A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions

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anchoring effect

Most important human judgments are made under conditions of uncertainty. We use heuristics, or rules of thumb, to guide us in such instances as we try to determine what belief or action has the highest probability of being the correct one in a given situation. These rules of thumb are often instinctive and irrational. Social psychologists such as Thomas Gilovich, Daniel Kahneman, and Amos Tversky have studied several important heuristics and discovered errors associated with their use. One of these heuristics is the anchoring heuristic. Our judgment regarding the frequency, probability, or value of items is often determined by comparing the item to an anchor point.

For others, however, anchor points are "readily manipulable" (Levine 2003: p. 100). If you are searching for a coat in a clothing store and the label on a coat you like has a price tag with three different prices, the two highest of which are crossed out, you may think you are getting a bargain if you accept the highest price on the tag as an anchor.

Mentalists can exploit anchoring by knowing that when asked to pick a number "people tend to pick one close, or anchored on, any number with which they are initially presented or in the case of a scale one close to the midpoint" (Sutherland: p. 168).

Robert Levine gives an example of how a cable company that was raising its rates used the anchoring effect to make it appear that they were saving people money. They announced that the rumor that rates were going to go up by $10 a month were completely bogus. "You can relax. It's not going to happen. The great news is...the rate for basic cable is only increasing by $2 a month" (Levine 2003: pp. 100-101).

Behavioral economist Dan Ariely (2008: ch. 2) reports on experiments he and colleagues have done that demonstrate the power of suggestion in establishing arbitrary values of goods and services as anchors. Combined with our tendency to try to be consistent, Ariely explains how we are easily manipulated into patterns of  "arbitrary coherence." Once we have an anchor price in our mind, it will shape not only how we view present prices but future prices as well. In one experiment, he has the subjects write down the last two digits of their social security number. He then asked them if they would pay that amount (say $79 or $12) for a bottle of Côtes du Rhône 1998. Not only did the social security number affect the price the subjects were willing to pay, it also affected the price they were willing to pay for a bottle of 1996 Hermitage Jaboulet La Chapelle. The subjects were not wine experts but the lower their social security digits, the lower the price they were willing to pay for the wine. The correlation for both bottles of wine between social security number and price they'd pay for the wines was 0.33. (A value of 0 would mean there was no relationship. A value of 1 would mean the items were perfectly correlated, i.e., as one went up the other would go up to the same degree.) Not only did the arbitrary social security number affect what value they put on the first bottle of wine, it affected the value they put on a completely different bottle of wine. The experiment covered six different items and the results were similar for all items. The implication of arbitrary coherence is that it calls into question one of the basic assumptions of a free market and free trade. If we can be manipulated to value things in arbitrary ways, the alleged benefits of a free market are called into question. If values aren't simply matters of supply and demand evaluated by rational creatures who know what they want and need and how much they are willing to pay for it or charge for it, then it is the manipulators who stand to benefit from free trade. Traditional economics has defended a free market economy on the assumption that human beings are generally rational in their market behavior and choices. More and more, scientists like Ariely are establishing that our market behavior is more irrational than rational.

See also affect bias, availability error, representativeness error, and the hidden persuaders.

further reading

Ariely, Dan. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins.

Gardner, Daniel. 2008. The Science of Fear: Why We Fear the Things We Shouldn't--and Put Ourselves in Greater Danger. Dutton.

Gilovich, Thomas. 1993. How We Know What Isn't So: The Fallibility of Human Reason in Everyday Life. Free Press.

Gilovich, Thomas. Dale Griffin and Daniel Kahneman. 2002. eds. Heuristics and Biases: The Psychology of Intuitive Judgment. Cambridge University Press.

Groopman, Jerome. M.D. 2007. How Doctors Think. Houghton Mifflin. My review of this book is here.

Kahneman, Daniel. Paul Slovic, and Amos Tversky. eds. 1982. Judgment Under Uncertainty: Heuristics and Biases Cambridge University Press.

Kida, Thomas. 2006. Don't Believe Everything You Think: The 6 Basic Mistakes We Make in Thinking. Prometheus.

Levine, Robert. 2003. The Power of Persuasion - How We're Bought and Sold. John Wiley & Sons.

Slovic, Paul. 2000. The Perception of Risk. Earthscan.

Sutherland, Stuart. 1992. rev. 2nd ed. Irrationality. Pinter and Martin.

news

Brainless slime mould makes decisions like humans "A couple arrive at a fancy restaurant and they’re offered the wine list. This establishment only has two bottles on offer, one costing £5 and the other costing £25. The second bottle seems too expensive and the diners select the cheaper one. The next week, they return. Now, there’s a third bottle on the list but it’s a vintage, priced at a staggering £1,000. Suddenly, the £25 bottle doesn’t seem all that expensive, and this time, the diners choose it instead. Businesses use this tactic all the time."

Last updated 28-Dec-2013

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