For example, a reduction from $5 to $4 corresponds to a 20% discount, which is much more attractive than a $1 discount. The only thing their brain registers is: “What a bargain! Don’t miss out!” This also works to entice customers who would otherwise have considered the original anchor price too high.Īs a rule of thumb, you can apply the “ rule of 100” in this context: For products that cost less than $100, the discount should be expressed as a percentage. When customers see a sale price, they can’t quickly calculate how much they are actually saving. To make discounts appear as attractive as possible, always indicate the price difference as a percentage.
And like the anchoring effect, all of these can be used in sales and marketing. There are other types of cognitive bias that influence us too, for example the IKEA effect, the halo effect, the decoy effect, the endowment effect and the bandwagon effect. Later research contradicted this theory, and conflicting models exist to this day, meaning that the question of why exactly we fall prey to the anchoring heuristic is still a mystery. Kahneman and Tversky assumed that it occurs because people do not sufficiently adjust their judgment in relation to the anchor. So, the anchoring effect is a form of cognitive bias that arises from heuristics. Our brains fall back on heuristics when we are tired, distracted, or under stress. As an experienced driver, you can drive to work each day as though you’re on auto-pilot, but if you encounter roadworks on your usual route, you notice immediately. We only engage in conscious, controlled thought when something unexpected quickly grabs our attention. They save us time and effort because they are subconscious processes and our brain handles them quite effortlessly. We all use rules of thumb and mental shortcuts to handle everyday situations. And the same underlying principle still applies today. In the Stone Age, when people saw a wild animal approaching, they had to make a snap decision: danger or no danger? It was a matter of life or death. The anchoring effect arises as the result of a heuristic, that is, a guiding mechanism that our brains use when we are required to make a decision.įrom the point of view of evolution, resorting to heuristics makes perfect sense, because in lots of situations we simply don’t have enough time to access, assimilate, and weigh up all of the information we need to make the best decision. If you ask somebody what they would pay for a caffeine-based drink containing immunity boosting ingredients, they will base their answer on the price of an ordinary coffee, because they have no other way of estimating the price of the unknown product. They “anchor” in the information available, even if it has no logical connection with the decision they are being asked to make. One example can be seen in situations where people have very little information to go on. However, anchoring can also be conscious, in which case the mechanism at work is the adjustment heuristic. The results were rather impressive: the higher the number somebody span, the higher their estimate for the number of countries. They got participants to spin a wheel of fortune and then asked them to estimate what percentage of UN countries were in Africa. Kahneman and Tversky conducted an experiment to demonstrate this. In other words, people absorb information from their environment and then unconsciously use this as a point of reference when making decisions. In the first case, the effect at work is called priming.
Anchoring can be either unconscious or conscious.
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