Guide
How to guess prices
Price questions are fun because everyone has an instinct for them and the instinct is usually a little off. The two big sources of error are forgetting that money changes value over time, and anchoring on what something costs today.
Nominal prices versus today's dollars
When Catamount asks what the original Macintosh cost in 1984, the answer is the price in 1984 dollars, the number printed on the sticker: $2,495. It does not adjust for inflation. To judge a historical price, you need a feel for how far the dollar has shrunk. Over the long run, US prices have risen by roughly 3 percent a year, which means prices double about every 24 years (divide 72 by the rate). A dollar in the mid-1950s buys about what ten or twelve dollars buy now.
So when you see Disneyland's opening-day admission in 1955, ask what a day's entertainment cost then. The answer is one dollar, with ride tickets sold separately. When you see Ford's Model T in 1908, $825 sounds absurdly cheap for a car, until you remember that factory wages were a couple of dollars a day, and Ford's famous 1914 pay rate was five dollars. A car then cost most of a year's pay for a factory worker. A new car today still costs well over half a year of a typical household's income.
Technology gets cheaper per feature, not per unit
A consumer gadget's launch price tends to cluster around a few round points: $199, $299, $499, $649, $999. The first iPhone launched at $499 (4 GB), and many consoles have launched around $499. Meanwhile, what you get for that price keeps growing. When you are asked about a launch price, think about which price tier the product aimed at and pick the nearest sensible point.
Subscriptions and memberships
Streaming services, memberships and passes usually settle on a price ending in .99 or a round figure, and they go up over time in small steps. If you know the price now, subtract a few dollars for each year back to launch. If a service started with an ad-supported tier, the cheapest tier is often the one asked about.
Big-ticket items
Costs for large projects, such as building a bridge or a Super Bowl ad, run into the millions. Treat these like any other big number: decide the order of magnitude first (millions, tens of millions, hundreds of millions), then refine. The Golden Gate Bridge, finished in 1937, cost about $35 million at the time, which is a number that sounds small today and was a vast undertaking then.
Practical rules of thumb
- Know the cost of ten everyday things (a coffee, a movie ticket, a gallon of gas, a stamp, a month of rent) and compare.
- For old prices, guess today's price and divide by the inflation factor for the years in between.
- Small prices score only if you are exact, so spend your time on those only if you have a real instinct.
- If a price feels like it should be one of two round numbers, the odd-looking one (like $4.99 or $499.99) is often right.