This one is absolutely crazy and a little frightening so pay attention!
This is the second in a series of articles about our irrational decision making and based upon a book by Dan Ariely called Predictably Irrational
The other articles can be found here:
Irrational Decisions – Relativity
Professor Ariely describes some experiments which demonstrated something he calls “arbitrary coherence”. Basically it means that once you contemplate a decision or actually make a decision, it will heavily influence your subsequent decisions. That’s the coherence part. Your brain will try to keep your decisions consistent with previous decisions you have made. I’ve read about that many times before, but what was surprising in this book was the the “arbitrary” part. The initial anchoring factor can be totally arbitrary, but it will still heavily influence your subsequent decisions.
Consider this experiment. A group of students were shown a series of products. There were a couple of bottles of wines, a couple of computer components, and a couple of unrelated products. Each student was given a sheet with the products listed on it. They were asked to write the last two digits of their social security number at the top of the page. Mine are 43 so I would have written “43” at the top of the page. Then they were asked to write that number in the form of dollars (e.g. $43) next to each product listed. Then they were asked to write whether they would pay that amount (e.g $43) for each product by writing yes or no next to each product. Finally they were asked write the maximum amount they would pay for each product. In this case they were actually bidding on the products and the top bidder would actually win the auction.
Now here is the wacky part of all this. The fact that the students contemplated a decision at a completely arbitrary price, the last two digits of their social security number, very heavily influenced what they were willing to pay for the product. The students denied that the anchor influenced them, but the data shows something totally different. Correlations ranged from 0.33 to 0.52. Those are extremely significant.
The students with social security numbers in the top 20% (80-99) placed bids from 216% to 346% higher than those with social security numbers in the bottom 20% (01-20). As an example, the top 20% bid an average of $56 for a cordless keyboard while the bottom 20% bid an average of $16!
Your social security number doesn’t affect your buying decisions so don’t worry. What happened in this experiment was that students were asked to consider buying items at that price. That contemplation created an anchor that then subsequently influenced what they were actually willing to pay. The anchor was completely arbitrary.
It gets even worse. Once that initial anchor is set, it is not easily dislodged even if you are presented with differing subsequent anchors. The professor conducted experiments using a series of three anchors that either ascended or descended. One group was anchored at 10, then 50, then 90 and another group was anchored at 90, then 50 and then 10. The results showed that the initial anchor ruled and would hold over a long series of subsequent decisions. In this series, the participants didn’t pay for anything. They were being paid to perform a task and they determined how much they would work for. If they were in the group that started with a low anchor of 10 initially, they were willing to work for lower pay from then on regardless of subsequent anchors. On the other hand if they where in the group that initially anchored with a high 90, they demanded higher pay from then on regardless of subsequent anchors.
I’m not sure what to do about all this other than be aware of it. I guess we need to seriously consider each decision we make if we ever plan on making similar decisions in the future. That initial decision, or even contemplation of a decision, can affect future behavior more than we ever imagined. It would be nice if someone conducted experiments in how you wipe out anchors, but the good professor didn’t go into that in his book.
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That’s really fascinating. I’ve actually been thinking about this a lot lately, or something similar in any case. I have been thinking about all the decisions we make in our lives, and how so many of them are just arbitrary lines we have chosen to draw in the sand.
One thing in particular that I have noticed is dietary habits. There are people who eat meat, and there are raw vegans who only eat uncooked fruits and vegetables, In between, there are a full range of dietary habits: People who will eat chicken, but won’t eat beef. People who will eat eggs, but won’t eat chicken. People who will eat fish, but not any other animal. People who will eat raw fruit, but won’t eat cooked fruit. And really, all of these are personal decisions that are completely arbitrary.
That’s not to say people don’t have reason for the choices they make; indeed they often have very good reasons. But at the end of the day, all of our dietary decisions are completely arbitrary. And almost all of our decisions are this way. What we eat, what we wear, where we live, what we do for a living, what we buy, how much we pay…it’s all just lines in the sand that we have chosen not to cross.
.-= Jay Schryer´s last blog ..Memories Best Left Forgotten =-.
Hi Jay, thanks for your very thoughtful commentary.
Thank you Jay, I really enjoyed reading your comment.
Jason @ Oil Change Advice´s last [type] ..synthetic oil vs regular oil
In other words, if you set yourself on the wrong path from the beginning, chances are you’ll stay on it even when it’s painfully obvious ti’s the wrong one. I see this happening every other day. I used to call it having a BIG Ego. But maybe it’s just natural human psychology.
PS: I love it when bloggers quote real, scientific research.
Eduard
Eduard, thanks for your comment. I checked out your site and it looks great!
The human mind never ceases to amaze me. I think that this research is a great example of why negative thoughts can be so damaging and cause a downward spiral. It’s important for us to monitor our thoughts, and when we recognize unhealthy ones, it would be wise to do what we can to minimize the chance of creating an unfavorable anchor.
.-= Vin – NaturalBias´s last blog ..A Great Source of Natural Probiotics =-.
Hi Vin. It amazes me too. When I was a kid (like 40 years ago), I used to read my dad’s college psych textbooks.
I’ve read Ariely’s book after I saw his TED talk. Impressive, fascinating and thought-provoking.
I suggest everyone reads the book, because it is not that long; the material in it is concise.
I liked the part about options “A” and “minus A” and the experiments with “cheating that is one step away from the money”.
.-= Alex´s last blog ..On smoking, drinking and keeping hands in pockets =-.
Alex, I agree. It is very concise and easy to read. The options A and minus A were the topic of my other blog article on his book. Thanks for stopping by to comment.
Sometimes, a useful way to start evaluation of an ambiguous situation is to assume an arbitrary baseline to compare against. Care has to be taken to take new information that may be produced as a result of the outcome and feed it back into the process to do a sanity check. Not unlike a negative feedback loop.
Without some feedback the output is likely to be meaningless (er.. arbitrary).
Perhaps the stickyness of the base case comparison decisions is related to how easily human memories/beliefs can be manipulated.
Hi Sam, thanks for sharing that insightful idea!
In answer to “what to do about this”, I’d suggest being extremely cautious when a salesman opens by anchoring you to the price of his high end product before you start to make decisions on the product you’ll actually buy.
I suspect unconscious use of this principle is widespread amongst capable salesmen.
Hello Taffronaut, I suspect you are right. We are probably manipulated in many ways by marketers and salesman who know and those who have just figured out what works. Thanks.
It’s not usually unconscious at all. Many product lines are “anchored” at the high end by a model that’s not expected to sell many units — the real purpose is to make what would otherwise be the most expensive one seem medium-priced by comparison. This is a routine marketing technique to move people up the price range.
That’s f*cked! People are morons. We are caught in a trap. We can’t walk out. Our brains are like insects. I am so angry about this. I thought we were intelligent, but we aren’t. This makes me want to go out and punch people. Stupid stupid people. You are all as mindless as locusts and there is nothing you can do about it.
Hey Frank… I hope you’re just trolling, and don’t work for the post office.
Not morons. We just have a lot of not obvious ways of evaluating and decision making. Its the way we evolved. Nothing to be angry about here; what else would you expect from a biological organism?
The research is not saying that we have no ability to think/analyze/choose. However, there are aspects to how we think and evaluate that are open to manipulation. The given experiment is designed to highlight one aspect of the processes that we use.
People think in order to survive; that doesn’t mean that we are infallible logic engines… and inferential logic isn’t necessarily intelligence. We are easily influenced by correlated events, the opinions/statements of others, and by status of our social position… amongst many things. The formal logic of the situation does not have to determine the outcome in the mind of an individual.
Think about day to day interaction with both strangers and with people close to you. Doesn’t this explain some things? In this case, it would be interesting to determine just how stuck we get on our initial assumptions and what it takes to change our position.
I can recall numerous experiences where I or others made conclusions based on what we thought we knew, and those conclusions turned out to be wrong. The fact that events proved the conclusion false did not result in immediate acceptance of the result. It isn’t uncommon for people to fight for their point of view long after it has been shown to be incorrect or non-optimal.
People are messy.
Assuming you’re not trolling, I think you just anchored yourself to a mental toilet. Also, I was trying to fit part of your post into the “Suspicious Minds” metre to which you alluded, but have to suggest some changes:
We’re caught in a trap
We can’t walk out,
Because our brains are those of insects.
I’m angry ’bout this
Thought I was da whiz,
I aren’t and I want to punch me out.
We are all mindless insects; nothing we can do.
And we can’t build our dreams, as brainless beetles.
Nice parody. Good scansion.
Thanks for sharing Frank.
One way to wipe out anchors is to deploy ubiquitous (easily accessible) alternatives. For example, Redbox is effectively reducing the value of a movie.
taterskin, thanks for commenting.
I agree with Frank above. People are stupid. And lazy. Once we spend the “painful” mental effort to decide on a matter, we generally are reluctant to revisit it. So we are trapped by “memes” introduced into our pitiful brains, often during childhood. And then we do our best to transport those memes (often unconsciously) into others. Look at all the stupid things people believe and do: violence and war, oppression of minorities, religion, environmental destruction, scammers and the scammed, etc. And our beliefs blind us so completely, we wouldn’t recognize we were over the brink of destroying our world until it is too late.
Yup… “memes”.
I wouldn’t say lazy/stupid though. Human species and the human thinking processes have been fairly successful at survival through changing environments, and that success is one way to define and measure intelligence.
Memes are a useful concept. Rather than consider “memes” as something that traps us as individuals, we should look at how beliefs/memes work in the larger context for the survival of the species. In effect they are part of a parallel communication protocol that supports massive parallel computing.
These elements of how we think (making us “stupid”) are a fundamental part of what we are. We react negatively to the idea that we are easily and unconsciously influenced by such arbitrary stimulus but because of the apparent fundamental nature of these revelations, they somehow have to be a part of how we are able to move forward in our understanding of the universe and reality. How does that work?
Matt, These were MIT students, so I don’t think they were stupid. Lazy maybe. Or perhaps they were just doing what all humans do and work with the brain nature gave them. Thanks for commenting.
To me the experiment proves more than anything else that people are really poor at pricing things. Surely one of the key factors in the experiment is the degree to which people feel they are making a guess. It’s my hunch that anchoring only comes into play when the choice of one value over any other is itself largely arbitrary. In fact, it is the absence of any other reasonable heurestics that is interesting here.
The experiment points to the notion that the act of placing monetary prices on commodities as an expression of value is an unintuitive process for humans. A result, I expect the author is in agreement with – surprising, perhaps for some people, not so much for others…
Hi Ferg and thanks for stopping by to comment. I think you are right about the fact this is a unintuitive process and as the previous article showed our brains are much better at relative rather than absolute decisions.
VERY GOOD! Now we know how “Disrupt and Reframe” selling works! The disruption creates an arbitrary anchor, when reframing kicks in, you incorrectly assess the sell as being desirable. BRILLIANT!
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[First time reading this site; lined from slashdot] Overall, this scares me, but remember it isn’t just salespeople who can use it. On the plus side, an effective bargainer uses this the other way: approaching a yard sale/craigslist ad/merchant with a notion of what an item is worth to him. If you’ve got the number firmly in your head, that’s leverage, baby. You can walk away from a deal if it doesn’t suit you. I’ve used it well, but my sister the hard-core bargain lady regularly has merchants running after her saying, “what if we make it [x - %]?”
One thing I’m taking away from it is to set my own base, do research perhaps, and have a number in my head each time I shop.
Yeah, and set the bar low if you want to be frugal, higher if its more important to acquire than to save.
I wonder what this infers about employment salary negotiation. There is always the little dance about how much you expect to get paid. Obviously the applicant wants to max out salary and the employer wants to minimize.
Both sides of a negotiation usually will have anchors already set in place due to previous experiences. It is hard to move them… if you are looking for a bargain then find someone who hasn’t done any research and has no built in expectations. Then set the anchor for him/her.
Hello Worsley. That’s a great idea you present there in your first sentence. Thanks for commenting.
Hi Ms_B! Glad you made the trip over from slashdot. I think taking an extreme bargaining position will help you hold the line. On the other hand it may prevent you from offering enough if you really want the item. Interesting.
I wonder if corporations hold “seminars” for their sales department discussing how to “anchor” on someone’s decision? Prices are prices, what’s scary is how a salesperson does this “pshyco-analysis” on their preys (us humans) that ultimately determine our decision in the end. And we are convinced we made the right decision even if we thought we “haggled” or did a bargain with the sales guy! RAt trap indeed.
Very interesting, reminds me of discovery (by the “guy in a garage”) made in the netflix competition that movie ratings are highly biased to what movie you watched previously; ie if you watched a movie you rated 5-starts, and subsequently watch another movie that is also very good, but doesn’t appeal to you quite as much you are much more likely to give it a 4, than when you watch it after seeing a 1 star movie.
This bit with purchasing anchors is something I’ve been noticing about my self as I purchase supplies for the start-up I joined. With every quite I get, I’m apt to not believe it’s a reasonable deal and dig around until I can get something at least 20% lower. If it turns out the quote was a good deal, I spend way more time then I should researching the price because I just can’t believe the first quote I got was so much better than everyone else. The only time i don’t waste a lot of time hunting around is when I’ve already bought something from that vendor, and didn’t win a haggle to lower their best price because I already believe they are at rock bottom.
Yes, we anchor to huge volumes of arbitrary decisions, often on the basis of very little information, especially when we are young, as Frank and Matt seem to allude, and those anchors guide huge numbers of decisions we make about everyday things. Diet, conflict resolution, diplomacy, generosity, likes and dislikes to name a few all are affected. I think that the idea of “memes” makes a very good tool for exploring this concept more. Hawk, I am not sure “incorrectly” is foregone, though possibly nefariously contrived, the “arbitrary” anchor a sales person supplies is just new information, part of the educational process involved in a purchase.
Fascinating writeup. Just to quibble on statistics, though: I don’t think you can say anything about the significance of correlation of 0.33 to 0.52 based on the correlation itself. I.e., a correlation of any size can arise in any finite sample by random chance. Perhaps the “ranged from” in the original paper was a 90% confidence interval, in which case, it would indeed be significant.
This is also referenced in a very good book entitled Sway.
That’s really interesting. Makes sense too, we’re so often drawn to things we are familiar with, or fall into patterns of doing the same thing over and over. I guess it all feeds into our next decision.
.-= Michelle @ Find Your Balance´s last blog ..Slice it, Stuff it, Top it, Eat it =-.
I think it’s the wrong conclusion from the data.
Consider the difference between perceived worth and value.
If you only see a product at e.g. $50, then you believe that you have to pay $50 to get it so you believe it is actually worth that.
Whether you will actually pay $50 for it depends on whether it gives you that value.
It’s not till you see it cheaper and consider it that it starts to give you an idea of its value to you rather than its actual perceived worth.
So a decision made after considering it at a lower price makes you better informed of its value.
This is known as the Anchoring Effect.
Here’s a link to the paper that proposed the idea
http://www.hss.caltech.edu/~camerer/Ec101/JudgementUncertainty.pdf
A particular manufacturer had 2 differently priced garbage disposal models on sale at Home Depot. Then they introduced a 3rd model priced even higher than the other 2. What then happened was the sales of the now “middle priced” garbage disposal went way up. Interesting.
Ayn Rand’s philosophy of Objectivism explains in great detail characteristics of the human mind that this research only hints on. (for those interested I recommend “Objectivism: The Philosophy of Ayn Rand” by Lenoard Peikoff)
This is an interesting study indeed, but I just want to point out that a correlation ranging between 0.33 and 0.52 is not extremely significant by any stretch of the imagination. Correlations can maybe be best understood in terms of percentages. What these correlations translate to is 33-52% of the time x predicts y. That is significant, but not that great really. If a sample is large enough it is not difficult to find a significant correlation in just about anything. Effect size is the new “it” in statistics because it takes that into account. I’m not passing any judgments on the validity of this research, just throwing it out there. Alright that’s my two cents.
Fascinating Stephen (same thing I said about the first article), So let’s see. If I say that my book is easily worth $97 and give that figure enough support, does that mean that no one will by it for $27 because it doesn’t match their anchor? LOL
.-= Jonathan – Advanced Life Skills´s last blog ..15 Funny Reasons Not to Take Him Shopping =-.
Jonathan: I think it might mean that, yes. I’m a layman (at best) here, but my thinking goes like this:
If you convince someone it’s worth $97, then they’d probably buy it at $70-$80 thinking it’s a good bargain, even if *you* really think it’s actually worth much less. At $27 however, even if *you* think that’s closer to actual worth, people might start feeling suspicious – not of the original pricing, but the new one – thinking “Since it’s really worth $97, what’s wrong with this copy to make him sell it that cheaply?” or similar.
At that point, I’d think it could go either way – either they’d figure it’s probably worth the (percieved) risk and buy it, hoping for an amazing bargain, or figure that it’s too likely to have something too wrong with it for it to be worth it at even that (seemingly cheap) price.
Yes, Stephen, I would also love to know how we wipe out those anchors?
One more reason to live more consciously and be more present in the moment, this way our subconscious and everything that has been imprinted on it won’t influence us. Not sure if there is any other way to wipe them out.
.-= Lana-DreamFollowers Blog´s last blog ..Relationships Advice – Other People Are Just Mirror Images Of You =-.
Hi Lana. It’s interesting you use “imprint” because that was how the author described it. Thanks for commenting.
I think this is typical. You have to fight with a predetermined emotion that needs to be broken like a bad habit. I think I am describing that right. when you are accustomed to thinking one way and it interferes with contemplating change in a new direction. Yeah, it isn’t so much the fear of change but the established notions that need to be changed.
.-= BunnygotBlog´s last blog ..12 On Blogging: Katie Clemons, “Making This Home” =-.
Well, the anchor establishes a quantitative context for the rest of the experience of the experiment. I’d wager the anchors last about as long as the experiment, and could be altered drastically by drastic changes in the context of the participant’s experience of the [i]during[/i] the experiment.
Did they establish how much $50 was worth to each person? A rich man’s $50 is a poor man’s $10.
It wouldn’t take many interfering variables to pull the statistical significance apart.
Having said that, how much would you pay for a small piece of useful software: $12.00 or $11.99 ?
{I don’t have comluv installed}
Great article Stephen. I think anchoring, in terms of price to be paid for a product is often the average market value of its price. But of course it is also dependent on income class of each individuals.
.-= Karlil´s last blog ..How To Find The Right Hobby And The Benefits =-.
Hi Nik. It seems that based on research, anchoring can be pretty arbitrary. Thanks for stopping by.
Great stuff. I plan to make use of this to plant an anchor before taking my wife shopping. I’m thinking of a low number for that dress.
LAG that was hilarious! Thanks.
Well written article Stephen.
I have yet to read the book but it is on my reading list. Your blog has just pushed it up a few levels so I thank you for that.
.-= Jonny´s last blog ..Quitting Your Job Like James Bond Without Ending Your Career =-.
Stephen have you read either Sway or Nudge?
Similar to Predictably Irrational, maybe not quite as good (Nudge does get a bit too political for my liking) and covers some of the same research, but well worth checking out.
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Hi Dear Stephen, I left a comment here when this post first went up. I think I might have been the first to comment, but it’s not showing here. That is so weird. Bummer
Although you’ve moved on to another post, I’d like to share again what I tried to share the other day.
I found this article interesting because it made me think about when I was younger and went into the rainforest FULL of planted anchors, and I didn’t even know I had them. I wasn’t that conscious at the time. BUT with time living extremely wild, having to be aware of many creatures who could potentially eat, kill, or make me severely ill, and eventually shedding my clothes and going naked, and wandering in torrential rain, eating the most spartan diet, being totally cut off from everything and everyone I’d ever known, going through many high adventures and at times survival situations…my whole life changed. By that I mean, I was stripped of all anchors, social conditioning, pre-programmed reactions, beliefs, and so forth. At one point I started to realize that I was turning “wild”. I was returning to my true nature. To be stripped like that is an unforgettable experience.
In our culture we have in so many ways (maybe almost all ways) lost our keen animal instincts and full on awareness. We’ve fallen asleep at the wheel and more often than not don’t really know why we do much of what we do, or even awaken to the possibility that there may be other extremely different ways of thinking, feeling, choosing, experiencing, living etc.
Since returning to society or my culture many years ago, I am constantly aware of the numbing affects and effects of this culture. I have often felt like everything around me is one giant sleeping pill: TV, grocery stores (junk food), ads yelling at me everywhere I look, computers, stores that greedily scream “buy buy buy”, even porn, schools, religions, houses, roads, standard western medicine (which can rob people of the power to heal themselves and be responsible for their life-style choices), and on and on it goes. To where the entire social structure is an anchor and most think of it as simply “Life”. …”I mean, what else is there?” — type of thinking. When unbeknown to us there are whole worlds out there, ways of being and thinking and living and perceiving Life. Who knows? Even the reality of dying at a certain age….or the concept of Death itself may be an anchor. But that is a topic of another day. I’ve actually started a post about that. I may include it in my Perspectives on Death series. Not sure.
I know this is long and I’m wish it had gone in the other day. This time I will copy it in case it doesn’t go through. This is a very deep and insightful post. One we all really need to take a closer look at and think seriously about, because there is a lot to be learned from it if we really let it sink in. Thank you my good friend. Hugs, Robin
I came to this post and comments late but I detect that no one so far has actually been a saleseman. As a student in the 1970s I sold knives and vacuum cleaners door-to-door. Each company explicitly trained us to set an anchor price. The goal was to get the customer to write down and speak the anchor price. I managed to get about 10 percent of the people to do that. If the customer hesitated, the salesman was to ask the customer to agree that the anchor price was reasonable or represented the expected market price. About 20 percent would do that. Either I was not a very persuasive salesman, or the majority of people I encountered were suspicious of door-to-door salesmen, so most of the time I’d end up speaking and repeating the anchor price myself, as trained. The vacuum cleaner company also had an ultra-expensive model. We did not even tote this one around but had brochures. We were trained to pull out the brochure as a way to overcome hesitation at a certain point in the spiel. Our trainers told us very few customers would buy the top model, but that just showing it as an option would nudge people toward buying the mid-line model. I expect that the salesman culture simply figured all this out over years of trial and error.
Oh, and I don’t recall making any sales to people who would not either write down or speak the anchor price, or agree that the anchor price was the market price. Pulling out the deluxe model brochure never worked for me, but I think that part of the problem was that the company had us hold it in reserve. As a youngster I was just doing the spiel as trained without much understanding. (Another example, both companies taught us how to mirror body language without explaining why other than saying it works.) I think that if I had to be a salesman today I’d be establishing that deluxe model anchor price early in the spiel.