Anchoring Bias
The human brain has the tendency to rely a lot on the first piece of information (the anchor) it sees.
And this anchor can have a serious impact on decisions you, me, and all other humans make every day.
Do you like Italian cars? So here's a question for you. Is the average price of Italian cars more or less than $180,000?
You know that's way too high. But wait, don't answer it yet.
What if my question was: “What is the average price of Italian cars?”
Now, let's see what happens to you if I ask a different question:
“Is the average price of Italian cars more or less than $18,000?”
When I first asked if "the average price of Italian cars is more or less than $180,000?" the first brands that came to your mind were Ferrari, Lamborghini, Maserati.
But when I asked you if the average price is $18,000, the brands that came to your mind were Fiat or Lancia.
So what's my point here?
I just biased your thoughts, all thanks to something psychologists call "anchoring bias".
The human brain has the tendency to rely a lot on the first piece of information (the anchor) it sees. And this anchor can have a serious impact on decisions you, me, and all other humans make every day.
In 1974, psychologists Amos Tversky and Daniel Kahneman demonstrated how this cognitive bias affects decision making.
Tversky and Kahneman asked two groups of high school students to solve a math problem.
The first group had to solve this problem: 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1.
The other group had to solve: 1 x 2 x 3 x 4 x 5 x 6 x 7 x 8.
But here’s the catch. Both groups had only 5 seconds to estimate the correct answer.
In the first group the average answer was 2,250. In the other group the average answer was 512.
These two math problems are similar - the numbers are just reversed. So the correct answer to both problems is obviously the same. 40,320.
But this experiment wasn't really about maths. The point here was that it proved that whatever number people see first affects their perceptions when it's time to make decisions.
Tversky and Kahneman researched this bias in many other situations. And they discovered that the anchoring effect happens in all sorts of situations. In life and in business.
Takeaways for your business:
1. A product or service is never "expensive" or "cheap" by itself.
Because value is a subjective and relative concept, it’s all a matter of perception.
2. Always remember that people love to compare when valuing things. And showing them an anchor price helps them do that, quickly.
The truth is, if you don’t show them an anchor, their brains will look for one anyway.
For example, Carluccio's in London used to include a Vespa for sale on their menu. The Vespa was the anchor that made everything else on the menu look cheaper.
3. Order your prices from highest to lowest.
This way your highest price sets the anchor and makes the other products look cheaper.
