Anchor effect

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

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

According to psychologists, your mind will have the tendency to mistakenly give undue importance to the first number it sees, which in this case, is 12. Your mind 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 mind sees. To correctly assess the numbers, it should compare all the numbers with each other, rather than just with the first number. Psychologists have named this mistake, where one’s mind gets “attached” to the first bit of information it sees or hears, as the “anchor effect” mistake. 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, similarly, the mind’s tendency to “anchor” to the first bit of information it sees, is called the “anchor effect” mistake.

People who sell things know that our minds are susceptible to making the anchor effect mistake 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 salesperson to see some of the houses that are for sale. The salesperson 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 salesperson 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. At this point, Vivek’s mind makes the anchor effect mistake and compares the price of the second house only with 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 salesperson showed Vivek the first house knowing very well that he could not afford it. This expensive house was shown purely to make Vivek’s mind get attached to this price, which then subsequently made him wrongly believe that the second house was a bargain.

Example 2

Mary is looking to buy a dress for an important event and she visits an online shop to buy one. As she visits the site, she immediately sees a nice dress, but it has a price of 1000 dollars, which is beyond her budget!

As 1000 dollars is way more than what Mary wants to spend on a dress, she thinks of moving on to looking at other dresses in the online shop. But just before she looks away, she notices that the same 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 mind’s tendency to get attached to the first bit of information it sees. In this case, her mind got attached to the 1000 dollar price tag which she saw first, and from then on, whatever else it saw was compared only to this 1000 dollar price. When her mind saw the 500 dollar discount price tag, her mind did not think, “Is this dress worth 500 dollars?” Instead, her mind only thought, “How does 500 dollars compare with 1000 dollars?” Of course, when you compare 500 dollars to 1000 dollars, it appears like 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, try and remember how our minds have the susceptibility to make the anchor effect mistake. Shops often display a few 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.