Anchor effect thinking

In your daily life, you buy various things, and of course, your aim is to spend your hard earned money wisely. Unfortunately, when you shop for products, your brain can think in many stupid ways, making you pay more than what the products are actually worth. One such type of stupid thinking, which psychologists call the “anchor effect”, is particularly relevant to shopping and we will discuss it here. Sales people often use it to trick you, so it is worth being aware of it!

So let’s now learn what the anchor effect is. Imagine that your brain has to deal with a set of information such as a bunch of numbers.

According to psychologists, your brain will have the tendency to give undue importance to the first number it sees, which in this case, is 12. Your brain will sort of get “attached” ( i.e. gets “anchored”) to this first number, and from that point onwards, it will compare all the other numbers to only this first number. However this way of assessing numbers is wrong as there is nothing special about the first number your brain sees. To correctly assess the numbers, it should compare all the numbers with each other, rather than just with the first number. This illogical tendency of the brain to get “attached” to the first bit of information it sees or hears is named by psychologists, the “anchor effect”. I will explain its relevance to you soon.

For visitors to this website whose first language may not be English, I would like to explain that an “anchor” is a device that ships use to remain attached to the ocean floor, when they wish to stay in one place. So, in a similar way, the brain’s tendency to “anchor” to the first bit of information it sees, is called the “anchor effect”.

People who sell things know that we are all susceptible to the anchor effect and they use it to trick us into paying more than the true worth of the item we are buying. The following short examples will show you how they do it.

Example 1

Vivek wants to buy a house and arranges with a sales person to see some of the houses that are for sale. The sales person first shows him a house with a price way above Vivek’s budget. The house is really luxurious and even has its own swimming pool. Vivek sadly tells the salesperson that this house is beyond his budget.

The sales person then agrees to show Vivek other houses. The second house that he is shown is half the price of the first house, but is still beyond what Vivek can afford. But because of the anchor effect, Vivek’s brain compares this price with only the price of the first house he saw, and ignores the prices of other houses on the market. This makes Vivek wrongly think that the second house is a bargain and he promptly agrees to buy it. However, in reality, he has overpaid for the house, for if he had taken the trouble to compare the price of the second house with not just the first house, but also with other houses on the market, he would have realised it was not a bargain at all.

In fact, the cunning sales person showed Vivek the first house knowing very well that he could not afford it. This expensive house was shown purely to make use of the anchor effect to trick Vivek into believing that the second house was a bargain.

Example 2

Mary sees a dress on an online shopping site. The price of the dress is a massive 1000 dollars!

As 1000 dollars is way more than what Mary wants to spend for a dress, she thinks of moving onto looking at other dresses in the online shop. But just before she looks away, she notices that the dress has suddenly gone on sale at a reduced price! Instead of 1000 dollars, it is now for sale at a discount price of 500 dollars! Thinking that it is a bargain, she quickly buys the dress.

However, in reality, the dress is only worth 200 dollars, which is much less than what Mary paid for it. What the online shop did was to make use of Mary’s brain’s tendency to get attached to the first bit of information it sees. In this case, her brain got attached to the 1000 dollar price tag which it saw first, and from then on, whatever else it saw was compared only to this 1000 dollar price. When her brain saw the 500 dollar discount price tag, her brain did not think, “Is this dress worth 500 dollars?” Instead, her brain only thought, “How does 500 dollars compare with 1000 dollars?” Of course, when you compare 500 dollars to 1000 dollars, it appears as a bargain. What Mary should have done is to have seen more dresses, and then compared all their prices with each other, instead of only with the first price tag she saw. This would have given her a more realistic view of the average cost of dresses, rather than being influenced only by the first price she saw.

So the next time you are buying something, beware of the anchor effect. Shops often display products that they know are too expensive for most people to buy. They just put them there to trick people into believing that everything else is a bargain. When you see a price, always try and see if the item is worth that price. Resist the temptation to only compare the price with the first price you have seen.