(This is the second post in a series about “anchoring” and its effect on our happiness.)
Go to the mall, find the nearest jewelry store, and look into the display windows. What do you find?
The super nice stuff. Wow, there’s a diamond necklace that costs $100,000.
Why do they display this? So we’ll go inside, look at a necklace that costs $1,500, and tell ourselves, Compared to the display, this one’s a great deal. The retailer “anchored us” to the high price item in the front display so we’d buy the lower price item inside.
Anchoring bias is the tendency to make judgments relative to an initial piece of information. that means changes in the initial information can influence our judgments.
Retailers know about anchoring and use it to get our money. Whenever we make judgments about value, we tend to rely on an unconscious starting point that influences our judgment. This “anchoring bias” influences our decisions, and can be manipulated. Retailers structure their stores to get us to anchor to their reference points so we’ll buy more.
Think about what might happen if retailers displayed the cheap stuff outside, say a necklace worth $200, and we went inside with that in mind. We’d see the $1,500 necklace and think, Wow this is expensive. I’m not going to buy it.
It’s the same $1,500 necklace, worth the same $1,500. But the anchor point, the starting point for our comparison, changed the way we see it. From the $100,000 anchor point $1,500 is a good deal. From the $200 reference point, it’s a bad deal.
Here are some other retail and sales examples;
- Grocery stores put up signs that read, “Limit 12 per customer.” We presume this is to keep everyone from buying out the stock. But it’s actually there to increase the number of items we put in our cart. One study shows this increases the purchase quantity for cans of soup from an average of 3.3 to an average of 7. The sign anchors us at 12 so we’ll adjust down to 7.
- Car dealers display the super expensive car in the center of their showrooms, not to sell that car, but to sell all the other cars. Honey, look at that $350,000 Mercedes. Then the salesperson introduces themselves and proposes to show us a $50,000 Mercedes that’s much cheaper by comparison.
- Restaurants tell patrons, We’ll seat you in 30 minutes, knowing they’ll beat that number. Why? To manage our expectations and influence our mood. If they tell us 15 minutes and it takes 25, we’ll be upset. But if they tell us 30 minutes and it takes 25, we’ll be pleasantly surprised.
Retailers know about the anchoring effect and we don’t. But once we figure it out, we can use it on ourselves, to make better decisions and be happier. Tomorrow I’ll describe how.
Also we’ll see how anchoring makes us frustrated in traffic, how to cure the road rage, and how to triple our positivity.