Your teen is in desperate need of a new wardrobe. You set a day for a shopping trip. Lucky you. It’s not long until your daughter finds the perfect pair of jeans. Great, you tell her — until you check the price tag: $149.95.
“Sorry honey, no deal. Too expensive. I’m sure you can find another pair of nice jeans that’s less expensive.”
“No, I love this one; I have to have it.” Her voice has become a screech when a saleswoman approaches. “Do you know that these jeans are on sale, this week only, marked down 25 percent?”
“Mom, that’s perfect. If we get four pairs of jeans, that’s like getting one free.”
Daughter’s delighted. Mom feels conned. What’s happening here? Ah, the anchoring effect in action.
Is it just that daughter’s a spoiled brat and mom’s a tightwad? Sorry, it’s not that simple. To understand what’s going on here, you need to appreciate the power of the “anchoring effect.”
How do you know how much you should pay for something? How do you know what’s a deal and what’s a ripoff? You need some sort of reference point. A cue to help you evaluate. For your daughter, the reference point is $149.95. The discount makes it a real bargain, so why is Mom still giving me a hard time?
Your reference point, however, is quite different. You remember, when you were a kid, a great pair of jeans cost no more than $50. Sure, prices have gone up but three times the price? Crazy! No, in your mind, these jeans are way too expensive.
The anchoring effect is a cognitive bias that influences you to rely too heavily on the first piece of information you receive. And it’s not just a factor between the generations. Stores use it all the time to convince you to buy.
- MSRP for a new Lexus is $39,465. You negotiated a price for $35,250. You feel terrific. You believe you got a great deal. The anchoring effect has worked!
- You paid $80,000 less for your home than the initial price offering. Were you a great negotiator or is this one more example of the anchoring effect?
J. C. Penney thought it was a smart move to eliminate coupons and instead create “everyday low pricing.” Too bad they weren’t aware of the power of the anchoring effect. When sales slid bigtime, they got the message. They’ve now reversed their policy and customers are returning. We need that anchor number to inform us that we’re getting a bargain.
The anchoring effect influences us in many areas, not just money.
- What’s an acceptable curfew for a 16-year-old? If you had to be home by 11 p.m. on a weekend evening, a 1 a.m. curfew won’t feel right, even if “all the kids are doing it.”
- If your same-sex parent died at age 52, living to 82 will feel like a real bonus to you. But if your parent died at 82 and you’re diagnosed with a fatal disease at 52, boy, will you feel let down.
- If a husband is doing ten times more housework than his dad ever did, he may feel entitled to a “best husband of the year” award from his wife. Imagine his surprise then, when his wife berates him for not doing enough. What’s going on here? Blame it on the anchoring effect. His anchor is what his dad used to do. Her anchor is the amount of housework she does. Fair is fair, she says. After all, I’m working full-time too.
One last example. If you’re “in therapy,” finding it incredibly helpful in alleviating your anxiety and enhancing your self-confidence, you may still decide to keep your therapy a secret from your parents. Why? Because they are anchored in the belief that only “crazy” people seek therapy. And who wants to be thought of as “crazy?”
Now that you appreciate the power of the anchoring effect, be smart. Take into account not only your initial thought, but other relevant ones that will expand and enhance your decision-making.