Don’t be duped by anchoring
Anchoring is a technique that sells goods at high prices but allows people to think they are getting low prices. This can be bad news, especially at Christmas.
Suppose you want to buy your child a tricycle for Christmas. You don’t know what they should cost.
You see one for sale, it’s your child’s favourite colour and the size is right. The tag says the normal price is $150 but today it’s discounted to $100.
You conclude $100 must be a great deal and you buy the tricycle. That’s anchoring.
The ‘‘normal price’’ becomes an anchor for what the price should be.
Researchers have studied anchoring. In 1974, Amos Tversky and Daniel Kahneman reported a simple, surprising experiment.
They used a wheel of fortune with numbers between one and 100 in random places on the rim. The wheel was spun so that it stopped at a number.
This was a psychology experiment and the wheel was rigged to stop at either a particular high number or a low number.
Later the people who had seen the wheel stop estimated a percentage of, for example, African countries in the United Nations. Of course, no one knew the correct answer. They guessed.
But those who had seen the wheel stop at a high number estimated a higher percentage of African countries than those who had seen a lower number. The number first seen becomes an anchor for a later estimate, even when the number is clearly irrelevant to what is estimated.
The basic result has been found over and over again in the laboratory and in the real world.
Anchoring also works if the anchor is related to what comes later, but is biased. The tricycle
Probably the best way to counter anchoring is to work out your own anchor first.
tag works like this.
There’s many other examples. If you apply for promotion, you may be asked to give your own opinion of yourself. Should you be honest or exaggerate?
Experiments suggest you should exaggerate, because your exaggeration will serve as an anchor.
Anchoring works even though people see through it. Obviously the spin of a wheel of fortune has nothing to do with the percentage of countries that are African. Obviously applicants might exaggerate how good they are. Obviously a shop could exaggerate the ‘‘normal’’ price, although this may be illegal in some circumstances.
And people adjust to account for this. The problem is that they don’t adjust enough.
It doesn’t matter much if you remind people that the anchor might be biased. Researchers have tried this. The effect remains.
It isn’t just ordinary people who are taken in. Experts are vulnerable too. Real estate agents’ estimates of house value are affected by an irrelevant price. Stockbrokers’ estimates of future share prices are affected. Ability exaggeration works on people who serve on promotion committees.
It is hard to counter anchoring. France goes to an extreme; to stop people being fooled in shops, discounted prices are illegal except at special sale times.
Here in New Zealand, probably the best way to counter anchoring is to work out your own anchor first.
Looking at the tags of other tricycles in the same bike shop could help but the chances are that they will be anchored, too.
You’re better to look around online or at a range of shops. But you will need to invest the time.