When I was little, I always had holes in my jeans. Not because I wanted to look cool, but because that’s what happens when you constantly trip over things and fall down: I was a clumsy kid, not to be trusted around anything remotely breakable. Naturally, I became very familiar with the phrase “be careful with that—it’s EXPENSIVE,” spoken very tensely with a look of utter fear and usually followed by a shooing motion and sigh of relief. But what does this phrase really mean? Shouldn’t I be careful with something because it’s intrinsically valuable? What does price have to do with anything?

Professor Antonio Rangel found in a study that people’s decisions are highly influenced by the perception that higher price means higher quality. He told his subjects that they were tasting five different bottles of wine, each with a different price tag. They were given, in reality, only three different wines, with two of the wines used twice, once with the real price and once with a fake one. One $90 bottle was valued as both $90 and $10, and one $5 bottle as both $5 and $45. The subjects ended up consistently choosing the more expensive wine as the better tasting one, even when they were comparing the same wine. Moreover, the signals in their brains showed a real increase in pleasure when the subjects were tasting what they thought to be the more expensive wine.

When told the prices, the subjects judged the wines based on perceived value rather than objectively comparing the taste of each wine with one another. To them, there was a real difference in taste between the five-dollar wine priced at $5 and the five-dollar wine priced at $45. When the subjects were asked to judge the wines without being told the prices, they couldn’t taste any difference between the wines that were served twice.

People expect expensive wines to taste better, so they do. What does this mean? Well, we would all like to believe that we’re perfectly rational beings capable of objectivity, and that a certain bottle of wine costs more because it empirically tastes better. But, in reality, that bottle of wine may only taste better to us because it cost us more money. So the next time you’re sick, ask yourself, does that bottle of Advil really make you feel better than generic ibuprofen, or is your brain just filling in the blanks for you?

update: This article was included in the Carnival of Personal Finance #178 which is hosted this week by The Digerati Life.