MASTER OF THE HOUSE
With London’s West End appearing to face ever-intensifying economic headwinds, we cast our opera glasses at some of consumer behaviours underpinning theatre’s enduring appeal, including its twin role as ‘Servant to the poor. Butler to the great.’
Last week saw the 81st Birthday of American Economist Richard Thaler, and while the Nobel Laureate is best known for his 2008 book ‘Nudge,’ co-written with Cass Sunstein, it was his landmark work Mental Accounting and Consumer Choice that helped revolutionise the way we perceived pricing, both for us in The Business of Pleasure and those less fortunate souls engaged in sundry other commercial undertakings.
Thaler’s landmark work was published on the 1st of August 1985. Live Aid had just taken place, Les Misérables would shortly be opening at The Barbican, and two weeks later Michael Jackson would pay around $47.5 million for ATV publishing, thereby taking ownership of the majority of the Lennon and McCartney Beatles catalogue.
Almost all Jackson’s advisers thought the price was too high. Even Paul McCartney, through his lawyer, had indicated that the catalogue was too expensive.* Jackson reportedly replied to the gainsayers: “You can’t put a price on a Picasso… you can’t put a price on these songs.”
Perhaps Macca would have understood Jacko better if he’d browsed Thaler’s Mental Accounting. Jackson’s motivation for buying the Beatles back-catalogue was clearly more than commercial, but, thinking along Thaler’s lines, I wonder whether it became less a case of “I have to have it” and more one of “I really don’t want to lose it to someone else.”
‘The first step in describing the behaviour of the representative consumer is to replace the utility function from economic theory with the psychologically richer value function used by Khaneman and Tversky. The assumed shape of the value function incorporates three important behavioural principles that are used repeatedly in what follows. First, the function v(•) is defined over perceived gains and losses relative to some natural reference point, rather than wealth or consumption as in the standard theory. This feature reflects the fact that people appear to respond more to perceived changes than to absolute levels. (The individual in this model can be thought of as a pleasure machine with gains yielding pleasure and losses yielding pain.) By using a reference point the theory also permits framing effects to affect choices. The framing of a problem often involves the suggestion of a reference point of a particular reference point. Second, the value function is assumed to be concave for gains and convex for losses, (v”(x) < 0, x > 0; v” (x) > 0, x < 0.) This feature captures the basic psychophysics of quantity. The difference between $10 and $20 seems greater than the difference between $110 and $120, irrespective of the signs of the amounts in question. Third, the loss function is steeper than the gain function (v(x) < -v (-x), x > 0). This notion that losses loom larger than gains captures what I have elsewhere called the endowment effect: people generally will demand more to sell an item they own than they would be willing to acquire the same item.’
1985 was pretty good in London’s West End. At least for the 'greed is good' brigade betting on which £50 note serial number was highest. The next two decades were to see a dramatic widening of the wealth gap alongside a polarisation of consumer behaviour, as noted in the 2006 Knowledge at Wharton article:
Death in the Middle: Why consumers Seek Value at the Top and Bottom of Markets’
“In the U.S. and around the world, the consumer markets are bifurcating into two fast-growing pools of spending,” writes author Michael J. Silverstein in his new book Treasure Hunt: Inside the Mind of the New Consumer. At the high end, consumers are trading up, paying a premium for high-quality, emotionally rich, high margin products and services. At the low end, consumers are relentlessly trading down, spending as little as possible to buy basic, low-cost goods and services.” Between both piles lie a vast range of mediocre, medium-range products that Silverstein claims is doomed to decline.”
This article was written on the 10th of May, 2006. In London, Les Misérables was about to become the longest-running Musical in West End history (when the original London production of Cats closed) and a full fifteen months before the interbank markets went into tailspin. Northern Rock followed shortly afterwards, and, a year later, Lehman Brothers followed Grizabella up, up, up, through The Heaviside Layer.
Twenty years on from the Wharton article and The Middle would appear to be "Not Dead Yet," to quote Spamalot, which rode into The Palace Theatre to the sound of coconut shells a couple of years after Les Misérables had relocated down the road to The Queen’s (now renamed The Sondheim). According to SOLT/UK Theatre data for 2025:
Trading Up: just under 4% of the market paid more than £150, including 0.38% paying more than £250.
Trading Down: more than half the market bought at £56 or below, with more than a quarter paying less than £35.
Not Dead Yet: most importantly, a quarter of the market still paid between £56 and £85.
To the amazement of some outside observers, 2005 saw record attendances in the West End, in spite of real-wage stagnation in the UK since the 2008 financial crash. This is of course largely due to the skill, dedication and sheer bloody-mindedness of the London Sales and Marketing Chapter of The Business of Pleasure:
When it comes to fixing prices
There are a lot of tricks he knows
How it all increases
All those bits and pieces
Jesus! It’s amazing how it grows!
But I would suggest that there is also something else going on here. It used to be said that in times of economic hardship, the only two buildings with queues outside were the labour exchanges and theatres. In 2016, ten years after reports of the ‘Death of The Middle’ had been greatly exaggerated, Harry Potter and the Cursed Child arrived at The Palace with eye-wateringly expensive two-performance packages (that sold like hot-cakes) and, across the pond, a team of US Psychologists produced a landmark paper:
‘The Compensatory Consumer Behaviour Model: How Self-Discrepancies Drive Consumer Behaviour.” **
This took its starting point from the assumption that went one step beyond Thaler’s Value Function replacing the Utility Function:
‘Consumer goods and services have psychological value that can equal or exceed their functional value. A burgeoning literature demonstrates that one source of value emerges from the capacity for products to serve as a psychological salve that reduces various forms of distress across numerous domains…’
And positing more precisely:
‘The human psyche attempts to maintain stable levels of psychological assets related to the self, such as self-esteem, belongingness, feelings of power, and feelings of control over one’s environment. As part of this self-regulation process, individuals monitor the distance between their present state (or actual self) and a goal state (or ideal self). The potential for compensatory consumer behaviour begins when a person perceives a self-discrepancy, or an inconsistency between one’s ideal and actual self.’
I have witnessed this ‘compensatory behaviour’ first hand in the West End, along with the customer service issues that can arise when patrons feel that some part of the experience has fallen below expectations …and thereby failed to produce a magical transformation even the Boy Wizard couldn’t pull off. And while I cannot possibly speculate as to the percentage of West End consumers that may belong the ‘compensatory’ category, I personally believe that we can count on their continued attendance for many years to come, whatever the economic headwinds, because...
' And so it has been, and so it is written
On the doorway to paradise
That those who falter and those who fall
Must pay the price! '
DT 18 September, 2026
*Mental Accounting and Consumer Choice Richard Thaler Marketing Science Summer 1985
**Ironically, it had been McCartney himself who had outlined the economics of music publishing to Jackson. A 1985 Los Angeles Times account describes McCartney showing Jackson his collection of song copyrights and explaining how ownership worked. Soon afterwards Jackson told his lawyer, John Branca, that he wanted to buy copyrights “like Paul.”
***Compensatory Consumer Behaviour Model: How Self-Discrepancies Drive Consumer Behaviour, Naomi Mandel, Derek D. Rucker, Jonathan Levav, Adam D. Galinsky, Journal of Consumer Psychology, 2016
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