Handbook on the Psychology of Pricing (9783947897025) by Husemann-kopetzky Markus

Author:Husemann-kopetzky, Markus
Language: eng
Format: epub
Tags: Psychology of Pricing, Priceless, psychological pricing, psychology of selling, psychology of persuasion, Methods of persuasion, why people buy, Brian Tracy, buyology, Cialdini, pricing, pricing strategy, pricing tactic, persuasion, exactly what to say, Hermann Simon, Pricing Man
Publisher: Draft2Digital
Published: 2018-10-04T16:00:00+00:00

Anchoring

Assimilation Anchors

PROBABLY THE MOST CITED study exemplifying the anchoring effect was conducted by Tversky and Kahneman (1974): Participants were asked to estimate the percentage of African countries in the United Nations. In the presence of participants, the conductor spun a fortune wheel with numbers between 0 and 100 and asked the participants to first indicate whether the percentage was above or below the number the fortune wheel delivered. Then subjects were instructed to provide their estimate. When participants saw a number of 10 or 65, they estimated percentages of 25 or 45, respectively.

These results showed that people anchored their estimate on an (arbitrary) number and insufficiently adjusted it from there afterwards (Tversky and Kahneman 1974). This insufficient adjustment is the characteristic of assimilation anchors: the anchor attracts the estimate like a magnet.

Applying this concept to pricing, Ariely, Loewenstein, and Prelec (2003) showed participants in an experiment different common products (cordless keyboard, average wine, Belgian chocolates etc.) that they could actually buy. At first, subjects should decide whether they were willing to pay an amount higher or lower than the last two digits of their social security number. Then they stated their maximum willingness to pay for each product. When the researchers compared responses from those students with a social security number in the top 20% to those in the bottom 20% they found the willingness to pay was two times higher for students with a high social security number confirming a strong anchoring effect also in the domain of prices.

In summary, providing a random number influences people’s judgment regardless of whether subjects are told this would happen, whether they are paid for accurate estimates or if the anchor is completely off (e.g. “Is the average temperature in San Francisco higher or lower than 558 degrees Fahrenheit (292 degrees Celsius)? What is the average temperature of San Francisco?”) (Quattrone et al. 1984; Tversky and Kahneman 1974; Wilson et al. 1996). Given the pervasiveness of the anchoring effect and its long history in various research disciplines, Ariely, Loewenstein, and Prelec (2003, p. 75) call it “an old trick from the experimental psychologists’ arsenal.”

In the following, we look into how research applied the anchoring effect to pricing practice.

Expose consumers to any high number before they start evaluating prices.

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