging behaviors, and observed, “Social distance between buyers and sellers can work both ways.”

Some support for my speculation comes through communication research by Boaz Keysar of the University of Chicago, who has documented the view, as the subtitle of an article in the journal Psychological Science puts it, “thinking in a foreign tongue reduces decision biases.” Part of the explanation Keysar and his coauthors offer is the “foreign language provides greater cognitive and emotional distance than a native tongue does.” (The work was mentioned in a recent Freakonomics podcast.) An immigrant hotelier or retailer may not connect as emotionally as a native does with laws expressed in the native’s language or with customers when transacting in that language. When exchange is seen as impersonal rather than personal, price-setters are less constrained in their pricing decisions.

Interestingly, Keysar is also coauthor on a study concluding that moral judgments are markedly more utilitarian when problems and responses are conducted in a second language. Economic analysis tends to support the view that “price gouging” in response to sudden shifts in demand is the correct utilitarian response (as flexible prices help goods and services move toward those who value them most).