If you decide to buy a product, you should prefer the shop where the price is lower. So, why do we behave differently?
The reason is that it also matters from where we buy a product. Richard Thaler, a well-known behavioural economist with the University of Chicago's Graduate School of Business, conducted a study called "Beer on the beach" to assess such behavioural patterns. He found that people were willing to pay a price that was higher for a beer bought from a fancy resort hotel on the beach compared to the same beer sourced from a small grocery shop.
Such behaviour also applies to the way we buy stocks! Meir Statman, a pioneer in the field of behavioural finance, attributes this to sentiment or what he calls as the value-expressive characteristic.
That is, we may be willing to pay a higher price for a stock for the pleasure of owning it.
Perhaps, that is why Wipro and Infosys command a higher price-earnings multiple compared with their peers in the industry.
(The author is a Chennai-based financial consultant)