Latest / Behavioral Economics with Fexingo: Decision Making, Bias, and How People Really Spend / The Anchoring Effect Behind Your Rent Negotiation
Transcript
- Lucas: So, Luna, I was reading a classic study from the Journal of Personality and Social Psychology the other day, and it's about anchoring and real estate agents. Luna: Oh, the one where they show agents a house at a deliberately inflated price? Lucas: Exactly. They had experienced real estate agents tour an actual house. Some were told the listing price was, let's say, significantly higher than its true value, others were told it was lower. Luna: And the agents, despite being experts, were swayed by that anchor. Lucas: Completely. Even though they thought the price was too high, their own valuation of the property was pulled toward that listing price. The ones who saw the higher anchor set their estimated value higher, and they even recommended a higher selling price. Luna: So they knew the anchor was off, but it still moved their judgment. That's the anchoring effect in a nutshell. Lucas: Right, and this isn't just about real estate. Anchoring is one of the most robust biases in behavioral economics. It's the idea that when we're making a numerical estimate or a decision involving numbers, we tend to rely too heavily on the first number we see. Luna: And that first number can be completely arbitrary, like a suggested retail price or a friend's guess. Lucas: Or even more arbitrary. In another study, they spun a wheel of fortune that was rigged to stop at either ten or sixty-five. Then they asked people what percentage of United Nations countries are in Africa. People who saw the ten guessed around twenty-five percent, while those who saw sixty-five guessed forty-five percent. Luna: Even though the wheel had nothing to do with the question. That's the power of a random anchor. Lucas: It's frighteningly powerful. And in real life, we're constantly being primed with anchors, especially in negotiations. The classic advice is to make the first offer, because that sets the anchor for the rest of the conversation. Luna: But it's not just about making any first offer. The size of that first number matters too. Lucas: Right. If you're negotiating a salary, asking for ninety thousand when you'd accept eighty might anchor the employer high. But if you ask for a hundred and fifty, they might think you're delusional and walk away. So there's a balance. Luna: And that's where the concept of the 'first offer advantage' gets nuanced. It's not always beneficial to go extreme. Lucas: Exactly. A study from 2025 found that in job negotiations, candidates who made an initial offer that was moderately higher than their target ended up with better outcomes than those who went extreme. The extreme offer often breaks the negotiation. Luna: So you want to anchor high but not so high that it's seen as unreasonable. There's a sweet spot. Lucas: And that sweet spot depends on knowing the anchor's true value. If you don't have a good sense of what the house is really worth, or what the salary range is, you're at the mercy of the other side's anchor. Luna: Which is why research is so important before you negotiate. You have to bring your own data to counter their anchor. Lucas: And I think that's a good place to mention something. Look, we've been doing this show for over a hundred and sixty episodes, and it's listener support that keeps it going, ad-free. Luna: Yeah, it really is. If you've found these deep dives into how our brains work with money helpful, and you want more of them, that support is what makes it possible. Lucas: So if you're in a position to, you can head to buy me a coffee dot com slash fexingo. It's a simple way to keep the show exactly as it is, no ads, no sponsors. Luna: And we appreciate every single one of you who already does. Now, back to anchors. Lucas: So, one really interesting application of anchoring is in retail pricing. That 'suggested retail price' or the 'original price' that gets slashed to a 'sale price'? That's an anchor. Luna: And it's often a completely made-up number. Stores can set that original price to anything, and then the discount looks like a great deal. Lucas: In fact, a 2024 study in the Journal of Consumer Research found that when consumers are shown a high anchor before seeing a sale price, they perceive the product as higher quality, even if the anchor is obviously exaggerated. Luna: So it's not just about the final price, it's about the story the anchor tells about the product. Lucas: Exactly. A pair of headphones at sixty dollars with an original price of a hundred feels like a bargain, but if the original was eighty, it feels less exciting, even if sixty is still a fair price. Luna: And that's why you see 'compare at' prices everywhere. They're anchors designed to make you think you're getting a deal. Lucas: But here's a twist: anchors don't just affect our valuation of products. They can affect our behavior in more subtle ways. For example, a classic study at a supermarket showed that when signs said 'limit twelve per person' on canned soup, people bought about twice as much as when there was no limit. Luna: So the limit itself acted as an anchor for what's a normal quantity to buy. Lucas: Exactly. It signals that twelve is a reasonable amount, so people adjust upward from their usual purchase. It's a powerful nudge. Luna: And that's something marketers know and use all the time. But as consumers, how do we protect ourselves from anchors? Lucas: Well, the first step is simply being aware. When you see a sale price, ask yourself: what's the actual market price for this? Do a quick search before you even step into the store. Luna: And in negotiations, bring your own research. If you have a solid number based on market data, you're less likely to be swayed by their anchor. Lucas: Another tactic is to deliberately consider the opposite. If you're negotiating a salary and they offer sixty, force yourself to think about why the position might be worth eighty. That counter-anchor can help you recalibrate. Luna: And sometimes, just saying 'that number doesn't work for me' can reset the conversation. You don't have to engage with the anchor. Lucas: Right, and that's a strategy called 'ignoring the anchor.' It's hard because anchors are sticky, but with practice you can learn to catch them. Luna: So, what's the one takeaway you'd want listeners to remember from today? Lucas: I think it's this: the first number you see is rarely neutral. Whether it's a listing price, a salary offer, or a suggested retail price, it's shaping your judgment even when you think you're being objective. So take a beat, do your own research, and bring your own anchor to the table. Luna: And remember, that 'original price' was probably made up anyway. Lucas: Ha, exactly. Thanks for joining us on Behavioral Economics with Fexingo. We'll catch you next time.