Latest / Marketing Psychology with Fexingo: Behavioral Triggers, Persuasion, and Consumer Behavior / How the Anchoring Effect Sets Every Price You Pay
Transcript
- Lucas: So, Luna, I want to start with a number. Think of the last two digits of your Social Security number, or the last two digits of your phone number. Luna: Okay, for me that would be... 47. Lucas: Good. Now, would you pay that many dollars — 47 dollars — for a bottle of wine you've never tasted? A mid-tier Côtes du Rhône, let's say. Luna: I mean, 47 bucks? That's a bit steep for a blind buy. But if you'd asked me that question a minute ago, I wouldn't have had an anchor. Now I'm thinking about 47. Lucas: Exactly, and that's the point. That number is now in your head. And if I then showed you the actual price — say it's 30 dollars — you'd think, 'Oh, that's a deal.' But if the price were 60, you'd think, 'Wow, that's expensive.' All based on a completely random anchor. Luna: This is the famous Dan Ariely study, right? The one where he auctioned off items and had students write down the last two digits of their Social Security numbers before bidding. Lucas: That's the one. In 2003, Ariely and his colleagues ran an experiment at MIT. They auctioned off things like a cordless keyboard, a bottle of wine, a box of Belgian chocolates. Before the bidding, they had each student write down the last two digits of their Social Security number — then ask, 'Would you pay this amount for the item?' So a student with digits 89 would say, 'Would I pay 89 dollars for this wine?' And a student with 12 would say, 'Would I pay 12?' Luna: And then they actually bid. And the students with higher Social Security digits consistently bid higher. Lucas: Way higher. For the cordless keyboard, the top-quintile group — digits 80 to 99 — bid an average of 56 dollars. The bottom quintile — digits 1 to 19 — bid an average of 16 dollars. Same keyboard, same auction, same room. The only difference was the random anchor they'd seen moments before. Luna: That's a 40-dollar gap. Just from a number that had nothing to do with the keyboard's value. It's almost embarrassing how suggestible we are. Lucas: And this is the anchoring effect in its purest form. The first number we encounter — even if it's arbitrary — becomes a reference point that all subsequent judgments adjust around. And the adjustment is almost always insufficient. We don't move far enough away from the anchor. Luna: So how do retailers and marketers use this every day? I know the classic example is the original versus sale price. 'Was 500, now 200.' But is that really anchoring? Lucas: Absolutely. That 500-dollar anchor makes 200 feel like a win. But here's the interesting thing: the anchor doesn't even have to be plausible. In one study, researchers asked people if they'd pay 'several thousand dollars' for a certain TV. Nobody would. But when they later asked what they'd actually pay, the group that heard the absurdly high anchor gave a higher price than the control group. The anchor pulled them upward even though they rejected it. Luna: So even if you say 'that's ridiculous,' your brain still uses it as a reference. That's sneaky. Lucas: It is. And it works in negotiation, too. Let's say you're negotiating a salary. If the employer says, 'Our range is 70 to 80 thousand,' that anchors you. Even if you wanted 90, you're now thinking in the 70s. But if you state your number first — 95, say — you become the anchor. The negotiation now revolves around justifying why it should be lower, not why it should be higher. Luna: So the advice is always go first and go high. But it takes guts, especially if you're not sure of your market value. Lucas: It does. But the data is clear. A study in the Journal of Applied Psychology found that candidates who made the first offer in salary negotiations ended up with higher salaries than those who let the employer anchor first. The effect held even when the candidate's initial ask was a stretch. Luna: Let's talk about real estate. That's maybe the biggest anchor game in consumer life. Lucas: Oh, real estate is anchoring central. The listing price is an anchor. And agents know this. A house listed at 500,000 might be worth 480, but the agent lists it high to anchor buyers. Then when the seller comes down to 485, buyers feel like they're getting a deal. Conversely, some agents list low to spark bidding wars — that's a different strategy. But in both cases, the first number the buyer sees is the anchor. Luna: And there's research that shows even appraisers can be anchored. If a home is listed at a certain price, appraisers' valuations tend to cluster around that number, even though they're supposed to be objective. Lucas: Exactly. A classic study by Northcraft and Neale in 1987 had real estate agents appraise a property. They gave all the agents the same information about the house, but they gave different groups different 'listing prices' — essentially anchors. The agents who saw a high listing price gave appraisals 11 percent higher than those who saw a low one. And these were professionals. Luna: So anchoring affects even experts who think they're immune. What about pricing strategies for products? How do companies set anchors deliberately? Lucas: One classic strategy is the 'decoy' or 'asymmetric dominance' effect, which we've covered before. But anchoring is often used in menu design. Restaurants will put a very expensive item at the top of the menu — say, a 120-dollar steak. You probably won't order it, but it makes the 60-dollar ribeye look reasonable. That 120-dollar steak is an anchor. Luna: And you see it in subscription pricing too. A company might show you a 'premium' plan at 50 dollars a month, a 'standard' at 35, and a 'basic' at 20. Most people pick the standard. But if they removed the premium plan, people would pick the basic more often. The premium plan anchors the entire range upward. Lucas: Right. And luxury brands take it even further. They deliberately set very high prices — not necessarily to sell at that price, but to anchor the brand's perceived value. A Rolex doesn't need to sell thousands of 50,000-dollar watches. But having that price point in the lineup makes the 10,000-dollar model seem almost affordable. Luna: I want to ask about the psychological mechanism. Why is anchoring so sticky? Why can't we just ignore the anchor? Lucas: There are two main theories. One is that the anchor triggers selective accessibility — it brings to mind information that's consistent with the anchor. So if you hear 500 dollars for a TV, you start thinking about features of a 500-dollar TV: good picture quality, maybe a known brand. That makes the 400-dollar offer seem like a discount on quality. Luna: So your brain actually primes itself to justify the anchor. Lucas: Exactly. The other theory is insufficient adjustment — you consciously try to move away from the anchor, but you don't adjust enough. It's like when you're trying to park a car and you overshoot because you started from a bad angle. The anchor is your starting point, and you just can't shake it completely. Luna: Can we train ourselves to resist? Or are we stuck with this bias? Lucas: You can reduce it, but you probably can't eliminate it. One tactic is to 'consider the opposite' — before you decide, actively think about reasons why the anchor might be wrong. If you're looking at a house listed at 500,000, ask yourself: What would this house be worth if it were listed at 400,000? That forces you to construct a counter-anchor. Luna: That sounds like work. But useful. Lucas: Another tactic, especially in negotiation, is to write down your own number before you hear the other side's number. Pre-commit to a figure. That way, when they throw out their anchor, you have your own anchor to compare against. It doesn't make you immune, but it helps. Luna: I've also heard that if you focus on your 'walkaway point' — the maximum you're willing to pay — that acts as a kind of shield. Because you're anchored to your own limit instead of their ask. Lucas: That's a great point. And it's related to the idea of setting a reservation price. If you know your absolute maximum before you walk into the dealership, you're less likely to be swayed by a 'limited-time offer' that's still above your number. Luna: And we should mention that anchors don't have to be explicit numbers. Sometimes just a word can anchor. Like if a product is described as 'premium' versus 'economy,' that primes a whole set of expectations. Lucas: Absolutely. Language is an anchor. A 'handcrafted' label anchors higher quality. 'Limited edition' anchors scarcity. 'New and improved' anchors a contrast with the past. All of these are anchors that shape our perception before we even experience the product. Luna: So what's a practical takeaway for someone listening who wants to avoid being anchored into a bad purchase? Lucas: I would say: before you look at any price, ask yourself what you think is fair. Do a quick mental estimate. Then compare. If the actual price is way below your estimate, great. If it's above, ask yourself why. And if it's exactly in line with your estimate, be suspicious — you might have been anchored by a previous exposure. Luna: That's good. And for marketers listening, it's a reminder that the first number you present is incredibly powerful. Use it wisely. Lucas: And ethically, I'd add. There's a line between smart pricing and manipulation. Anchoring works even when people know about it, but that doesn't mean you should exploit it. Luna: Speaking of ethical use, this podcast itself is ad-free because we believe the information should be the only thing anchoring your attention. If these marketing conversations have sparked something you've actually used, you can support the show at buy me a coffee dot com slash fexingo. It's a small way to keep this independent and free of sponsor influence. Lucas: Yeah, that's exactly right. We want the content to stand on its own. No ads, no sponsors shaping the narrative. So if you find value in these episodes, that link is there. And we really appreciate it. Luna: Alright, back to anchoring. One more thing — I read that even in the courtroom, anchors matter. If a plaintiff asks for 1 million dollars in damages, juries award more than if they ask for 100,000. Even when the evidence is the same. Lucas: Yes, that's a well-documented effect. In one study, when plaintiffs demanded 100 dollars, the average award was about 80. When they demanded 1,000, the average award jumped to over 300. And the evidence was identical. The demand itself was the anchor. Luna: So whether it's a car, a house, a salary, or a lawsuit, the first number is king. It's hard to overstate how much influence that initial figure has. Lucas: It really is. And the best defense is awareness and preparation. Know your numbers before you see theirs. That's the simplest, most powerful countermeasure. Luna: Alright, I think I'll start writing down my fair price before I even open a shopping app. Thanks, Lucas. Lucas: Good idea. And thanks, Luna. That's it for this episode on the anchoring effect — a small bias with a huge impact on what we pay and why.