Irrational Decisions – Anchoring and Arbitrary Coherence

by Stephen Mills on October 22, 2009

Anchor

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.

What do you think?  Leave a comment and join the conversation.

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{ 6 trackbacks }

mike d. » I love stuff like this
October 23, 2009 at 3:46 pm
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October 23, 2009 at 11:43 pm
Is America Dead? « Out Of My Mind
October 25, 2009 at 7:51 pm
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